Mortgage fraud should be punished severely, industry group says

May 6, 2010

Mortgage fraud should be punished severely, industry group says

By Dawn Walton, Steve Ladurantaye and Tara Perkins
From Friday’s Globe and Mail

Ottawa urged to toughen penalties for type of activity alleged in BMO suit involving Tory MP

The kind of mortgage fraud alleged by the Bank of Montreal is a unique type of crime that should be punishable by serious jail time, according to an industry group.

The bank alleges that dozens of people in Alberta, including lawyers, mortgage brokers and its own employees, were part of a scam that involved $69.5-million in mortgages and cost the bank about $30-million. One of the lawyers accused of negligence is Devinder Shory, now a Conservative MP.

“[Mortgage fraud] doesn’t happen every day, but when it does happen there are large consequences,” said Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals, which has 12,000 members.

Mr. Murphy said his organization approached the federal Department of Justice unsuccessfully last year to ask that mortgage fraud be declared its own offence in the Criminal Code.

“We suggested the penalties should be tougher for mortgage fraud, that time in prison should be doubled. People should absolutely go to jail,” he said.

A mortgage is often the largest financial transaction people will make in life, leaving them extremely vulnerable if fraudsters take advantage of them, he said. Any scheme that undermines the banks or other lenders could also erode confidence in home ownership.

Anyone charged with fraud over $5,000 in Canada faces a maximum 10 years in prison. There is no minimum penalty. A bill was reintroduced in the House of Commons this week, however, that would impose a mandatory two-year jail term on anyone who defrauds victims of more than $1-million.

In the BMO lawsuit filed recently with the Court of Queen’s Bench in Calgary, the bank outlines a web of transactions and 14 groups who allegedly bought homes and flipped them at pumped-up prices to so-called straw buyers, who sought mortgages for thousands of dollars more than the properties’ market value. Once the loan was received, the buyer would default on the mortgage and the bank would be left with a property to resell that was worth less than expected.

BMO spokesman Ralph Marranca said the bank filed the suit to recover its money and to “send a strong message” to the alleged fraudsters.

Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia and Canadian Imperial Bank of Commerce said they are reviewing their books in light of the accusations.

The alleged fraud took place almost four years ago, during the height of Alberta’s housing boom, and while backbench Conservative MP Devinder Shory, who was first elected to represent Calgary Northeast in 2008, was working as a lawyer.


Devinder Shory, 2008

He is one of 18 Calgary-area lawyers who have been accused of negligence by BMO for allegedly failing to alert the bank about improper documentation and price discrepancies.

The RCMP are looking into the case.

Lawyers have two main responsibilities when dealing with real-estate transactions, said Kevin Klayman, a litigation lawyer with Gasee, Cohen and Youngman in Toronto: They must prove the buyers are who they say they are, and they must report suspicious activity to everyone involved.

“The problem is that in many cases there isn’t any one person who is getting all of the information,” Mr. Klayman said, adding that lawyers are just one party in transactions that could include dozens of other professionals, such as property appraisers and real-estate agents.

The cases linked to Mr. Shory involve four Alberta properties, which the bank says cost it $297,778. BMO does not accuse Mr. Shory of fraud, only of negligence.

Mr. Shory said he hasn’t even been served with the statement of claim. “I have done nothing wrong,” he said in a statement.

Prime Minister Stephen Harper was cautious when asked about the MP’s involvement.

“This is a civil action. It’s not a criminal matter,” he told reporters. “It’s a private matter. Its origin is before he became a member of Parliament and it’s before the court, so I’m not going to comment.”

With a report from Bill Curry in Ottawa

Posted via web from Toronto Real Estate News, Blog

About Tariq Sultan
Dear Readers, I am a dedicated Toronto, Ontario based real estate professional who has been successfully meeting and exceeding the needs of his clients for past several years. I am actively involved in the insurance, financing, and mortgage industry. Real estate is not only my career – it is my passion. I strive to continuously provide my clients with exceptional service to ensure they are fully satisfied when it comes to their real estate needs. For any real estate related inquires contact me today, I will be happy to assist you. Best wishes, Tariq Sultan

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