Real Estate Developers Found Guilty in Fraud Scheme

It is always sad to hear news concerning colleagues in the real estate and financial industry being active participants or perpetrators in fraud schemes that contribute to negative impacts on the industry as a whole. In mortgage transactions especially, there are often many parties to the transaction:

·        Real estate agents, brokers and/or developers

• Mortgage agents and brokers
• Appraisers
• Property inspectors and more…

These are all professionals apart from you, the lender, who participate throughout the process – and bad conduct on the part of one could result in a massive financial loss to all. Part of the issue is education because sometimes professionals make adjustments to deals to make them more favourable – not because they are intending to commit fraud but because they are trying to sell you on their deal and they may see filling small shortfalls as innocent or in the grey.

Then, there are instances of blatant fraud schemes that create concern for all. Take, for example, this recent article from Mortgage Broker News which discusses the recent conviction of two real estate developers whose property fraud scheme saw investors lose an average of $50,000 to $100,000 each: http://www.mortgagebrokernews.ca/news/real-estate-developers-found-guilty-in-fraud-scheme-188687.aspx.

This scheme appears to have been fraud by title. A recent Vancouver Sun article indicated that these real estate developers promised security on loans by investors when it turned out that they never owned the property they pledged as security to begin with.

In total, millions of dollars were stolen and the real estate developers were ordered to pay hundreds of thousands of dollars in fines in addition to repaying the fraudulent money owed.

Fines are great, but they don’t really satisfy when these individuals have nothing. You can’t enforce on nothing so even if someone commits fraud against you and you receive an award from the court or government it doesn’t mean that you will ever see that lost money. Many instances of mortgage and title fraud are not even thoroughly investigated by police even if it is fraud involving money and property.

The best way to prevent fraud is to identify it before you fund a deal. In the above mentioned instance, preventing said fraud could have been as simple as investors or the brokers who represented them taking the 5 minute step of verifying who was on title to the property.

Shoulda, woulda, coulda, right? When these things happen the only thing the industry can do is learn from them and improve.

For more about the tools that make identifying fraud that much easier, please call Purview For Lenders today at 1.855.787.8439.