By Jean Sorensen
While the Bank of Montreal (BMO) claim of mortgage fraud losses of $30 million in Alberta has yet to be proven, Canada’s real estate industry is distancing itself from the actions of individuals and companies involved. The RCMP in Calgary has launched a criminal investigation into the matter.
The BMO statement of claim is a civil action against more than 100 Alberta individuals and companies, including real estate firms, lawyers and mortgage brokers. Filed in the Court of the Queen’s Bench of Alberta in April, the 134-page statement of claim alleges that groups of individuals worked a highly complex real estate and mortgage scheme that is similar to “pump and dump” schemes on stock markets, where the price of an company is inflated and then shares are dumped. BMO alleges that 14 “groups” of individuals either bought or optioned houses at fair market value, then arranged for “straw buyers” to purchase them at higher prices through a BMO mortgage. The straw buyer, usually an immigrant, was paid $3,000 to $8,000 for securing a mortgage, made possible through false employment and asset records. Lawyers were used to disperse the funds, paying off the original owner of the title while the “group” individual would take the profits – up to $60,000 – created by inflating the home’s price. The straw buyer would then default on the mortgage, leaving BMO with a property below market value. The majority of the BMO losses occurred in the third quarter of 2007. None of the allegations have been proven in court.
Those named have up to a year to respond to the statement. In addition, BMO has turned over a vast file of information, estimated at 35,000 documents, to the Calgary RCMP. Some funds from the transactions have allegedly gone offshore to Lebanon, India, Pakistan, Saudi Arabia and Dubai.
BMO issued a statement that says: “When we do discover something like this, we take appropriate action. No customers have been directly impacted. We constantly review our processes and this experience has provided some learning that we have applied to further enhance our due diligence.”
Jim Murphy, CEO of CAAMP, a Canadian trade organization representing mortgage brokers, has been actively petitioning the federal government for stiffer penalties for mortgage fraud, a crime that the Canadian Intelligence Services has estimated costs hundreds of millions a year. Murphy told the Globe & Mail: “We have suggested the penalties should be tougher for mortgage fraud, that time in prison should be doubled. People should absolutely go to jail.”
The Real Estate Council of Alberta (RECA) issued a statement to say: “RECA supports BMO’s legal action and the initiation of a criminal investigation. Where it can be established criminal activity has occurred, RECA encourages law enforcement agencies to pursue criminal charges against perpetrators of mortgage fraud.”
RECA says it does not regulate criminal matters but “we will investigate the involvement of industry members named in the law suit as it relates to the possible contravention of our own legislation – The Real Estate Act of Alberta.”
It says, “In light of the scale of this problem” and in the interest of protecting consumers, it “encourages all levels of government to provide additional funding to police agencies to facilitate effective mortgage fraud investigation” and encouraged financial institutes to institute real estate appraisals conducted by qualified, licensed appraisers as part of the transaction.
The publicity prompted other financial institutions to probe transactions and brought mortgage fraud to the fore. On May 13, RCMP announced charges of fraud, forgery and uttering forged documents against Robert Manuel Moniz, 37, of Montreal in a scheme similar to the alleged BMO Alberta fraud. Police found approximately 100 suspicious transactions, with charges stemming from 18 of them estimated at $5 million. Approximately 80 more are being investigated. The alleged offences occurred from March 1, 2007 to July 12, 2008.
RCMP in Calgary announced on May 13 that they were pursuing a criminal investigation into the alleged BMO frauds. Sgt. Patrick Webb had earlier denied reports that RCMP abandoned the pursuit of criminal charges, which stemmed from an erroneous CBC report. He said RCMP commercial crime investigators had spent weeks going through thousands of documents delivered by BMO in late April relating to 200 mortgages.
“Once the assessment phase is over then we determine if there is reason for a criminal investigation and open a file,” he says, adding that the standard of proof required for a criminal investigation is higher than in a civil matter.
He said the RCMP is not always able to use information gathered through civil investigative processes and would have to gather its own evidence. Just as the BMO accountants spent years investigating the fraud, Webb said it could take years to bring a criminal case to court. He said once a criminal investigation has started, the RCMP would not comment further on the case.
Individuals and companies named in the BMO civil suit may not necessarily face criminal charges once RCMP have finished investigating, Webb said at a May 13 press conference.
In the meantime, Calgary’s media is carrying reports of individuals named in the suit who have had assets frozen by the courts. Others caught in the case have lost assets and had to declare bankruptcy, because they didn’t realize that as a straw buyer, they were still financially responsible for the loan. Lawyers named in the statement of claim are not suspected of fraud, but BMO is charging negligence because these lawyers had a duty to the bank and should have notified it of the way funds were dispersed.
The complete statement of claim can be viewed at this Ernst & Young website link: http://documentcentre.eycan.com/Pages/Main.aspx?SID=151 under Court Orders.
