The shift to virtual transactions during the pandemic contributed to a rise in cases of real estate fraud in the Toronto area in which imposters linked to organized crime have fraudulently taken out mortgages and sold homes without the homeowners’ knowledge, experts say.
“When the pandemic hit, we saw a huge increase in mortgage fraud, partly because of COVID-19 and the virtual signings,” said Brian King, chief executive officer of King International Advisory Group, who has been investigating these kinds of crimes.
At first, Mr. King said, fraudsters were targeting homes that had seen significant increases in value. The criminals, impersonating the owners, would borrow against the property using a private lender, pocket the money and disappear.
More recently, the same criminal groups have taken on a more complex but higher-payoff scheme in which imposters fraudulently sell homes that the legitimate owners have put up for rent, according to Mr. King.
Once a fraudster gains access to a home by taking on a lease, a different set of imposters pretending to be the homeowners puts the property up for sale. In one recent case, for example, criminals were able to sell a Toronto condo while the owner was in China, and sell it for $970,000.
While soaring property prices attracted the crime groups to real estate, the rapid transition to remote home viewings and signings have facilitated the fraud, according to experts who say the industry needs more sophisticated approaches to verifying identity.
Interactions between clients and real estate professionals tend to be shorter when they happen online, reducing the likelihood of questions that will trip up fraudsters and raise red flags, Mr. King said. And there is no opportunity to physically handle identification documents, which may help spot fakes, he added.
To be sure, mortgage and home-selling fraud existed before virtual meetings and e-signatures, Toronto civil litigation lawyer Morris Cooper said. He had a front-row seat to a previous cycle of similar scams in the early 2000s when he won a landmark case on mortgage fraud in Ontario.
But, he added, the risk of fraud “really escalated” when real estate transactions moved online, especially considering that technology has also significantly boosted the quality of fake identifications available to imposters, he said.
When not meeting a client in person, federal anti-money laundering guidelines suggest that real estate agents and brokers use technology to authenticate scans of government-issued photo identification, in addition to asking the person to show their ID on a video call. The Law Society of Ontario has issued similar guidance for real estate lawyers, including pointing to a list of software products meant to establish digital identities.
Daniela DeTommaso, president of title insurer FCT, said her company has long been leveraging third-party tools to help verify identity and detect fraud. Title insurance protects homeowners from risks that include fraudsters impersonating them to sell or remortgage their properties.
Criminals are using advanced technologies to create fake IDs, Ms. DeTommaso said via e-mail. But identity-verification software helps to spot even very sophisticated fakes, she added. It might, for example, reveal whether a picture was photoshopped onto a document or whether the watermarks aren’t properly positioned.
“It’s not enough just to look at documentation unless you’re trained, unless you’re taking your time,” Ms. DeTommaso said in an interview.
But using identity-verification software is not mandatory for real estate agents, brokers and lawyers. Both the federal and the law society guidelines lay out alternative options for checking identity, such as relying on two sources to verify a name, address and date of birth.
Ms. DeTommaso called for an industrywide discussion about creating greater collaboration on fraud detection and making technology more widely available to professionals interacting with real estate clients.
“In an ideal world it would be great that when people don’t know the client that they’re dealing with, they will automatically be putting them through these tech-based verification tools,” she said.
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