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Mortgage fraud and recessions go hand in hand, police and experts say

Pedestrians walk past a sea of fluffy dandelions in Woodbine Park in Toronto, Ont. May 27, 2008.

Kevin Van Paassen

It's tough to tackle the problem of mortgage fraud because no one knows exactly how widespread the problem is, police and industry officials say.

There are no solid Canadian statistics on the impact of mortgage fraud since losses are shared among banks, credit unions, other mortgage lenders, and lawyers' indemnity funds, according to industry experts. But police who investigate the scams say they have one thing in common: They are cyclical.

"The scope and the size of it is really unknown because until the housing market starts slowing down, nobody's affected," said RCMP Superintendent Eric Mattson, whose office is investigating the scheme Bank of Montreal is now alleging.

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"Once it starts slowing down, these things start popping up like dandelions in the spring because they become more noticeable."

The issue of mortgage fraud is under the spotlight after the Bank of Montreal (BMO) filed a civil lawsuit, alleging a massive fraud worth $69.5-million, which cost the bank $30-million. The bank also provided thousands of pages of documents to police in Alberta to determine if criminal charges are warranted.

Federal Conservative MP Devinder Shory is among dozens of Albertans, including lawyers, mortgage brokers and bank employees, who are named in the lawsuit.

Mr. Shory was not an elected Member of Parliament, but was working as a lawyer in Calgary at the time the bank alleges negligence in his handling of some mortgage deals. He said that he has done nothing wrong.

The lawsuit alleges that 14 interconnected groups bought homes, sold them at artificially high prices to fake or "straw buyers," who in turn sought mortgages for thousands of dollars more than the property's market value. Often the mortgages went into default and the bank was left with a property that wasn't worth as much as it thought.

Supt. Mattson said allegations of this size involving one institution are unusual, but police forces across the country are continually probing mortgage fraud. Some of the cases involve individuals, he added, but many are organized to further criminal activity - to house marijuana grow operations or launder money.

Sidney Troister, a Toronto-based real estate lawyer with Torkin Manes, said cracking down on mortgage fraudsters has proven difficult.

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"Most of the crooks are invisible in that they have used fake identification so that they are untraceable. There have been some cases where the banks have chased, but I don't know the extent of the recovery. My guess is that a lot of the money goes offshore really fast," he said.

Jim Murphy, CEO of the Canadian Association of Accredited Mortgage Professionals, said the general lack of data makes it difficult to persuade government and law enforcement to put more resources into combating the crime.

Lenders suggest the problem is not one of their top priorities. One banker, who did not want to be identified, said that issues such as mortgage defaults and grow-ops are larger problems for their bank.

The Canadian Bankers Association collected data in 2004 that found that the six largest banks in Canada lost a total of 0.007 per cent, or $24-million, on their total mortgages of $349-billion. Mortgage fraud would have been a small proportion of those losses.

BMO filed the lawsuit to recoup its alleged losses and send a message, according to spokesman Ralph Marranca. Then the bank brought its file to police.

"It's voluminous to say the least," said Supt. Mattson.

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"We certainly don't have unlimited resources, but we prioritize and we decide which is the one we're going to work on. This is no different than any number of things we're going to work on."

Police hope to know how they will proceed in a few weeks.

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About the Author
Dawn Walton

Dawn Walton has been based in Calgary for The Globe and Mail since 2000. Before leaving Toronto to head West, she won a National Newspaper Award and was twice nominated for the Michener Award for her work with the Report on Business. More

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