Fraud can turn dream home purchases into disaster
By ERIC SHACKLETON The Canadian Press
Sun. Oct 19 - 4:46 AM
One of Halifax’s large, older homes on Inglis Street is shown in this file photograph. (Ted Pritchard / Herald)
TORONTO — The purchase of a dream home is probably the greatest investment in many people’s lives, but beware — even with such a major purchase, fraud could be lurking just around the corner, say experts in the real estate industry.
This joy killer comes in many forms — lawyer negligence, title defects, title liens such as unpaid utility bills, property encroachments, title fraud such as forged documents and land survey errors.
"Nobody is protected from fraud," says Ray Leclair, vice-president of TitlePLUS, a division of LawPRO, the liability insurer for lawyers.
"Unfortunately, fraud is on the increase," not just in urban areas but even in small communities, he said in a recent interview.
"It’s like a lottery. There’s very little chance of it happening to you. But if it does happen, it has a huge impact."
To help protect themselves, prospective homeowners should make sure they have title insurance and also get their own credit report.
People can gain a lot of "peace of mind" for as little as a premium of $200 for title insurance, said Leclair.
A credit report can be obtained from a credit reporting agency for free, said Gary Siegel, regional manager in Calgary for Invis one of Canada’s largest mortgage brokerages.
For those who also want to know their score — a breakdown of the factors influencing their credit report — agencies charge around $20, not much to pay for some security, he said.
"With the amount of identity theft that we’re seeing these days, it’s probably a good idea to get your own credit report once a year," he said.
TitlePLUS’s title insurance policies cost between $200 and $300 a year depending on the value of a home.
The premium for a single family home valued at between $200,000 and $500,000 in Toronto is $260 plus taxes. For a condominium of equivalent value, the premium is $195 plus taxes.
"The cost may be reduced because generally title insurers will exempt some search requirements, a saving to the client who must pay for the searches," said Leclair.
Title insurance covers unknown title defects that prevent clear ownership; liens such as the previous owner’s unpaid debts from utilities, mortgages, property taxes or condominium charges; encroachments such as a neighbour’s fence being on the property; title fraud including forged documents; errors in surveys and public records.
One of the areas to watch out for fraud is the home renovation business, a spot where title insurance might come in handy.
Leclair cited a recent case where a homeowner in Toronto, who set out to do some renovations, discovered that an addition to the home was not properly done, and not under permit.
After an investigation,TitlePLUS is "now forecasting basically spending $400,000 to replace the whole addition," said Leclair.
"There’s been a big kick in the last few years of renovating your home," he said.
This "creates a lot of situations where people think they’re getting a renovated home which looks very nice, but which may in fact be camouflaging a lot of problems" - renovations done without permits, without proper inspections and not up to code, said Leclair.
"This is one of the areas where title insurance would be a huge benefit," he said.
Another area where fraudsters like to hang out is the mortgage business.
"All financial services in Canada these days seem to be subject to fraud," said Siegel.
One of the most common schemes, he said, "is where someone says to you, I’ll give you $5,000. You just need to apply for this mortgage as though you’re going to buy the house and live in it."
"Don’t worry about it we’ll just take over your mortgage and we’ll look after that."
That is an illegal activity, said Siegel. But "people don’t necessarily know that."
While the actual number of cases of real estate fraud is low — about 10 per year out of about half a million house transactions — it is on the rise, especially in what has been until recently a hot housing market.
It is costing financial institutions, mortgage lenders, and homeowners hundreds of millions of dollars, figures show.
"Fraud is being picked up by some organized crime organizations that are seeing great avenues," said Leclair, a lawyer in the real estate market for over 20 years.
People who commit fraud are also more sophisticated these days, he said. They know that identification is required, so they are showing up with falsified identification.
To protest themselves, some lawyers are getting drivers’ licence readers, said Leclair. One lawyer nixed a case of fraud in Toronto this summer.
"His staff swiped the licence permit through and the information that came back from the (Transport) ministry was not the same as that on the card."
While you might think that fraudulent behaviour is only confined to major urban areas such as Toronto, Montreal, Calgary, Vancouver or Halifax, it is also being reported in rural areas, said Leclair.
He recalled a recent incident in a small community about a four-hour drive from Saskatoon, where a lawyer discovered fraudulent behaviour in the sale of a home in the $100,000 range — "a very average property in the middle of nowhere."
The lawyer "smelled that there was something wrong with this transaction and as she tried to get more information, she discovered that this was a case of fraud."
Some tips to help avoid fraud:
•Get a real estate lawyer upfront, who can fill you in on all the parties involved in the transaction and how the game is played.
•Do due diligence such as searching the title, going over land surveys. All transactions need a paper trail.
•Do not give out personal information on the phone, through the mail or over the Internet, unless you have initiated the contact or know with whom you’re dealing.
•If it sounds too good to be true, it probably is. Before you reveal any personal information, find out how it will be used and if it will be shared.
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