LEGALLY SPEAKING

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In a case where a seller refused to accept a deposit cheque, a Supreme Court judge gave an answer to a problem we didn’t know we had in the Contract of Purchase and Sale (CPS).

The seller had agreed to sell his property for $975,000, but wanted the buyer to pay the deposit of $20,000 directly to him. The second paragraph of the CPS, the deposit section, was altered by the handwritten addition: “Upon all subject removals $20,000 will be paid to (seller) and become non-refundable.”

Immediately following this sentence, the printed portion of the second paragraph reads as follows: “All monies paid pursuant to this section (Deposit) will be delivered in trust to (brokerage) and held in trust in accordance with the provisions of the Real Estate Act.” This sentence wasn’t deleted, but should’ve been because of the obvious conflict between it and the previous sentence.

The conditions were removed on the last day available to the buyer, who delivered the deposit late to the listing agent in the evening. This is where the contract went sideways—two deposit cheques were issued by business partners of the buyer, who were neither parties to the contract nor known to the seller. The seller refused to accept a replacement cheque from the buyer the following day. He asserted that the tender of payment pursuant to paragraph 10 was defective because time was of the essence, and delivery of the buyer’s cheque was too late. As per paragraph 10 of the CPS, “Tender or payment of monies by the Buyer to the Seller will be by certified cheque, bank draft, cash or Lawyer’s/Notary’s trust cheque.”

When the buyer sued for specific performance, the seller contended the cheques weren’t certified. The buyer’s argument was that paragraph 10 only applied to the tender of monies payable on completion, an argument supported by evidence that this was the custom in real estate transactions. However, the judge didn’t agree that paragraph 10 should be interpreted as if “monies” and “the balance of the purchase price” meant the same.

The seller’s defence that he should’ve received the buyer’s certified deposit cheque succeeded. Because of this decision, the judge didn’t deal with the question of whether the use of third-party cheques breached paragraph 10.

Legally Speaking is published monthly by email and bimonthly in print by the British Columbia Real Estate Association, and funded in part by The Real Estate Foundation of British Columbia. Real estate boards, real estate associations and licensed REALTORS® may reprint this content, provided that credit is given to BCREA by including the following statement: “Copyright British Columbia Real Estate Association. Reprinted with permission.” BCREA makes no guarantees as to the accuracy or completeness of this information.

Copyright © British Columbia Real Estate Association 600 – 2695 Granville Street Vancouver, BC V6H 3H4 Phone 604.683.7702 Fax 604.683.8601 http://www.bcrea.bc.ca/ [email protected]

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SCAMS: Crime, including identity theft, costs Canadians as much as $1.5 billion a year

Wendy McLellan
Province

After 32 years at B.C.’s Land Titles office, Terry Dinnell now helps property owners monitor their land-title activity. Photograph by : Arlen Redekop, The Province

Runaway housing prices and a highly competitive mortgage industry are contributing to a growing problem with mortgage fraud across the country, experts say.

But it’s a complex issue — and one lenders don’t really want to talk about.

“Mortgage fraud is a problem, and I don’t think anybody can deny it,” said Ken Fraser, executive director of investigations for B.C.’s Financial Institutions Commission, which investigates fraud complaints involving mortgage brokers and real-estate agents.

“A lot of figures have been bandied back and forth over the years about the degree of it, but I don’t think anybody has a figure on it. It is definitely escalating.”

Mortgage fraud is any act that convinces a lender to grant a mortgage that would have been rejected if the truth were known. For instance, providing a letter of employment listing an inflated salary, or a note from a relative confirming a gift toward the down payment on a purchase when the money is really a loan.

This is known as “shelter fraud.” It happens when borrowers are trying to buy a home for which they don’t qualify.

In a hot real-estate market, these frauds are rarely detected and don’t result in a loss to lenders because the mortgages are repaid.

It’s “fraud for profit” that is a growing concern for lenders — and in some cases, innocent property owners are the victims.

In these instances, unscrupulous mortgage brokers, bankers, real-estate agents, lawyers or appraisers may use false appraisals to increase the value of a property.

They are able to sell it a few times through fake documents and get a mortgage for a far higher amount than the real value of the property, leaving the ultimate purchaser to pay the bills.

Or false documents or identities may be used to mortgage homes for marijuana grow-ops or crystal meth labs.

Criminals also can use identity theft to pose as the owner of a property at the provincial land-title office. They then are able take out a mortgage on the home or sell it to an innocent purchaser and make off with the proceeds.

Earlier this month, a Surrey woman pleaded guilty to mortgage fraud after posing as the owner of a vacant lot and taking out a $170,000 mortgage on the property. The mortgage was arranged through a mortgage broker but another broker figured out the scam and alerted police.

The fraudster was ordered to repay the Royal Bank for the mortgage as well as $2,500 to cover the costs of the elderly Vancouver woman who owned the land and had to fight to clear her title. Two other suspects are still before the courts.

“The problem with mortgage fraud is you’re dealing with identity theft,” said Barry Elliott, Ontario-based creator and coordinator of Phone-busters, a national police-sponsored call centre that tracks fraud.

“You can be victimized with a mortgage on your property and not be aware of it, or have property purchased in your name and not even know about it.”

Home computers can forge documents, and transactions are done by phone or fax, giving fraudsters more opportunities, Elliott said.

And financial institutions no longer send staff to physically check the property before completing mortgage documents.

“Nobody meets people anymore — everything is done electronically,” he said. “Institutions are fighting for mortgages — there is huge competition for business.”

Estimates of the extent of mortgage fraud in Canada range from $300 million a year to $1.5 billion — although most in the industry believe the real loss is closer to the lower figure.

Richmond resident Terry Dinnell recently retired after 32 years at B.C.’s Land Titles office and has set up a business for property owners who want to monitor activity involving their land title.

“Some people are worried about their property being taken from them, and some properties are more at risk than others,” said Dinnell, who operates Land Title Options as an online business.

He said vacant land and rental properties make better targets for criminal activity. Using a provincial database, Dinnell can monitor any B.C. property for activity — from new mortgages to builders’ liens — and notify owners. The service costs $21 for three months.

“We used to get lots of people asking for things the Land Titles office couldn’t offer,” said Dinnell. “Now that I’m retired, and I know the system is available, I thought I would try to offer it.”

Title-insurance companies, which sell policies to cover legal costs and losses when land titles are fraudulently transferred, say their business is rapidly growing. It’s difficult, however, to directly link the huge increase in policies to the incidences of title fraud, experts say.

B.C.’s land-title system makes it difficult for fraudsters to change ownership of a property. But there’s nothing to stop people from impersonating the rightful owner and registering a mortgage — or trying to sell the property — for profit.

In these instances, the lender that approved the mortgage on the strength of false documents is on the hook for the loss.

“It’s a relatively easy fraud to commit, and it happens more often than you think,” said Wayne Proctor, director of the Pacific Region of First Canadian Title, which sells title insurance policies. “A lawyer can make the case for the rightful owner and have the title reinstated, but it can be a lengthy and costly process.”

Premiums for title insurance usually taken out with the lender as beneficiary average $200 to $300 as a one-time charge. However, most industry experts say title fraud is not as big a concern as mortgage fraud involving organized groups intent on ripping off lenders by flipping properties to inflate values.

Vancouver lawyer Ron Usher said people have to be careful to protect their property. He suggests checking references and credentials of mortgage brokers, protecting personal identification and monitoring credit records. “Of course people need to be careful about their most valuable asset,” Usher said.

“Take time, do some due diligence to make sure you know what you’re doing.”

© The Vancouver Province 2006

Court of appeal says judges must do everything possible to help unrepresented people present their defence

Ian Mulgrew
Sun

Trials involving unrepresented defendants and the difficulties they pose for the legal system were highlighted Tuesday by a B.C. Court of Appeal ruling over a spectacular, motorcycle chase six years ago.

The three-judge panel of the province’s high bench unanimously said judges must bend over backwards to help the accused present a full defence.

Written by Justice Risa Levine, backed by colleagues Anne Rowles and Kenneth Mackenzie, the court overturned the motorcyclist’s conviction and ordered a new trial.

They said Amir Mahrokh Moghaddam, an Iranian immigrant, did not receive enough help from the Provincial Court judge who convicted him of dangerous driving.

Although the guilty verdict was later upheld by then-B.C. Supreme Court Justice Pamela Kirkpatrick, Levine said the unidentified lower court judge erred. Kirkpatrick was elevated last year to the Court of Appeal.

Cases such as this involving unrepresented participants are becoming more and more common and are an expensive nightmare.

Provincial government cuts to legal aid are mainly responsible for the increase in unrepresented defendants in the civil system.

Criminal support wasn’t affected by the cuts, but some accused are not eligible even though they cannot afford a lawyer while some are like Moghaddam, who chose to conduct his own defence.

The Legal Services Society initially provided counsel for him but that lawyer withdrew.

When the proceedings began Sept. 11, 2000, the judge offered to adjourn so counsel could be provided, but Moghaddam elected to proceed. The trial went on to squander three days of court time when a half-day should have sufficed.

In 2003, the court of appeal ordered the legal services society to pay for Moghaddam’s lawyer in the appeal court proceedings because the complexity of a criminal case today raised the question of whether he received a fair trial.

Occasionally an accused is adequately informed, but usually he or she does not have even the most rudimentary understanding of legal concepts. Mastering the substance and procedure of the law takes years.

Worse, it is not uncommon for the accused to have notions about the legal system derived from unrealistic television or movie portrayals.

A layperson, no matter how intelligent or earnest, generally is unequipped to conduct a trial.

I recently watched Mackenzie deal with an unrepresented litigant. It was an excruciating 45-minute waste of resources as the appeal justice dealt with the broke and not very bright man. A lawyer would have handled the issue in moments.

Proceedings involving lay participants usually take much longer, put more pressure on crowded dockets and are a drain on scarce legal resources.

Still, Moghaddam successfully argued before the appeal panel that the trial judge did not provide enough assistance to him so he could establish the two Mounties, the only witnesses, lacked credibility and were exaggerating.

Levine agreed for two reasons.

First, the trial judge did not allow Moghaddam to cross-examine the officers about events that that might have coloured their testimony.

Second, the judge did not explain clearly enough that Moghaddam could testify and give his version of events.

Levine thought Moghaddam could have raised a reasonable doubt about the officers’ credibility.

The court was told that on Sept. 17, 1999, at about 8 a.m., a Mountie on routine patrol saw a motorcycle stopped in a no-stopping area in front of an elementary school.

He pulled over and got out of his cruiser, gesturing to the motorcyclist on the other side of the street. But the motorcycle sped away.

The Mountie gave chase and was soon joined by another cruiser.

The two officers described the motorcyclist driving at high speeds, failing to stop at two lights, travelling the wrong way on a one-way street and thus forcing other vehicles to take evasive action, driving through a shopping centre parking lot and forcing pedestrians to scatter, and escaping on foot when six police cars had him surrounded.

The total pursuit lasted about 30 minutes, ending in Moghaddam’s arrest after a short foot chase.

At the station, Moghaddam’s face was rammed up against a glass partition by one of the cops. Moghaddam later confessed.

Moghaddam alleged he was beaten by the officers, had no contact with counsel and was intimidated into his admissions.

At the trial, an interpreter was sworn to translate the proceedings from English to Farsi; nevertheless, much was conducted without translation.

From the transcript, Levine said Moghaddam’s English clearly was not fluent, but he made himself understood.

In the cross-examination of the officers he did conduct, Moghaddam was fairly effective in pointing out inconsistencies between their evidence and their report to Crown counsel.

On Jan. 30, 2000, eight months before the Provincial Court trial, one of the Mounties went to Moghaddam’s home and left Moghaddam requiring 13 stitches to his head.

The officer was formally reprimanded.

Moghaddam should have been allowed to tell the court about that incident, Levine said.

“For that reason alone, I would allow the appeal,” she wrote.

Hard to disagree — this ruling, however, underscores not only the heavy expectations being placed on judges because of unrepresented defendants, but also the concomitant costs.

© The Vancouver Sun 2006

Easy to do, often lucrative, real estate agents say it is growing quickly across Canada

Mario Toneguzzi
Sun

Gordon Altman, a private mortgage lender, was victimized by a fraud artist who illegally got title to a property. Photograph by : Steve Bosch, Vancouver Sun Files

CALGARY — Mortgage fraud has become a billion-dollar industry in Canada and a growing concern to the real estate and financial sectors.

Although difficult to put an exact number on, organizations such as the Quebec Association of Real Estate Agents and Brokers suggest the criminal activity amounts to an estimated $1.5 billion a year across the country.

“We believe that only criminal prosecution of mortgage fraud will deter unscrupulous operators in the marketplace,” said Bev Andre, chairwoman of the Real Estate Council of Alberta, “and that only through prosecution can those who commit fraud be made to bear its costs.”

Ron Esch, executive vice-president of the Calgary Real Estate Board, calls mortgage fraud a “huge problem because it does involve a lot of money — ill-gotten gains.”

“It’s relatively easy to commit mortgage fraud,” said Esch. “Obviously you’re doing a criminal act but it’s a criminal act not that difficult to do.”

In B.C., independent mortgage lender Gordon Altman gave an elderly White Rock man a $250,000 mortgage against a $500,000 house he said he planned to sell.

The man and his identification had already been verified by a lawyer who provided legal advice, and by a mortgage broker known to Altman.

It wasn’t until Altman checked with the White Rock realtor who was handling the listing that he discovered the man didn’t own the house and had fooled them all in a brazen scam.

When Altman told the realtor he held a mortgage against the property, she said that would have been impossible.

“She said ‘There is no mortgage, and couldn’t be because the owner is dead,’ ” Altman said in an interview.

Mortgage fraud occurs in two ways.

– The first involves individuals fabricating their qualifications for a mortgage when buying a house.

– The second involves fraud for profit — a growing concern — where someone intentionally defrauds a lender or a homeowner of their interest in a property.

The latter is often accomplished by identity theft. Ownership of a property is transferred fraudulently from the rightful owner to the criminal who then sells or mortgages that interest and makes off with the funds.

The problem is becoming more prevalent as technology makes it easier to falsify documents and create identities, say experts in the field.

“It’s huge,” says Det. Robbie Robertson of the commercial crime unit with the Calgary Police Service. “I’ve been aware of it for over three years . . . There’s a huge, huge effect of this.”

For example, following a six-month investigation last fall, the police commercial crime unit in conjunction with Alberta Government Services charged Lloyd Lewis Mason, 33, of Calgary, with one count of fraud and one count of fraud in relation to making a false registration of title.

The case involved the unlawful transfer of a title to a property to another person without the knowledge of the true owner. That person then took out an almost $110,000 mortgage on the property.

The fraud came to light when the true owner attempted to pay property taxes and the City of Calgary notified them that they no longer owned the property.

This was a case of identity theft where the object of the stolen identity was to fraudulently obtain mortgage money.

According to Alberta Justice, the accused was recently convicted and sentenced to four years in prison and ordered to make restitution of $109,905.

Wayne Proctor, regional director, Pacific region for First Canadian Title (a title insurer), said the magnitude of the problem is a rough guess because most of the fraud victims are mortgage lenders and in a lot of cases they may suffer a loss and may not know it’s mortgage fraud or not specifically identify it as mortgage fraud.

“The rough estimate of the problem that the Canadian Institute of Mortgage Brokers and Lenders made a few years ago was $300 million,” said Proctor. “But there’s more recent estimates that would indicate it’s probably closer to a billion dollars.

“In our discussions with regulators, with mortgage brokers and realtors and others connected to the real estate industry, it is pretty well a consensus that it is a growing problem. One of the reasons could be the awareness of potential fraudsters that this is a relatively easy fraud to commit. The payoff is very large as compared to other types of minor crime.”

Esch said there needs to be more resources committed to the problem here and more “serious jail time” for those convicted of mortgage fraud.

“The problem won’t go away until there are more checks and balances put in place,” Esch said.

– – –

Real estate fraud developments

– First Canadian Title estimates the average case of real estate fraud to be in the range of $300,000 while in comparison the RCMP estimates the average credit-card fraud case in Canada to average about $1,200.

– In 2000, real estate-title fraud claims accounted for only six per cent of total dollars paid in claims at First Canadian Title.

By 2005, that number reached 33 per cent.

– Law-enforcement officials and lenders believe that 10 to 15 per cent of all mortgage applications contain false information.

– According to the Quebec Association of Real Estate Agents and Brokers, mortgage fraud amounts to an estimated $1.5 billion a year in Canada.

– The Real Estate Council of Alberta estimates there were about $275 million in fraudulent mortgage loans in Alberta in the 2001-2002 fiscal year based on transactions investigated.

Source: First Canadian Title and Real Estate Council of Alberta

© The Vancouver Sun 2006

USA Today

WASHINGTON (Reuters) — The pace of housing construction slowed in February as permits, starts and completions all fell, the government said Thursday in a report pointing to moderation after a five-year rally in the housing market.

The Commerce Department said February housing starts dropped 7.9% to a 2.12 million annual pace, still faster than expected, from an upwardly revised 2.303 million unit rate in January.

Economists had expected housing starts to slow to a 2.0 million unit pace in February.

Construction of single-family homes eased 2.3% to a 1.8 million unit pace, while multifamily construction plunged 30.4% to a 320,000 unit rate in February, the department said.

Starts fell 23.5% in the U.S. Northeast, biggest drop since May 2001. Construction declined 11.2% in the South and 10.4% in the Midwest, but rose 7.9% in the West.

Permits for future groundbreaking, an indicator of builder confidence, fell 3.2% to a 2.145 million unit pace from January’s revised 2.216 million unit pace. Economists had expected permits to ease more, to a 2.110 million unit pace in February.

With rising mortgage rates, the U.S. housing market has begun to cool after a long run that shattered sales and construction records, and sent prices soaring more than 55% on average across the country. Long-term fixed mortgage rates climbed in February, according to mortgage finance company Freddie Mac. The average 30-year mortgage was at 6.42% last week.

Economists expect the housing sector to continue to ease this year, but still see 2006 as the third best year for the market on record.

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CRA finding new tools in quest for avoiders, including use of snitch lines, lawyer advises

Fiona Anderson
Sun

Dave Morgan of CRA shows off the web site that explains how you can voluntarily ‘correct’ tax filings. Photograph by : Ian Smith, Vancouver Sun

Canadians may give many reasons for fudging their tax returns: the government has a surplus; members of Parliament are overpaid; or in the case of “detaxers,” taxing is illegal. However, there is one very good reason to be open and honest when telling the government exactly what you made: it’s a crime not to.

“Canadians are very highly taxed, so they naturally say they don’t want to pay any more than they need to,” said Paul DioGuardi, a tax lawyer with offices across Canada, including Vancouver, “but it’s not true. You [must] pay your taxes.”

People don’t realize how serious tax evasion is, or they just think they won’t be caught, DioGuardi said.

Being caught can lead to fines of up to 200 per cent of the tax sought to be evaded, plus five years in jail. On top of that, the taxes, plus daily interest, still must be paid.

“The daily interest alone can wipe you out,” DioGuardi said.

In 2004, 68 per cent of people surveyed told the Canada Revenue Agency that, given the opportunity, they would hide income or overstate an expense or deduction to avoid paying tax. Seventy-six per cent of those surveyed believed the CRA would not know about income received in cash unless the taxpayer declared it.

Yet, in the last fiscal year, the CRA yielded 250 convictions for tax evasion or fraud, which led to fines of $13.3 million and more than 26 years worth of prison sentences, the agency’s annual report to parliament said.

Some evasion can be inadvertent, such as seniors who don’t realize they must include foreign pensions as part of income, DioGuardi said. “If you are a resident of Canada, you [must] pay tax on your worldwide income,” he said.

The most common forms of evasion — not reporting self-employment income, over-stating expenses, or not declaring money made offshore — are usually not so innocent, he said.

Also, it’s becoming harder and harder to get away with tax evasion. Even if money is hidden in so-called tax havens, governments, in the name of anti-terrorism, have new sophisticated techniques of finding it, DioGuardi said.

CRA’s “snitch line” enables disgruntled ex-partners or jealous neighbours to anonymously tip off the government of possible under-reporting, he said.

In 2001, CRA received more funding to carry out more audits, according to its annual report.

Also, the CRA’s extensive powers to gain access to documents from all kinds of sources, including the taxpayer’s bank or accountant, it is only a matter of time before cheating taxpayers are caught, DioGuardi warns. There is no statute of limitations, he said.

However, there is possible relief for Canadians who have been less than completely honest when filing their tax returns: Canada’s volunteer disclosure or tax amnesty program.

“Canada has one of the best amnesty programs in the world,” DioGuardi said. “The beauty is you can repair a bad mistake [and] get on with your life.”

Under the program, taxpayers can approach the CRA about omissions in previous tax filings. In return, the CRA will look at granting the taxpayer concessions, such as forgoing criminal prosecution and lowering the fines that would be payable, said Dave Morgan, CRA’s communications director. The taxpayer will still be required to pay the tax and interest, he said.

If the CRA already has the taxpayer in its sights, it’s too late, Morgan warned. The disclosure has to be completely voluntary and not because the taxpayer is being audited, he said.

Also, the taxpayer must be completely honest and forthcoming about previous shortcomings. If the information is less than the whole truth, any agreement with the CRA is void and the government can use the information the taxpayer provided to go after the taxpayer.

Approaching the CRA in hopes of obtaining a reprieve from past sins can be a delicate situation, warned DioGuardi, who has written a book on the topic. If the negotiations fall through, all the information provided to the CRA can be used against the taxpayer.

The CRA allows “no-name” disclosure to enable discussions to take place anonymously until a deal is reached. Only then is the taxpayer required to provide his name. DioGuardi cautions that only a lawyer can protect the client’s identity if a deal is not reached. Even an accountant, or a friend, acting on behalf of the no-name taxpayer, can be subpoenaed to provide information, including the taxpayer’s name. Only a lawyer has solicitor-client privilege.

However, Morgan says that if the disclosure is voluntary and the taxpayer is completely honest and forthcoming, a deal will be struck, so there is nothing to worry about.

Most people in Canada are honest, Morgan said.

“The vast majority of taxpayers in Canada want to comply,” he said. “It’s just a matter of us providing them with the means and information they need.”

Taxpayers who aren’t sure what needs to be reported and what can validly be deducted can check out CRA’s website at www.cra-arc.gc.ca.

Those who want to seek amnesty can go to DioGuardi’s website at www.taxamnesty.ca.

© The Vancouver Sun 2006

Keith Fraser
Sun

A Vancouver couple are suing a local realtor after they bought a home that they say was smaller than they were told.

Ben-Sion Balevi, a dentist, and Susan Sayuri Nishi, a teacher, purchased a home on Yukon Street in April 2004 that they say was on the Multiple Listing Service as being 1,301 square feet.

They say that just before the completion date, they met with a notary and were shown a copy of the strata plan that showed they had purchased a “finished area” that was only 1,100 sq. ft.

Balevi and Nishi say they would never have paid $615,000 had they known the true size of the home. In a statement of claim filed in B.C. Supreme Court, they say they completed the sale because they were concerned they might lose their $30,000 deposit.

They want the sale cancelled, and damages. “In my research in this, I found that of six other properties which were sold in the last few years similar to mine, four of them were misrepresented,” said Balevi. “It’s like a recurrent problem in the industry. Agents aren’t doing their due diligence in making sure that the size of the properties is correct.”

Named in the suit is Dexter Associate Realty and several employees and the former homeowners, Pelecanus Holdings Ltd.

David Peerless, who operates Dexter, said there are two positions in any dispute but declined comment since the matter is before the courts. A statement of defence filed by his company denies they were negligent or made any misrepresentations about the property.

The case is scheduled to go to trial March 6.

© The Vancouver Province 2006