When FCT brought title insurance to Canada well over 20 years ago, it was because our founders saw an opportunity to improve the way real estate deals were completed. Back in the early 1990s, transactions would take weeks — sometimes even months — to complete, and most real estate professionals recognized there was room for improvement. By seizing the opportunity to improve the decades-old process, we could improve the experience for all involved parties and also provide added protection.
What we failed to fully appreciate when we entered the Canadian market was how fraud would change the way deals are done, from underwriting to signing the paperwork at closing to post-closing.
Fraud has resulted in the title insurance industry paying out millions of dollars in claims in each of the past 10 years or so. But because title companies have the benefit of seeing literally hundreds of thousands of deals from all across the country, they are able to identify trends and quickly react to protect innocent parties on deals nationwide. Fortunately, due to the fraud underwriting conducted by title companies, as well as much improved awareness and vigilance in the real estate community as a whole, that amount is much lower than it otherwise would be.
With that said, the likelihood of being a victim of real estate fraud is relatively low. However, it does happen more often than you might think and, when it does, it tends to be expensive and stressful for everyone involved — including owners, lenders, lawyers and brokers.
This is especially true for commercial deals which offer fraudsters a “bigger bang for the buck.” In the commercial solutions group at FCT, we’ve seen it all. Below is only a small sampling of commercial fraud claims we have paid, with the facts changed slightly so they are not identifiable.
More than 20 years ago a gentleman purchased a multi-use building with a storefront on the main level and a couple of apartments above. He passed away shortly after, leaving behind a wife and three young children. Fast forward 15 years: one of the children, then in his twenties, gets hold of his father’s will, “whites out” the name of the executor and inserts his own name. The son then takes the will to a lawyer, telling the lawyer that he is the executor of his father’s estate and asking the lawyer to transfer title to him as executor (and presumably beneficiary). After the title transfer is complete, the son goes to the bank and mortgages the property for his own use.
Fraudulent corporate filing
A fraudster filed a corporate change document amending the name of the corporation’s director and officer to his own. As an “officer,” he then went to the bank and obtained mortgage financing on the real estate held by the corporation. The proceeds were quickly sent off to a party unrelated to the true owner and he skipped town, never to be heard from again.
A borrower provided his lawyer with a forged postponement of a private mortgage. The lawyer was instructed to register the postponement in order to allow an institutional mortgage to be placed in first position. Unaware of the forgery and trusting the client, the lawyer registered the postponement, only to have the true mortgagee — a business partner who provided a shareholder loan — come forward claiming that he had no knowledge of the postponement nor had he signed it.
These stories are just the tip of the iceberg. When it comes to fraud, there is so much hidden well below the surface. In order to minimize your exposure to the risks posed by commercial real estate fraud, you may want to consider the expertise that only years of underwriting experience can provide. I encourage all real estate professionals to speak with one of my colleagues at FCT to learn more about fraud and gain valuable insight on how to mitigate your own risk.