Whose Fraud Is It Anyways? What Lenders Need To Know About Mortgage Fraud

The public thinks of mortgage fraud usually in extreme terms and mostly pointed at the borrowers running away with the money, leaving the debt to unsuspecting homeowners. However, in recent tragedies that made headlines, the media has been focusing on the wrongdoings of some mortgage brokers and lawyers.

On June 17th, 3 individuals died after an alleged mortgage fraud drove one former client to the brink, and ultimately to murder. Brokers Arash Missaghi and Samira Yousefi were shot dead outside of their Toronto office building. The two had allegedly been ringleaders in a large-scale mortgage fraud.

Shooter Alan Kats and his wife, Alisa Pogorelovsky, who were borrowers of Missaghi and Yousefi, had reportedly lost nearly $1.3 million dollars in Missaghi’s scheme. Kats took his own life at the scene. Ms. Pogorelovsky, Kats’ widow, was not involved in the shooting but has since spoken about the impact of the alleged fraud on her husband’s poor mental state.

Three days later, CBC news reported on a firm that was recently closed by the Law Society of Ontario, with its two named partners professionally suspended. The reason? Over $15 million in real estate trust funds appeared to have gone missing from the firm’s accounts.

Pogorelovsky’s claim against the mortgage brokers notes that Missaghi and Yousefi worked with two lawyers who helped them facilitate their transactions. The lawyers, while named in media publications, have not yet received any professional sanctions related to the alleged fraud. Similarly, the lawyers from the law firm that recently shut down have been under scrutiny with their transaction history, banking records, books, and reporting currently under investigation.

You may have seen these sensational news headlines over the summer, but rest assured, these are rare and extreme cases. For the purposes of this blog, we wanted to look at the realities surrounding these types of headlines and explore the steps Lenders can take to help prevent themselves from being victims of fraudulent schemes by other professionals.

How Can Lenders Protect Themselves from Professional Misconduct?

Lenders are a crucial pillar of any mortgage transactions, and they have responsibilities in each transaction as well. Although many think their only role is to supply the funds, there is more to the story. While lawyers are professionally required to keep records of their activities in all transactions, it is the Lender’s record keeping and attention to detail that is invaluable in the process and may help them in the event they find themselves associated with a fraud, unbeknownst to them.

There is no such thing as a Lender who holds onto too many records! Yes, lawyers maintain records of their involvement, but you can never be too sure what the future holds for your lawyer. What if they die suddenly? What if, in extremely rare cases, the lawyer is actually the fraudster?

As a Lender, you should know where your money is going and have proof you actually advanced funds! That means monitoring and keeping copies of proofs of wires, deposits and bank drafts, and any other communications regarding funds advanced that prove what payments were made by them and to who on specific dates. These other proofs can be evidenced by emails or text messages, and screenshots that are safely filed away in your preferred email app or computer or phone filing systems.

For their own safety, Lenders must keep track of their transactions, and track them carefully. Lenders should review appraisals on each and every transaction. Valuations provided by PurView and GeoWarehouse are not reliable as precise numbers; they are based on estimations and statistics, rather than on the actual property in the transaction. Requiring a real appraisal, prepared by a licensed body, provides a better comprehension of the transaction’s actual value, loan to value, and needs of the property.

There is no question that your lawyer has clear responsibilities in each transaction, but you need to be an active participant as well and most of the time your lawyer has not been asked to underwrite the mortgage transaction or provide an opinion on the value of the property.

Also, did you know that lawyers are professionally required to send a closing report within 30 days of the transaction closing? If they don’t send one to you within the required time limit, Lenders can absolutely follow up on these reports, and should always maintain a copy. If you have never received one from your lawyer, please call them right now!

Once you do receive your report, simply glancing at the report is not sufficient. Lenders should review these reports thoroughly as they prove that the deal closed, the funds were advanced, the debts were paid, and all of the money was distributed correctly. If you have questions about the contents of the report, do not hesitate to ask! Do not dismiss a valid question simply because you believe that the lawyer is the expert and they have it under control.

Another important thing to remember is that while other parties may be at fault, the borrowers themselves are not, in these types of scenarios being reviewed in this blog. In most all instances the borrowers are not remotely involved in this kind of fraud, and may not even be aware that a fraud has taken place. In the two examples of this summer’s headlines, the borrowers may not have even received the funds, and may not have been aware that a fraud had taken place. That can add additional complications when it comes to who is paying interest and how to get your principal back, and a skilled lawyer can address these issues as well.

How Can Sari Rose Law Help?

The vast majority of lawyers in this space are honourable, upstanding professionals who are working hard to ensure a smooth transaction and at Sari Rose Law, we pride ourselves in being in that category of lawyers. These transactions can be incredibly complicated, and most general practitioners, even most real estate lawyers, do not know what to do when things go awry, but at Sari Rose Law, we can help!

There may also be other resources available to you if your lawyer has absconded with the money and you have found yourself tied up in a ring of fraud you were not expecting. It is important to work with a lawyer, like the ones found at this office, who can navigate the complexities, point you towards other possible resources, and who has the experience to know confidently what to do. Thankfully, we are intimately familiar with the layers of complexities here, and we have the experience to help. Contact us today to set up a consultation with our team.