Mortgage Frauds On The Rise - Scams Start To Unravel As Economy Falters
About two years ago, in a lawyer's office, Linda put her signature on a document she believed would help someone buy a house. She thought it was an easy way to make some money, while doing good for someone she understood just needed her "good name" to get a leg up.
But the small act of putting pen to paper has left Linda and her husband Rick (not their real names) on the hook for a house trashed by its tenants and facing a $100,000 lien on the home they've lived in for a decade. The couple are part of a growing group of Calgarians who have fallen victim to a common mortgage fraud scheme known as the "straw buyer."
And, with the economic downturn, police and housing officials are bracing for those numbers to keep rising. As the economy falters, mortgage fraud schemes are starting to unravel, said Sgt. Shawn Goertzen of the Calgary police's commercial crime unit. Goertzen said there have been several phone calls recently from people finding themselves in the exact same situation as Rick and Linda.
But, for every one case that comes to the attention of officials, there are many more. When Alberta was booming, banks were overlooking fudged numbers or applications lacking substance because if they repossessed the house, it was an appreciating asset, Goertzen explained. Now, with the economic downturn, properties are no longer worth as much money as the banks had lent out. And, as the economy falters, people have stopped running the scams, leaving the banks holding an asset worth nothing near what they hoped it would.
"We probably suspected two years, three years ago this was going on. But payments were being made, people weren't asked for the money," Goertzen said. "That's not the case anymore."
The investigations unit with Service Alberta has also seen an uptick in the numbers of cases, said spokesman Cam Traynor. Last year, investigators dealt with 13 specific cases of land title fraud and assisted police in more than a thousand cases of mortgage fraud.
"It is something we're seeing more of," Traynor said. But it is unclear if it is specifically tied to the real estate boom or simply the increased population in the province, he added.
The way the scam unfolded for Linda and Rick is almost textbook in straw buyer schemes.
Linda was first approached in December 2006 by a friend at work she has known for 15 years, saying she could make some money by agreeing to sign real estate documents. Her name would be removed after 90 days and the investors who wanted to buy the property would take care of all the details, such as hiring a lawyer.
Thinking it was too good to be true, Linda declined. But when she was approached again in January, she agreed. Later, in a lawyer's office, Linda signed her name and was given $3,000 for her help. She thought that was the end of her involvement until receiving the foreclosure notice last year.
In most cases, the mastermind takes over the title of the property and pays the mortgage. But if payments are not made, the banks can turn to the person who first signed the documents to recover their losses. While a straw buyer is typically offered around $5,000 in exchange for their "good name," the fraudsters walk away with upwards of $40,000 in their pockets per deal, said Goertzen.
Hard and fast numbers about the number of people who fall victim to these schemes are hard to find. Most don't want to report what has happened because they know they will be looked at as suspects, said Goertzen.
In most cases, the straw buyer is an unwitting participant who probably doesn't realize what they're doing is mortgage fraud, but the onus is on them to do their homework, Goertzen said. "Ignorance is not an excuse." For the couple and their 11-year-old daughter, the best-case scenario is Linda is absolved of the crime, her credit is returned and the lien is lifted.
The worst-case scenario will see Linda facing criminal charges and the couple paying off the home they never knew they owned. Police want to go after those pulling the strings of the mortgage fraud scams and not necessarily those left holding the land title.
These cases involve dirty realtors, bankers and lawyers, Goertzen said. "These things don't happen with just one bad guy. It takes collusion from several people along the way to make this happen," he said "We have to work out how to go after those people."
Banks in the city are investigating hundreds of mortgage fraud cases where a dirty broker has been working out deals with straw buyers and evidence from those bank investigations could help police get at the higher-level criminals.
"If the bank can gather up enough evidence and put everything together so it's understandable, we may be going after some of these guys," Goertzen said.
Meanwhile, Rick and Linda have hired a lawyer and are trying to untangle all the threads of the convoluted scheme. Court papers have been served and documents are trickling in. The couple has also filed a fraud report.
But the bottom line is that Linda did sign the papers, Rick said.
"Whether she gets absolved because of all this monkey business is the million-dollar question."
GWENDOLYN RICHARDS - Calgary Herald, May 6, 2009
