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Given the recent economic climate, fraudsters may be on the lookout for ways to target unsuspecting lawyers. Here are five ways to avoid falling into a mortgage fraud trap.
- Know your client. It’s important to realize just because the client found you on a recommendation from a realtor friend, doesn’t mean you can relax and trust them fully. Do your homework and stick to Client Identification and Verification rules. Ask yourself:
- Do they have appropriate ID?
- How much do they know about the property in question?
- Do they seem anxious to get the deal done quickly?
- Do they give last minute instructions to complete the transaction by way of power of attorney?Take the time to get to know your client, ask questions, discover their background, understand why they are entering into the transaction, and meet personally with clients whenever possible.
- Make sure the paperwork checks out. To make sure everything is in order, ask the following questions:
- Are there irregularities in the execution of documents such as documents taken out of the office for execution by the borrower and witnessed by a party to the transaction?
- Are there multiple transactions with similar characteristics such as the same realtor, appraiser and mortgage representative?
- Do the Lender’s Instructions have different details than you have – such as purchase price, owner occupancy, down payment?
- Does the Statement of Adjustments match the real estate purchase contract?
- Do title searches show recent transfers of the property or a pattern of mortgages being registered and discharged shortly thereafter?Use independent source documents and cross-check facts.
- Establish (and stick to) solid accounting practices. Be sure to implement and follow the rules relating to the receipt and payment of trust funds. Don’t sign blank cheques, never sign a cheque with no payee or amount stated and regularly review your bank statements and online accounts. Talk to your bank about the best way to verify instruments of concern prior to deposit and be very careful about disclosing details related to your trust account (such as the circumstances in which you allow others to make deposits directly to your account).
- Get your staff on board. Form clear guidelines for your staff on how to deal with files and circumstances that raise suspicions. Discuss various fraud scenarios and develop procedures for addressing each. Make sure to exercise care in hiring practices (i.e. background checks, references), segregate duties relating to handling of money where possible, and be sure to properly supervise and train staff.
- Trust your gut. If it doesn’t sound right, investigate further.
- Is the information you are provided consistent?
- Are the closing funds in the form of a cheque or bank draft that indicates that funds may be coming from a source other than the purchaser?
- Are there other irregularities in the real estate purchase contract – for example, does the witness’ signature for both the buyer and seller look a little too similar?
- Are there indications the mortgage comprises greater than 95% of the purchase price?
- Has the property’s value increased rapidly over a short period of time?
- Is the client offering to pay for higher than normal legal fees?
- Are there inordinate delays from the seller’s lawyer?
Be sure to be very cautious when being contacted directly via the internet. Do a Google check; investigate reverse telephone directories and independently cross-check information.
In addition to the above tips, be sure to keep up with legal and regulatory requirements, such as the Rules of the Law Society of Alberta, and the Code of Professional Conduct, noting any changes to these Rules.
Written by: Jocelyn Frazer, Practice Advisor