Jul 01, 1999

Fictitious Mortgages - A Mortgage Broker's Nightmare #306

Jul 01, 1999

Fictitious Mortgages - A Mortgage Broker's Nightmare #306

By Gerry Neely
B.A., LL.B.

The diligence of an employee of a mortgage broker, and the suspicions of a bank customer service representative, helped to stop the activities of a criminal who created fraudulent mortgages which were then assigned to innocent customers looking for a reasonable return.

The method of operation of the fraudsman, as the judge called him, was to select a clear title property and create a false mortgage in which it appeared that the owner had mortgaged her property. The owner’s signature was then forged, as was the name of the lawyer who purportedly witnessed the owner’s signature.

The fraudsman used names that were either identical or similar to those of lawyers in the Lower Mainland. To make it easier to respond with a forged letter to a mortgage broker’s request for confirmation of the mortgage balance, the fraudsman changed the owners’ addresses in both the Land Title Office and the BCA records, to fictitious addresses.

When the fraudsman attempted to sell the fictitious mortgagee’s interest in the false mortgage to a mortgage broker, the employee asked to speak to the mortgagors, only to be told that they were out of town. She then called the real lawyer named in the mortgage who said that he had not witnessed the signatures.

When she tried unsuccessfully to reach another lawyer whose name was on a statutory declaration, the Law Society advised her that they had no record of him. Understandably, she declined to proceed further.

Defeated but determined, the fraudsman contacted another mortgage broker and this time, on the instructions of the mortgage broker, an assignment of the mortgage between the fictitious mortgagee and a real investor was executed, registered and a cheque for $69,000 was delivered to the fictitious mortgagee/fraudsman.

He then attempted to deposit the cheque in a bank account he had opened a week earlier through a customer service representative who thought it odd that her customer wore a false beard. Had the fraudsman stated his occupation to be an actor, the representative might not have been sufficiently suspicious to check the address he gave her, which turned out to be that of a strip mall, and his telephone number, which was a telephone answering service. The driver’s license number given by the fictitious mortgagee did not match the name.

The result was that, when the fraudsman entered the bank carrying a briefcase and wearing the false beard, he was arrested by the RCMP. He was convicted of crimes relating to four forged mortgages from which he obtained approximately $140,000, not including the $69,000.

Following the arrest, the RCMP found documents which indicated that in one fictitious mortgage transaction the fraudsman gave 12 postdated cheques to the mortgage broker for the mortgagees. It was only when the mortgage became due a year later that the mortgage broker discovered the mortgage was fraudulent. This case was discussed at a recent meeting of the Vancouver Real Property Sub-Section of the Canadian Bar Association because it raised a number of questions. Whose responsibility is it to verify the borrower’s identity, the mortgage broker or lender, or the lender’s lawyer?

Should a lawyer or notary public, as an officer witnessing the signature of the assignor of the mortgage, do more than take the picture ID of the driver’s license? How far should an officer go? Should the officer call the lawyer or notary public, who witnessed the mortgagor’s signature, to confirm that the lawyer had actually witnessed this signature?

Understandably, these questions were not resolved at the meeting.1

  1. Her Majesty the Queen v. Naumenko, Reasons for Judgment, SCBC, February 23, 1999, New Westminster Registry.

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