EASY FIX SEEN FOR MORTGAGE FRAUD
When a fraud artist uses your credit card, it's the bank that will suffer a loss. But it could be a different story with your house.
If someone fraudulently obtained title to your home, acquired a mortgage and ran off with the money, there are some circumstances where you could have at least some legal expenses and sleepless nights trying to get rid of the unwanted mortgage.
As remote as the possibility may be, it has happened. And some people are asking why the law in Ontario leaves the legitimate owner with the hassle of seeking government compensation - or acquiring title insurance - to repay the stolen money.
"If a bank allows someone to take out a mortgage on a home that the person does not actually own, is it not the bank that has been defrauded?" asked James O'Keefe of Peterborough after I wrote a column on the topic Oct. 15.
"Should they not be the ones taking out insurance?" he added. "Banks are big businesses. They should be able to look out for themselves."
The answer to O'Keefe's question is that in Ontario, the Land Titles Act protects lenders as well as purchasers who are victims of the fraud. And although some people would like to see that changed, it's not about to happen soon.
Most homeowners who bought or refinanced a home in the past decade are likely to be protected by private title insurance, for which fraud protection is a secondary element of the protection it provides.
But those who have owned their homes longer may not relish the prospect of paying $200 to buy title insurance at this stage, particularly when there will be legal fees related to confirming title before coverage can be put in place.
Oshawa lawyer William Clark agrees with O'Keefe that it's just not right that consumers should even have to consider such coverage. He suggests the obvious fix would be to change the Land Titles Act to shift responsibility to the lenders or buyers if they are tricked.
"At present the Land Titles Act says that the fraudulent deed transferring the property to the fraudster creates no interest in the land, but the mortgage that the fraud artist gives to the bank based on his fraudulent deed does create a valid interest in land," Clark pointed out in a letter. "Figure that one out."
"Most of these cases (of fraud that have been reported) would also have been avoided if the bank had simply sent someone over to the property and knocked on the door to see who actually lived at the house," he argues.
"At present we have lazy banks, dilatory government and insurance salesmen selling us something we don't really need. The fix to all of this is right in front of our face."
But Kate Murray, director of titles for Ontario's land registration system, says no change to the legislation is being proposed at the moment.
She said she is the co-chair of an industry committee, including lawyers, lenders, mortgage brokers and other affected parties, that is looking for efficient ways to avoid what are still extremely rare occurrences.
"We are examining all aspects of title and mortgage fraud and working with industry to combat fraud, but at the moment we don't have a formal proposal for legislative change," she said.
James Murphy, a spokesman for the Canadian Institute of Mortgage Brokers and Lenders, said the association and its members would be prepared to discuss changes in legislation with the government.
But a change in legislation would not be as simple as Clark is suggesting, said real estate lawyer and freelance Toronto Star columnist Robert Aaron.
The wording of the legislation that protects lenders, like the big banks, also serves to protects homebuyers who could be duped by a tenant to pay for a home the tenant does not own, he pointed out.
"(Clark's) solution is only about a quarter or half of the problem," Aaron said. "You have got to be consistent (with both lenders and buyers) for better or worse," he said in an interview.
Murray wouldn't say whether she would urge a family member who does not already have title insurance to buy it. But she pointed out that coverage by Ontario's Land Titles Assurance Fund applies to most homeowners in the province. The fund compensates victims of mortgage and title fraud who have no title insurance, but it is not called upon often. It has been paying out an average of eight claims a year over the past decade.
is available to victims whose homes fall under the modern land titles
system - nearly every home in the greater Toronto area - and some of the
minority of homes whose records are still kept in the old land registry
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