Types of Mortgage Fraud
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Misrepresentation of the original purchase price (e.g. through vendor cash-back provisions) or of revenue potential of income producing real estate (e.g. "cash-outs" on commercial property).
Approaching multiple lenders simultaneously for loans on one property (i.e. "shotgunning"), representing to each lender that the property has substantial unencumbered equity. Or approaching multiple lenders simultaneously for loans to one individual (i.e. "chunking"), in excess of the debt service capability of that individual.

Private Mortgage Financing Frauds
In these schemes, mortgage financing is raised by "private offerings" in which investors are promised high returns on real estate properties or projects (e.g. condominiums). The returns are allegedly made possible because the managers of the scheme claim to have, in the case of:

new projects - the ability to acquire, construct, and sell real estate developments at substantial profit; and
foreclosure acquisitions - special access to acquire such properties at prices substantially below market value.

"Mortgage Rescue" Frauds

In these cases, fraudsters claim to provide interim financing assistance to help a cash strapped owner avoid foreclosure, in exchange for (undisclosed/fraudulent) excessive equity interest in their property.

Bankruptcy Mortgage Frauds

In these schemes, a fraudster may acquire titles to multiple properties with no intention of paying the mortgages. The perpetrator collects revenue from the property then files for bankruptcy to stall foreclosure and to allow the scheme to continue.

Ethically Speaking - Mortgage Fraud: Some Ethical Issues

By Nancy Carruthers and Ross McLeod, QC, Practice Advisors, Law Society of Alberta

The Law Society of Alberta has been concerned with mortgage fraud in this province for a number of years. It seemed to flourish during the time of our hot economy, but now that the housing market has cooled, we are seeing the fallout.

Recently, the Calgary Herald published an article in which a member of Calgary’s police force suggested that mortgage fraud would not be so prevalent without the involvement of dirty bankers, realtors and lawyers. Most lawyers would take exception to this comment.

In many cases, lawyers are unwittingly involved in mortgage fraud. Fraudsters are not anxious to reveal their scheme to the conveyancing lawyer and will try to conceal it. The Practice Advisors' office receives regular calls from lawyers who suspect that the deal in which they are acting involves a potential fraud, or who have discovered that a fraud may have taken place on a matter which has long been closed. Following are some common questions and answers:

1. May I continue to act for the purchaser client if I discover that the purchaser is attempting to commit a fraud on the mortgagee?

The Code of Professional Conduct prohibits lawyers from knowingly assisting a client in a crime or fraud, and requires withdrawal if the client persists in instructions that the lawyer knows will result in a crime or fraud. Knowledge will be attributed to a lawyer when a reasonable argument cannot be made for any other interpretation of the available facts. When a lawyer suspects a client may be engaged in fraud, the lawyer should discuss these concerns with the client and otherwise exercise due diligence. If the client's explanation is not satisfactory, withdrawal must be considered.

2. I have withdrawn from representing my client, as I discovered he is committing a real estate fraud. Should I tell anyone? Can I?

Chapter 7 of the Code of Professional Conduct requires a lawyer to keep confidential all information concerning the business and affairs of the client, acquired during the course of the professional relationship. Disclosure of certain information may, however, be allowed under the Code.

Lawyers must disclose confidential information to the Law Society when required, and must disclose such information when required by law. Disclosure is also required to prevent a crime likely to result in death or bodily harm.

Lawyers may disclose confidential information when necessary to prevent any other type of prospective crime. When disclosure is discretionary, the lawyer must evaluate the risk to the safety or property of others. In any case in which disclosure is considered, the lawyer should assess the information to be disclosed, and disclose only the minimum amount of information required to give effect to his or her ethical obligations. Secondly, the client should be given an opportunity to either make the disclosure directly or persuade the lawyer that the apparent need for disclosure is based on incorrect information. This will ensure that confidential information is not disclosed by a lawyer in haste, or when inappropriate.

3. I act for the borrower/purchaser and lender, and have just discovered that the borrower has misrepresented the purchase price of the property to the lender. What do I do now?

Lawyers acting in a joint retainer have a duty to act in the best interests of all clients in the retainer. Information received from one client in connection with the matter cannot be treated as confidential, and must be shared with the other clients in the retainer. The information

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