In this issue:
• Real Estate Scams - Red Flags and Tips
• Is the Fraudster in your Office?
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Real Estate Scams - Red Flags and Tips
Fraud is a real and growing problem for all law firms and their staff. Each year, fraudsters "trick" dozens of law clerks and lawyers, young and old, in practices large and small, into helping make fraud happen.
How can you protect yourself and the firm? Take some time to read this information provided by LawPro on fraud. It explains the most common fraud scenarios and how to spot them:
Identity Theft Fraud
- Client uses fake ID to assume identity of existing property owner (or director/officer of corporate owner).
- Client sells or mortgages the property, or discharges mortgage from title, then gets new (often high-ratio) mortgage from another lender, and repeats, using different lenders and lawyers each time.
- Paperwork looks in order; no encumbrances on title, but one or more recently discharged mortgages.
- Client in a hurry and accommodating: May discourage house inspection or appraisal.
- Transaction closes, you pay proceeds to client who makes a few mortgage payments, then disappears with funds.
- Lender sues you for value of mortgage.
Flip (Value) Fraud
- Client says she or he is a real estate agent or in business of buying and selling.
- Client promises high fees, lots of business for quick turnaround on deals. (Short turn-around means proper searches are conducted.)
- Once transaction closes, client flips property to accomplice (e.g. appraiser and/or mortgage broker) for much higher value.
- Lender issues mortgage on inflated property value.
- Client uses mortgage proceeds to pay initial purchase price, splits excess funds with accomplices.
- Client makes a few payments, then disappears with funds.
- Lender sues you for excess/inflated value of mortgage.
Red Flags: The Client
- Does not care about property, price, mortgage interest rate, legal and/or brokerage fees.
- Uses only cellphone number for contact (one fraudster had nine cellphones, each for a different false identity).
- Cannot produce title documents, survey, reporting letter, tax or utility bills.
- Does not appear familiar with property.
- Won't permit contact with prior lawyer.
- Clients "out of sync" with property - e.g. don't appear educated/affluent enough.
- Funds directed to third party with no apparent connection to transaction.
- Stranger who appears to control client attends to sign documents.
Red Flags: The Transaction
- Repeat activity on a single property or for a single client.
- Rental and vacant properties especially vulnerable.
- Client buys and sells often, prefers to deal in cash.
- Property listing expired without sale (i.e. sale may be unregistered).
- Frequent and quick mortgage discharges on property.
- New referral source sending lots of business.
- "Rush" deals, often with promise of more.
- Client produces small deposit relative to price.
- No amendments to Agreement of Purchase and Sale.
- Sale is presented as a "private agreement" - no agent involved, or named agent has no knowledge of transaction.
- Municipality or utility companies have no knowledge of client's ownership.
- Client paying little or nothing from own funds.
- Unusual adjustments in favour of vendor, or large vendor-take-back mortgage.
- Use of counter cheques.
- Use of Power of Attorney.
Tip - Be Alert
- Avoid having documents executed outside your office.
- Consider reviewing or discussing transaction with another lawyer.
- Consider market trends in the transaction area.
Fraudulent schemes can be very costly to the public, lawyers and the profession as a whole. Lawyers should become familiar with indicators of fraud to avoid becoming the tool or dupe of unscrupulous clients and fraudsters.
For more information, please visit www.lawsociety.ab.ca or www.lawpro.ca
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Is the Fraudster in your Office?
Not all fraudsters are strangers. Even partners, associates, law clerks or other employees may turn to fraud because of financial pressures from a divorce, failed business venture or other personal crisis.
Red flags to look out for include:
- Someone never takes vacation or sick leave, works overly long hours or refuses to delegate work.
- A firm member undergoes a sudden change in lifestyle or change in temperament.
- Unable to get through staff to reach another lawyer.
- Unusual patterns such as a sudden increase in payments to a person or credit card company or government, or complaints about slow payment from suppliers or clients, or an increase in written-off work in progress.
For more information see "Fraud on the Inside: What to do when partners, associates or staff commit fraud" at www.lawpro.ca/magazine
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Contact LSA Practice Advisors
The LSA's Practice Advisors, Nancy Carruthers and Ross McLeod, are always available to answer your questions on a confidential basis.
Nancy Carruthers, 403-229-4714 or toll free 1-866-440-4640, nancy.carruthers@lawsociety.ab.ca Ross McLeod, QC, 780-412-2310 or toll free 1-800-661-2135, ross.mcleod@lawsociety.ab.ca
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Contact ALIA
If you require information from the Alberta Lawyers' Insurance Association regarding fraudulent transactions, please contact:
Lisa Sabo, Director of Insurance, 403-229-4717, toll free 1-800-661-1694, lisa.sabo@lawsociety.ab.ca
Paula Haney, Manager, Operations ALIA, 403-229-4703, toll free 1-800-661-1694, paula.haney@lawsociety.ab.ca
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LASA 2009 Winter Newsletter
Architypes, the 2009 winter newsletter of the Legal Archives Society of Alberta is available at:
www.legalarchivessociety.ab.ca
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