Goldhawk Fights Back: A Canadian bank loses 30 million in a major mortgage fraud

Zoomer | May 17th, 2010

This is a weekly column by Dale Goldhawk, Canada’s best-known consumer advocate. A journalist, author and broadcaster, Dale hosts Goldhawk Fights Back For You, on AM 740 or at AM740 ZoomerRadio, Monday through Friday from 11 am to 1 pm, in the eastern time zone. Visit his website at www.goldhawk.com.

The Bank of Montreal has launched a complex lawsuit against more than 300 people, including lawyers, mortgage brokers, real estate agents and its own staff.

The suit alleges a complicated scheme that resulted in the writing of phony mortgages.

Both the RCMP and the Calgary police, where the civil suit was filed against Alberta residents, first told the Bank of Montreal they wouldn’t investigate what could be the biggest mortgage fraud in Canadian history.

Police sources at the time, hinted that the fraud case (involving some 35,000 documents) just might be too big for the police to handle, tie up too many officers in a difficult investigation.

Former RCMP officer Chris Mathers said he wasn’t surprised by the police decision, saying he wondered if public money should be spent to investigate an alleged fraud that he said the Bank of Montreal should have avoided.

Both police forces said two weeks ago they were reviewing the voluminous case — more than 35,000 documents — assembled by the bank’s investigators to see if a criminal investigation was warranted.

Then some police sources told the CBC that top investigators from both forces met with the bank and told it they were not interested in pursuing a criminal investigation.

Then came a public uproar. People wanted to know what was going on. If police did not investigate major fraud then who did?

Finally last week, the RCMP and Calgary police announced they were launching an investigation, after all.
In the civil suit originally filed by BMO, the bank alleges defendants fraudulently inflated the values of properties and then somehow enticed so-called straw buyers to assume liability for the debt.

They would buy at an affordable, fair-market-value price, but con the bank into thinking the house was worth much more because of the neighbourhood it was in.

For a payment of up to $8,000, claims BMO, the straw buyers, mostly new immigrants, would allow their names to be used to get the mortgage.

Then the ringleaders would walk away with their profit, leaving the straw buyers with no way to pay the mortgage. Ultimately the bank would lose when it foreclosed on the mortgage.

Here’s how the math worked on each sale, said the bank. It granted mortgages at prices between $40,000 and $60,000 over the property’s market value. When the phony buyer walked away from the property, the bank was out the difference between what it lent and what it could reclaim by selling the property again.

Real estate, for most of us, is the single biggest investment we will ever make. Be sure everything makes sense in your transaction before you proceed.

The BMO con job won’t have much of an effect on honest home buyers and sellers. But it is a cautionary tale about the many ways a house sale can run off the tracks and even cost you money. /P>

READ OTHER COLUMNS BY DALE GOLDHAWK

Goldhawk Fights Back: Fraud still big business in Canada

Goldhawk Fights Back: Competition Bureau attacks fine print on long distance phone cards

Goldhawk Fights Back: Scams in Canada growing faster than the economy

Gemini award nominee, journalist and broadcaster, Dale Goldhawk has earned Canada’s trust by his four decades of work exposing fraud and greed in the marketplace. To read more of his articles, go to www.Goldhawk.com (now part of the ZoomerMedia family of websites).

Don’t miss Goldhawk Fights Back , on the New AM740 Monday to Friday from 10 a.m. until 1 p.m.