Fighting a mortgage fraud

The Rabi-Shafiei family living in Toronto were totally unaware that criminals, using their names and using falsified identification documents, had retained Mercy Dadepo, a lawyer in North York to sell their condo to an accomplice who took as his own under the name Ion Rosu, which is the name of a real person living in Thunder Bay, Ontario. In late 2004, the fraudsters struck, taking out a mortgage on the property and disappeared with the money.

The Toronto Dominion Bank says that it stopped trying to collect on the mortgage as soon as the fraud was discovered, however, the Rabi-Shafiei family is still technically on the hook not only for the $247,000 mortgage, but an additional $34,146.69 for accumulated interest up to July 21, 2006, $434.60 for insurance taken out by the bank, $74.90 for "occupancy checks" and $275 for a "document review."

The fraud took place in the following manner: two of the crooks passing themselves off as Mr. and Mrs. Rabi-Shafiei (using falsified documents such as driver’s licences made out to each of the names of the real owners of the condo) went to the North York lawyer telling the lawyer that they wanted to sell their condo to Ion Rosu (who then presented a driver’s license and social insurance card in the name of Ion Rosu to the lawyer as identification)

The lawyer contacted a mortgage broker who arranged for the mortgage to be taken out from the Toronto Dominion Bank. The money was then given to the phony sellers of the said property and they and the phony purchaser disappeared with the money. To date, no one really knows who they really are or where they are.

The two victims of this fraud were the real owners of the condo and the bank that held their mortgage. Both the owners and the bank became aware at the same time of the fraud when after receiving a letter from the bank about the arrears monthly payment due to the bank, the owners told the bank they had no idea why the bank thought they should pay any money to the bank since they didn’t take out the mortgage in the first place.

Notwithstanding the fact that the bank has acknowledged that the owners of the condo are victims of a fraud, the bank still claimed that the owners were still liable for the debt incurred by the crooks. Somehow, the logic of that reasoning escapes me. It is not unlike saying that if someone steals your driver’s licence and shows it to a police officer when he is about to give the thief a ticket for speeding; the real owner of the stolen driver’s licence has to pay the fine.

Now one is forced to ask why the bank was being so pigheaded. It’s their insurance company that is forcing them to do this since it is the insurance company (First Canadian Title) that would end up paying out all that money to the bank. The insurance company wants the real owners of the condo to get the taxpayers to pay the bank, thereby letting the insurance company off the hook. The taxpayers may ultimately cough up the funds if the couple can persuade the province's Ontario Land Titles Assurance Fund to compensate them for their undeserved mortgage liability.  However,  to apply for assistance from the Fund will cost the Rabi-Shafieis thousands of dollars in lawyer’s fees to bring this about. 

What should the lawyer, the mortgage broker and the bank have done to prevent this scenario from occurring?

The lawyer presumed that the three persons in her office were legitimate sellers and purchaser of the property respectively because they showed the lawyer their driver’s licences. Most people nowadays realize that a driver’s licence is not really satisfactory evidence that the person who submits it is in fact the real person depicted on the licence.

There are so many phony driver’s licences floating around, it is of real concern to the authorities. The newspaper, Globe and Mail in Toronto on December 7, 2005 quoted the provincial Auditor-General from his annual report that the system for licensing drivers and vehicles in Ontario has been so sloppily managed that fake driver's licences have been created, thousands of blank stickers and permits have gone missing and customer credit-card information has been misused. Over a period of four years, more than 56,000 licence plates, vehicle stickers and permits had been reported either missing or stolen and could have been used for fraudulent purposes. The report documents numerous instances of fraud by the private-sector operators that provide licensing services under government contract. Charges had been laid and a ministry analysis concluded that it is easy for staff to manipulate the current system to produce false documents.

What is really disturbing in the mortgage fraud I am writing about is the fact that the photo of the faces on each of the driver’s licences could not have been the real faces of the persons whose names were on the licences.

If a licenced driver in Ontario claims that his driver’s licence has been stolen, in order for him or her to get a replacement from the licencing issuing office, that person would have to bring in three forms of ID such as a passport (which would show a photo of the person whom the passport is registered to) or a birth certificate (in which there is no photo on the document) a Ontario Health Card (which has the photo of the bearer on it) and another document showing his or her signature. It would be almost impossible for a scam artist to superimpose the photo of a victim on the phony driver’s licence without it being detected since the photos and the driver’s licence are plasticized. It would be almost impossible for the scam artist to get a birth certificate of the victim if he or she didn’t know the names of the victim’s parents.

As soon as the scam artist went to the issuing office to get a new driver’s licence, the scam would be discovered at once even if he or she brought in some other document with his or her photo on it. The issuing person would look at the photo submitted and then compare it with the last known photo of the victim that would show up on the screen.

Considering how difficult it is for an identity thief to acquire a victim’s replacement driver’s licence, I have to conclude that what the lawyer really saw when the driver’s licences were submitted to her was the faces of the thieves. The thieves probably used one the stolen blank driver’s licences.  A scam artist with the right equipment can create a driver’s licence in any name and put his or her own face on the licence.  

What then should the lawyer have done next to satisfy herself that two of the people sitting in front of her are the legitimate owners of the condo?  More importantly, did she have to do anything more? After all, they came to her so that she could find them a mortgage broker. She could later say that it was up to the mortgage broker or the bank to do the necessary checks. She would probably be right. 

The mortgage broker would act on the request of the lawyer so in one sense, the broker is an agent of the lawyer even though the broker is acting on behalf of the lawyer’s clients. The mortgage broker could assume (and probably quite correctly) that if the lawyer is satisfied that the so-called owner and purchaser of the property are whom they say they are, it is not up to the broker to delve into the background of the these scam artists. 

This leaves the bank. Unquestionably, the bank is the entity that has the most to lose if the transaction is a scam. It is the bank that should really delve into the background of the so-called owners and purchaser, especially when the amount of money that they are going to fork over is over $282 thousand dollars.

Let’s presume that the bank has looked over the Registry documents to make sure that there isn’t an encumbrance on the property, such as another mortgage or a lien. The condo was paid in full so that looked good to the bank. The records also showed that there was no lien on the property and it really belonged to Mr. and Mrs. Rabi-Shafiei.

What the bank failed to do was to ascertain as to whether or not the purchaser of the property really was whom he claimed he was. The bank could do a credit check with Trans Union on the Internet but it would require written permission from the person to whom the report relates. That would be easy. The scam artist would simply give the bank his written authority. However, Trans Union would want more info before giving out that info just to anyone, including anyone in a bank. If the person who was the legitimate Ion Rosu had made enquiries in the past with Trans Union, they would know particulars about his creditors whereas the scam artist would not. However, if the real Ion Rosu had never made an enquiry as to his credit status with Trans Union, he would not necessarily know everything about his creditors. If the real Ron Rosu had a good credit rating, then the major hurdle facing the scam artist would have been surpassed.

The bank however should have looked further into the history of Ron Rosu. They should have thought it strange that the credit bureau would show him as living in Thunder Bay, which is 927 kilometres northwest of Toronto and not at the address given in Toronto. A simple phone call to his home or his place of work in Thunder Bay would have established in the mind of the loans officer that the real Ron Rosu is not sitting in front of him or her at the time the call was being made. Further, another phone call to the home of the Rabi-Shafieis; day or night would have warned the bank that something was not right.

I don’t know what steps the bank did or didn’t do to establish the authenticity of the application for the mortgage written by the so-called purchaser of the condo in Toronto but it is suffice to say that it failed to establish the legitimacy of the man making the application. Two simple phone calls would have been sufficient to avoid the problem that followed.

Now the question that comes to the fore is; why does the insurance company insist that the Rabi-Shafieis had to apply to the province's Ontario Land Titles Assurance Fund to compensate them for their mortgage liability when in fact, they didn’t apply for the mortgage or receive the money since in fact, it was the bank that made a stupid blunder in giving the money to a thief?

I will quote from an American textbook on law called West’s Business Law. It says in part on page 28:

“It cannot be denied that in the pursuit of self interest, people sometimes behave unethically in the business context, just as they do in their private lives. Some businesspersons knowingly engage in unethical behavior because they think that they can get away with it.” unquote.

In Canada, there was a case heard by the Supreme Court of Canada involving a defendant called Pilot Insurance. This insurance company decided that they would not pay any money to a family for the loss of their home by fire because they insisted that the fire was brought about by arson committed by a family member. They even went as far as talking the fire marshal into changing his mind and saying that the source of the fire was not electrical but the result of arson. The case end up in court and the jury was so incensed by the bad faith of the insurance company that not only did they find in favour of the family but they tacked on a million dollars as punitive damages against the insurance company. The insurance company appealed and had it reduced to a hundred thousand dollars so the family appealed to the Supreme Court of Canada. That court said that the million-dollar award in punitive damages was appropriate by saying in part:

“The respondent insurer's conduct towards the appellant was exceptionally reprehensible. It forced her to put at risk her only remaining asset (the $345,000 insurance claim) plus $320,000 in costs that she did not have. The denial of the claim was designed to force her to make an unfair settlement for less than she was entitled to. The conduct was planned and deliberate and continued for over two years, while the financial situation of the appellant grew increasingly desperate. The jury evidently believed that the respondent knew from the outset that its arson defence was contrived and unsustainable. Insurance contracts are sold by the insurance industry and purchased by members of the public for peace of mind. The more devastating the loss, the more the insured may be at the financial mercy of the insurer, and the more difficult it may be to challenge a wrongful refusal to pay the claim.” unquote.

In my opinion, the actions of the bank’s insurance company whose interest is protecting its own money by refusing to accept the premise that the bank has to accept its own loss in the fraud committed against it by the scam artists, is reprehensible.

The bank to its credit, wasn’t at that present time, taking steps to seize the home of the Rabi-Shafiei family but unfortunately, the credit rating of that family had dropped considerably since technically, the bank could still act against them if they so chose to do so. I doubt however that the bank would succeed in court, as there is no privity of contract between it and the Rabi-Shafieis.

What the bank should have done was accept their loss and claim against their insurance company. But it appears that the bank didn’t go that route and that is why the words ‘bad faith’ is so appropriate in a situation like this one. 

Many years ago, a woman came to me and asked me to accompany her to a Toronto Police Force detachment. She wanted the police to investigate a fraud that was committed against her.  

She and her husband had signed a mortgage agreement with a bank.  She and her husband were also separated.  

Unbeknown to the wife, her husband had secretly sold their house and pocked the money and then caught a flight to Italy and disappeared from sight.

The bank approved the sale of the house and now they were demanding the unpaid mortgage from the wife.  

I have no idea as to how that situation was resolved but I did tell her to go to Ontario Legal Aid and get a lawyer to assist her.

It seems to me that the bank should write the loan off since they approved of the sale without first meeting with the wife who was also listed as a signor on the mortgage document.