An Ontario lawyer is calling on the province to do more to prevent real estate fraud by changing the regulations governing the electronic land registry system to restrict access to non-lawyers.
In a recent letter addressed to Teranet and the Law Society of Upper Canada among other parties, Shayle Rothman of Real Estate Lawyers.ca LLP referred to inquiries he made in 2013 to Teranet about the “obvious and reasonably foreseeable fraud potential” of its practice of allowing non-lawyers to register and discharge mortgages. Since then, Rothman wrote, “no relevant changes to your system have been made.”
Under the current system, Rothman says, lawyers can appoint delegates — normally law clerks or administrative staff — to register or discharge mortgages for them.
“When you come to your lawyer, you automatically, I’d presume, would assume that your lawyer is the only one who can register your mortgage and discharge your mortgage and register you as the owner of the property, and not [that] some receptionist who had access would be able to discharge your mortgage. You’re saying that just makes common sense. So here, that’s not the case.”
Though he concedes the numbers are hard to come by as victims of fraud aren’t likely to want to publicize it, Rothman suspects the amount of fraud that’s occurring because non-lawyers are able to register and discharge mortgages is huge.
“I’m sure if either of us knew the real number, our jaws would drop,” he says. “We’re talking huge sums of money. . . . It’s a huge risk.”
In one recent Superior Court case, a Brampton, Ont., couple, Dhanraj and Sumatie Lowtan, got approval for a loan of $280,801.95. A little less than a year later, a numbered company discharged the loan without the knowledge of the lender, Computershare Trust Co. of Canada. Having been discharged from this loan, the Brampton couple was then able to secure more loans, which they eventually defaulted on, from other lenders. “The registration of the fraudulent discharge was caused by the Lowtans and relied on by them as part of a scheme to obtain additional financing from subsequent chargees which financing would not otherwise have been available to them,” wrote the judge in CIBC Mortgages Inc. v. Computershare Trust Co. of Canada.
“So this numbered company has a Teraview stick, and they have credentials to go into Teraview,” says Rothman. “Because the system is not locked for anything other than ownership transfers, they were able to discharge a mortgage fraudulently. It was super easy for them to do.”
Rothman allows that both lawyers and non-lawyers can engage in fraud. But limiting the ability to register or discharge mortgages to lawyers would minimize the risk of fraud, he says, because lawyers, unlike law clerks and others, are subject to regulation by the law society and have a real estate practice endorsement from LawPRO. Real estate lawyers’ insurance, he says, also adds a layer of protection for the public and lenders.
“Lawyers have much to lose; non-lawyers not nearly as much,” he adds. His own firm, he says, allows only lawyers to register and discharge mortgages. Otherwise, he says, “One of my clerks could easily come in [to Teraview], commit a fraud, and register a mortgage on your property that you don’t owe a penny on. They could say that you owe them 500 grand. And now you have to spend legal fees and everything else to prove that’s not your mortgage.”
When he recently approached Teranet about his concerns, Rothman says, the company said it couldn’t unilaterally make such a change without direction from the province.
So he has since approached Ontario’s Ministry of Government and Consumer Services about the matter.
Asked to comment on Rothman’s allegations that the current rules leave Teraview open to fraudulent use, a spokeswoman for the Ministry of Government and Consumer Services didn’t respond directly. “Title integrity is of paramount concern in Ontario’s land registration system,” said Anne-Marie Flanagan. “As such, we take fraud very seriously.”
In 2006, the province passed legislation allowing only lawyers to sign land transfers “after extensive input from the real estate bar, and other members of the real estate industry,” she noted.
“While we cannot comment on the Computershare case, which we understand is under appeal, we can confirm that the land registration system will continue to consider additional options that will be effective to prevent title fraud.”
Rothman isn’t the only real estate lawyer concerned about the current regulations governing Teraview. Andrea White, a partner at Shibley Righton LLP, says the current system allows certain people not even associated with a law firm, such as title searchers, access to Teraview.
“It’s very unnerving for a lawyer because when you see a discharge statement and someone inserts your name, you have no way of knowing if they were authorized,” she says.
The new rules the province introduced in 2006 “substantially stemmed the issue,” she adds. And if Ontario adopts Rothman’s suggestions, mortgage fraud should continue to decline, she suggests.
White says the province may find itself under mounting calls to act. “If the banks and people are finding that this is going to be a new way of fraudulently dealing with things, I’m assuming there will be a fair amount of pressure on them — by the banks in particular — to make changes.”
In a recent letter addressed to Teranet and the Law Society of Upper Canada among other parties, Shayle Rothman of Real Estate Lawyers.ca LLP referred to inquiries he made in 2013 to Teranet about the “obvious and reasonably foreseeable fraud potential” of its practice of allowing non-lawyers to register and discharge mortgages. Since then, Rothman wrote, “no relevant changes to your system have been made.”Under the current system, Rothman says, lawyers can appoint delegates — normally law clerks or administrative staff — to register or discharge mortgages for them.
“When you come to your lawyer, you automatically, I’d presume, would assume that your lawyer is the only one who can register your mortgage and discharge your mortgage and register you as the owner of the property, and not [that] some receptionist who had access would be able to discharge your mortgage. You’re saying that just makes common sense. So here, that’s not the case.”
Though he concedes the numbers are hard to come by as victims of fraud aren’t likely to want to publicize it, Rothman suspects the amount of fraud that’s occurring because non-lawyers are able to register and discharge mortgages is huge.
“I’m sure if either of us knew the real number, our jaws would drop,” he says. “We’re talking huge sums of money. . . . It’s a huge risk.”
In one recent Superior Court case, a Brampton, Ont., couple, Dhanraj and Sumatie Lowtan, got approval for a loan of $280,801.95. A little less than a year later, a numbered company discharged the loan without the knowledge of the lender, Computershare Trust Co. of Canada. Having been discharged from this loan, the Brampton couple was then able to secure more loans, which they eventually defaulted on, from other lenders. “The registration of the fraudulent discharge was caused by the Lowtans and relied on by them as part of a scheme to obtain additional financing from subsequent chargees which financing would not otherwise have been available to them,” wrote the judge in CIBC Mortgages Inc. v. Computershare Trust Co. of Canada.
“So this numbered company has a Teraview stick, and they have credentials to go into Teraview,” says Rothman. “Because the system is not locked for anything other than ownership transfers, they were able to discharge a mortgage fraudulently. It was super easy for them to do.”
Rothman allows that both lawyers and non-lawyers can engage in fraud. But limiting the ability to register or discharge mortgages to lawyers would minimize the risk of fraud, he says, because lawyers, unlike law clerks and others, are subject to regulation by the law society and have a real estate practice endorsement from LawPRO. Real estate lawyers’ insurance, he says, also adds a layer of protection for the public and lenders.
“Lawyers have much to lose; non-lawyers not nearly as much,” he adds. His own firm, he says, allows only lawyers to register and discharge mortgages. Otherwise, he says, “One of my clerks could easily come in [to Teraview], commit a fraud, and register a mortgage on your property that you don’t owe a penny on. They could say that you owe them 500 grand. And now you have to spend legal fees and everything else to prove that’s not your mortgage.”
When he recently approached Teranet about his concerns, Rothman says, the company said it couldn’t unilaterally make such a change without direction from the province.
So he has since approached Ontario’s Ministry of Government and Consumer Services about the matter.
Asked to comment on Rothman’s allegations that the current rules leave Teraview open to fraudulent use, a spokeswoman for the Ministry of Government and Consumer Services didn’t respond directly. “Title integrity is of paramount concern in Ontario’s land registration system,” said Anne-Marie Flanagan. “As such, we take fraud very seriously.”
In 2006, the province passed legislation allowing only lawyers to sign land transfers “after extensive input from the real estate bar, and other members of the real estate industry,” she noted.
“While we cannot comment on the Computershare case, which we understand is under appeal, we can confirm that the land registration system will continue to consider additional options that will be effective to prevent title fraud.”
Rothman isn’t the only real estate lawyer concerned about the current regulations governing Teraview. Andrea White, a partner at Shibley Righton LLP, says the current system allows certain people not even associated with a law firm, such as title searchers, access to Teraview.
“It’s very unnerving for a lawyer because when you see a discharge statement and someone inserts your name, you have no way of knowing if they were authorized,” she says.
The new rules the province introduced in 2006 “substantially stemmed the issue,” she adds. And if Ontario adopts Rothman’s suggestions, mortgage fraud should continue to decline, she suggests.
White says the province may find itself under mounting calls to act. “If the banks and people are finding that this is going to be a new way of fraudulently dealing with things, I’m assuming there will be a fair amount of pressure on them — by the banks in particular — to make changes.”
