Mortgage fraud complaints in B.C. soar along with house prices
A review of B.C. regulatory filings points to a growing number of mortgage fraud cases involving fake incomes, phoney offshore collateral, and false tax information in schemes allegedly connected to real estate professionals operating in B.C.’s growing shadow banking sector.
Postmedia reported Saturday that shadow lenders — non-banks that are not federally regulated — have rapidly increased their share of Canada’s mortgage market in recent years, as Ottawa has tightened lending standards for Canadian banks. Many of the big loans issued in Vancouver before 2017 won’t be insured again, a Bank of Canada report says. As a result, according to a number of experts, an increasing number of borrowers are turning to shadow banks for loans in Vancouver’s hot market, and the private lenders in this growing sector are more prone to fraud and careless lending.
Chris Carter, B.C. registrar of mortgage brokers at B.C.’s Financial Institutions Commission, or Ficom, said the agency is experiencing an increase in mortgage fraud complaints, and “recently recruited dedicated staff to implement a more ambitious program of risk-based examinations.”
Ficom’s statistics show complaints roughly doubled from 109 in 2013 to about 200 in 2016, and about a third of complaints allege loan application fraud.
Canadian housing analysts Hilliard MacBeth, Ben Rabidoux and Vancouver short-seller David LePoidevin say mortgage fraud cases they are seeing in B.C. are similar to the dodgy loans that were exposed after the U.S. subprime meltdown of 2008. All three analysts said they expect B.C.’s fraud problems will be exposed when prices correct and the real estate collateral that backs loans is reduced in value, which could trigger a domino-like drop in the market.
“I’m selling my home in West Vancouver,” LePoidevin said. “I think we could see a disaster in B.C.”
A number of cases reviewed in Postmedia’s investigation illustrate the creative documentation and methods that some borrowers and brokers appear to be using to get home loans in Metro Vancouver.
In a March 2017 notice of hearing, Ficom alleges that a sub-mortgage broker from Surrey named Dennis Rego, of the company Shank Capital Systems, provided fabricated home purchase and sale contracts, and faked income and offshore collateral information, for numerous mortgage applications made for several closely related borrowers. The borrowers included two families who were seeking financing for three multimillion-dollar homes in Vancouver’s South Granville area.
Since about 2010, this area of Vancouver has become synonymous with speculation and offshore investment, veteran realtors say.
For one of the borrowers, Ficom alleges, Rego submitted at least seven misleading mortgage applications. At first, the unidentified borrower was reported to be a “cook” with a $50,000 annual income and Canadian savings of $85,000. Next, the borrower was said to be a mechanical engineer, then an “assistant chef.” In yet another application, the borrower was reported to be a “real estate investor” who had Canadian savings of $800,000, foreign savings of $500,000, and offshore real estate investments worth $5 million. Finally, the borrower was reported to be the part-owner of a related borrower’s company, and reportedly possessed “foreign liquid assets” worth $400,000, and offshore real estate worth $1.5 million.
Rego’s company is now closed, a number he was listed at is out of service, and he could not be reached. None of the allegations has been proven and no defence has been called yet.
In another Ficom notice of hearing, posted in March, staff accused sub-mortgage broker Anil Kumar Singh of submitting false financial information for at least six different borrowers, including a self-employed nail salon worker, a personal maid, a self-employed construction worker, a fish filleter, and a self-employed landscaper. Singh failed to confirm the accuracy of documents for another 22 mortgage applications, and submitted altered Canada Revenue Agency documents, according to the Ficom allegations.
In an interview with Postmedia, Singh said he strongly denies the allegations, and that he believes fraud is widespread in B.C.’s mortgage lending industry because brokers are poorly trained to verify loan application information, and speculative buyers are gaming the system.
“The market in the Lower Mainland is like a wildfire, because people are borrowing in a huge way,” said Singh. “And foreign buyers have impacted the market, because of the loopholes in the lending system. How can people buy a $2.5-million home when they have hardly any income?”
Singh said that Ficom is unfairly cracking down on him because of a half-dozen erroneous notice of tax assessment documents that he believes borrowers submitted to him, knowing they were false, when he was an inexperienced broker.
“I don’t want to hide anything because I’m not guilty. The training for mortgage brokers is almost zero,” Singh said. “It is the clients that are doing wrong, because they don’t have any fear. I think it is a big gang operating in the market.”
Singh believes lenders are often complicit in accepting fraudulent loan applications.
“They have well-trained staff. How can they miss all these cases?”
In another case, involving tax documents, an agreed statement of facts in a 2016 Ficom consent order states that while working for Dominion Lending Centres Gold Financial Services, Jorawar Gosal “altered” borrowers’ Canada Revenue Agency documents in order to inflate incomes for mortgage applications. Gosal was reached at the phone number listed in an online ad that says he is a real estate agent in Surrey. In a brief call, Gosal said that he is not a real estate agent, and that he has no comment on Ficom’s consent order.
Details of a Ficom cease and desist order, which Ficom filings say was issued without a hearing due to the seriousness of the allegations, indicate Ficom staff investigated Rani Kaur Gill, an unregistered broker. Calls by Postmedia to Gill’s listed number have not been returned.
Gill placed an ad with an unidentified realtor, the investigation showed, which said: “When everyone says ‘No’ call Rani and get your mortgage done.”
Gill’s clients did not speak English, and included new immigrants, first-time home buyers, and those with low income and bad credit, according to the investigation. Ficom employed undercover investigators to do a sting, the order says, and an investigator posed as a property buyer. Ficom alleges that Gill told the undercover investigator that she would falsely tell lenders that he lived in a property that he planned to rent out, and this would get him a better deal with the bank, and save him money on taxes when he sold the property. And if he needed to borrow money to meet a loan’s downpayment requirements, Gill said, “then we make a gift letter. Then we tell them my parents, or whatever, they’re going to give us a gift.”
None of the allegations has been proven and no defence has been called yet.
Other Ficom investigations involve mortgage investment corporations, which are a growing portion of B.C.’s shadow banking market, but are not always visible to Ficom.
“We don’t have statistics on mortgage investment corporations (as) most are not publicly traded,” Carter said. “But we monitor that sector very closely.”
On Friday, the executive director of the B.C. Securities Commission issued a notice of hearing alleging three men and two mortgage investment corporations “committed fraud.”
From 2011 into 2013, respondents Donald Bruce Wilson, David Scott Wright, and Patrick Prinster, “raised approximately $1.1 million from 40 investors,” and told investors their money would be invested “in mortgages secured by real estate,” the notice of hearing alleged. Instead of investing in mortgages, the mortgage investment corporations put “the majority of the investors’ money to other companies related to the respondents, business expenses, and commissions to finders,” the notice alleged.
None of the allegations has been proven and no defence has been called yet.
In an April 2017 notice of hearing, Ficom alleged that Dominion Lending Centres submortgage broker Gordon Lemon altered a bank draft, misappropriated investor funds, and was guilty of misconduct in relation to three registered mortgage investment corporations, and one unregistered mortgage investment corporation. Postmedia’s efforts to reach Lemon were not successful. None of the allegations has been proven and no defence has been called yet.
In another Ficom case, an April 2017 notice of hearing alleges that Kevin Bownick of Port Moody failed to answer a summons and either “withheld, destroyed, concealed or refused to produce records” requested by Ficom investigators. Ficom investigators are trying to determine whether Bownick’s company, Como Lake Ventures Ltd., “is carrying on a business of lending money secured in whole or in part by mortgages,” with the proper registrations, or not.
An online ad for Kevin Bownick’s services says that “Kevin specializes in helping to match clients needing private second mortgages with investors willing to fund them … (he) understands how difficult it is sometimes for people to find bank financing.”
The ad says that services of brokers in the company include: “High-ratio Mortgages up to 100% financing on either a purchase or refinance; offshore investor mortgages; rental/investment Mortgages; 2nd mortgages.”
Calls to Bownick at Como Lake Ventures were not returned. None of the allegations has been proven and no defence has been called yet.
In an interview, NDP MLA David Eby said he believes Ficom hasn’t kept up with risks from the growth of shadow banking and loan fraud because the B.C. Liberal government understaffed Ficom. He said millions in fees from regulated industries, money that was intended to fund Ficom auditors, was instead put into general provincial revenues by the Ministry of Finance. A new NDP- Green government would make sure these fees go to staffing, Eby said, to “make sure we have sufficient auditors in place at Ficom, to make sure B.C. citizens are protected from a shock related to shoddy lending or fuzzy collateral.”
Eby pointed to the July 2016 report by B.C. auditor general Carol Bellringer, which noted Ficom’s lack of investigators for B.C. credit unions and pointed to understaffing concerns for other regulated entities.
In response to Eby’s criticism, a spokesperson for Finance Minister Mike de Jong told Postmedia that understaffing at Ficom was limited to staff overseeing credit unions.