Forgery risks in mortgage transactions

March 23, 2011

The Law Society has learned of forgeries of lender payout and information statements that may create a risk to lawyers. The forgeries are allegedly carried out by a person holding herself out as the owner of properties registered in the name of Kiranjit Kaur Cheema, but others may try and perpetrate similar frauds.

Here is what occurred. A new lender was prepared to loan the purported owner money as long as there was sufficient equity in the property. In one transaction, the purported owner provided the existing mortgagee's payout statement. In another, the information statement. Both statements appeared to be genuine bank documents and showed significantly less outstanding than was actually owed. Both were relied on in advancing funds. And in both, the lender was left without the expected security for the loan.

Lawyers can help protect their clients and themselves from the risk of forgery through prudent practice. Insist on receiving statements directly from the lender who holds the existing mortgage. Do not accept statements provided by or through the borrower. In addition, if you act for the borrower, word your undertaking carefully to ensure that it deals only with matters within your control. For instance, unless you have a registerable discharge in hand, avoid simply undertaking to provide this document as it is one that only the lender can provide.

And protect yourself from becoming the victim of fraud by an employee. For example, a scheming employee might actually retain you on a loan transaction and then use that transaction as a means to access funds. If a fraud involves a lawyer's employee, the lawyer's professional liability insurance policy will not cover any losses suffered, or liabilities to which the lawyer is exposed.

The risks of fraud in real estate, as well as the risks of employee fraud, are ever present. Learn about both by reading the materials in Fraud Alerts on the Law Society's website.