Detecting Identity Fraud

Lawyers must be vigilant about the potential for identity fraud, even after having identified and verified clients. If something does not seem right about a transaction that comes into your office, ask questions.

Individual Identity Fraud

Let’s look at one well know identity fraud scheme as an example:

In a typical variation of this scheme, fraudsters identified properties which were mortgage-free. They obtained false drivers’ licenses in the names of the owners, then applied for private mortgages. The interest rates on the loans were typically higher than rates offered by chartered banks. The fraudsters instructed their lawyers to advance funds from trust to third parties who were alleged to be contractors performing renovations. The aggregate advances were equivalent to the full mortgage proceeds. Ultimately the homeowners, who had no knowledge of any of this, ended up with a mortgage on their homes.

This scenario should raise a couple of red flags:

• It’s unusual for a client with significant equity borrow from a private lender at a high interest rate. Asking about unusually high interest rates can be an important part of fraud prevention.
• It’s unusual to pay out the full amount of proceeds to contractors before completion of the renovations. This is something else that should cause you to ask some questions.

In addition to asking questions, these red flags are a signal to pay special attention to the client’s identification. Some tips include:

• Familiarize yourself with the security features of Saskatchewan driver’s licences.
• If you are obtaining licenses from two clients, compare the driver’s license numbers. No two licenses will have the same number.
• Consider the client’s age. Are they old enough to have owned the property for as long as is indicated on the title?
• Did your client have their ID in hand, ready to present to you? Most clients’ will not. They will typically need to go into their wallet or purse.

See LawPRO’s Real Estate Scams Fraud Watch for additional information and tips on corporate real estate fraud.

Corporate Identity Fraud

Corporate identity theft is also increasingly common.

Let’s look at another example:

In these cases, the fraudsters will often have filed a Notice of Change of Directors for a corporation. They will pose as the new directors or officers, using fake identification to do so. They will retain a lawyer to help them mortgage the corporation’s property. Again, private lenders are often involved in these mortgages.

Red flags to watch for here are:

• Recent changes to the directors and officers, particularly if they have occurred after a long period without any change in control of the corporation.
• Clients’ retaining a new lawyer – you – to register the new mortgage after previously retaining a different lawyer to do corporate filings, such as the change of directors, or to discharge previous mortgages.

See Recognizing the red flags of real estate scams involving corporate identity theft for additional information and tips on corporate real estate fraud.