Justice Committee on Oct. 5th, 2009

[The Chair, Conservative, Ed Fast]

Thank you.

We'll suspend for five minutes.

[The Chair, Conservative, Ed Fast]

I call the meeting to order.

We're reconvening the meeting of the justice committee. We'll now proceed to our ongoing review of Bill S-4, An Act to amend the Criminal Code (identity theft and related misconduct).

We have before us as a witness Wendy Rinella, vice-president of the Title Insurance Industry Association of Canada.

Welcome, Wendy, to our meeting. I think you understand the process. You'll have 10 minutes to make an opening statement, and then we'll allow members of the committee to ask questions.

So please go ahead.

[Wendy Rinella, Vice-President Corporate, Title Insurance Industry Association of Canada]

Thank you very much, Mr. Chair, for the opportunity to appear before this committee.

Our association is the Title Insurance Industry Association of Canada. We are federally regulated title insurance companies. The objects and purposes of our association are to promote the common interests and concerns of the title insurance industry in Canada, to provide information and education to its members and the public, to advocate for the betterment of and on behalf of the title insurance industry, and to maintain professional standards and ethics in the title insurance industry in Canada.

Our association is supportive of Bill S-4 and the importance of strengthening the provisions related to identity theft and fraud. My comments here today are in no way meant to be interpreted as a lack of support for the bill, but rather as an attempt to strengthen provisions to deal with the devastating crime of title and mortgage fraud.

Title insurance is a relatively new product in Canada, so I'm just going to give a little bit of background about it. It protects the holder of an interest in real property, either as an owner or as a lender, by indemnifying against loss that may be suffered if title is other than as stated in the policy. It includes a duty on us, the title insurers, to defend the insured’s interest in the title in addition to an indemnity coverage.

As title insurers, we provide policies to all parties involved in a transaction, whether they be owners, borrowers, buyers, or lenders, and on both sides of the equation. Title insurers are on the front line of preventing mortgage and title fraud. We have accumulated expertise in detecting title and mortgage fraud, and this allows us to prevent fraudulent mortgages from being granted by Canadian financial institutions, which clouds the title of innocent homeowners and potentially leads to increased fraud claims in the public system.

Let's talk about real estate fraud. It includes both title fraud and mortgage fraud. It's a sophisticated white collar crime that relies on knowledge of real estate conveyancing and mortgage lending professional practices. Typically, a fraudster targets a house, forges a transfer deed—that's the title fraud—registers the title to the property in his or her own name, forges a discharge of the existing mortgage, and borrows against the clear title—that's the mortgage fraud. In the event of identity theft, a victim faces financial losses, banking issues, and ruined credit history.

We, as title insurers, estimate the average case of real estate title fraud in Canada to be in the range of $300,000. In comparison, the RCMP pegs the average credit card scam in Canada to be around $1,200. The impact of real estate fraud on the victim is extensive. It's not only loss of credit rating; they may lose access to their property, may be saddled with an unpaid mortgage, and may be facing litigation.

I'm going to give you some real-life examples of what has happened to people in Canada. Some of you may be familiar with them.

Snowbirds returning home are greeted by a new homeowner at their door—an innocent third party who's bought the home from a fraudulent conveyor.

A landlord is faced with a new owner of his or her rental property when a tenant fraudulently conveys that property.

The spouse maintaining the home in a divorce finds a foreclosure sign on the lawn because the former spouse has taken out a new mortgage with the assistance of an impersonator, usually a new boyfriend or girlfriend or a family member. This is very common.

A child with the same name as a parent mortgages the parent’s property and absconds with the money. One of our companies is in the midst of litigation over this exact issue.

A fraudster makes a bona fide purchase and then flips the property several times to straw buyers to defraud lenders, also known as the “Oklahoma flip”.

A real estate agent makes a fake MLS listing and sells the non-existent property to immigrant investors.

A lawyer does not pay off a mortgage to obtain a discharge, but rather takes the money, and the new owner is subject to the prior mortgage. This case in B.C. was probably the biggest case of real estate fraud in Canada. It was exactly that the lawyer had not discharged the prior mortgages.

We also see fraud on commercial properties with impersonation of corporate directors. A title insurer recently paid $876,000 in order to resolve the claim for the insured lender. A fraudster filed a forged notice of change, appointing himself as the director of a corporation. The fraudster obtained a first mortgage that was title insured. Shortly after closing, the mortgage went into default, and the fraud was discovered when the insured lender initiated mortgage enforcement proceedings.

Well, these crimes often go unpunished or lightly punished. According to Gary Ford, who's the author of The Canadian Guide to Protecting Yourself Against Identity Theft and Other Fraud, which I'm sure every member of this committee has read:

The risk of Jail time is not strong in Canada. For example, there was a recent case of one convicted mortgage fraudster who was sentenced to 30 days in jail to be served on weekends. Another fraudster convicted of 33 charges of fraud was sentenced to 38 months. Not much of a deterrent considering the large sums of money involved.

So what are we recommending to the committee today? Well, number one, we'd like to see you improve sections 386 and 387 so that they can be used, and educate the police force on how to use them. I know the latter part is not really your role. Second, we’d like to see real estate fraud added to subsection 380.1 as an aggravating circumstance, in terms of sentencing, and that the maximum penalty for fraud be increased from the current 14 years.

Let’s talk about sections 386 and 387. We've raised this point with the minister. As well, I believe Mr. Comartin has raised this issue with the learned adviser from the Department of Justice. In both cases they indicate that these sections are rarely used. Our view is that they should be improved if they are rarely used, so that they can be used effectively. Furthermore, as the RCMP commissioner advised this committee in his comments, police forces need to be educated on how to apply these sections.

The federal government needs to act to strengthen the provisions of the Criminal Code to ensure that the fraudsters who commit real estate fraud are prosecuted. In my brief I have the following highlighted in bold print: “Steal a homeowner’s title or equity in their property and there should be mandatory jail time. In Georgia, there’s a minimum of one year for a first offence and three years for a second offence.”

Currently, section 386, “Fraudulent registration of title”, and section 387, “Fraudulent sale of real property”, of the Criminal Code should address real estate fraud but are deficient in a number of ways. Section 386 imposes three hurdles to a conviction. The crime must have been, one, committed “knowingly”; two, “with the intent to deceive”, and three, by making a “material false statement or representation”.

Section 386 contains no minimum penalty like Georgia's does. Section 386 does not include other persons involved in the fraudulent process, such as the recipient of the fraudulent funds, or does not include the registration of a fraudulent instrument.

Section 387 is limited to fraudulent sales and excludes fraudulent mortgages, and section 387 is limited to where the accused knows “of an unregistered prior sale”, which makes conviction under this section difficult.

Let’s talk about subsection 380.1 and the proposed increase in the maximum penalty.

Our related concern is that some of the sections related to identity fraud may be difficult to apply in the cases that we’ve seen in title fraud and mortgage fraud. For instance, in the aforementioned case, where family members have the same name--which I refer to as the George Forman phenomenon--and in the case of an abused power of attorney, I raise whether the court will be able to apply the impersonation or identity fraud sections.

I also note that we are seeing many different types of forgeries. We’ve seen a forged MLS listing, a forged registration of corporate directors, forged corporate signing officers, etc. It is likely that we will see more and varied approaches in the future.

I believe that the minister noted when he was here that this legislation was “just catching up” and that it was focused on ensuring that identity theft, the enabler to identity fraud, also be a crime. I fully agree, but I also want to ensure that the $300,000 crime carries a stronger penalty than the $1,200 crime. I think it’s incumbent on legislators to ensure that there are no loopholes when a homeowner is deprived of equity or title to their property. Again, we believe the perception is that there are nominal penalties related to real estate fraud and that they go unpunished. So we’d recommend that these crimes be included as aggravating circumstances and the maximum penalty be raised.

Thank you very much. I look forward to your questions.

[The Chair, Conservative, Ed Fast]

Thank you very much for your presentation.

I believe, Mr. Murphy, you are going first. You have seven minutes, if you need them.

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

What I understand about property registration.... I understand what you're saying, and I know it happens, but in order to perpetrate the fraud that will result in the fraudulent registration of title or fraudulent sale of real property--maybe not in all cases, maybe you have first-hand knowledge, so you can educate us--wouldn't you think most of the people would already have gone through the wicket of committing one of the crimes of identity theft to do so? In New Brunswick, at least, and under land titles across the country, I think you have to provide documentation. Personification, I guess, is one of the code provisions. Another one is identity theft. I mean, aren't there already...?

Let's put it this way, bluntly. I understand that sections 386 and 387 are specifically identifying the actual crime that you'd like covered, that you deal with, that you pay out claims on. I understand that. If it doesn't go beyond the scope of the bill, certainly, we'll look at that--it seems very reasonable--but are the actions that underlie sections 386 and 387 not already covered by the Criminal Code and these amendments?

[Wendy Rinella]

I'm sorry, I don't understand the question.

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

Say you have a fraudulent registration of a title. Somebody does that by using somebody else's identity, by pretending to be someone else. Don't they already commit a crime that is either covered in the code already or by these provisions?

[Wendy Rinella]

Yes, except in the case where they've abused a power of attorney. They can actually take a power of attorney and go forward and say they have the authority to convey or to mortgage a property. So the issue is whether or not they've applied the power of attorney according to what they were entitled to do. So we've seen some fraudulent use of powers of attorney, which I don't believe are covered in terms of the identity theft provisions.

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

Of course, there are civil remedies for that.

When you said “fraudulent use of powers of attorney”, I thought you initially said going beyond the authority of a power of attorney. Beyond that, there would be a fraudulent use, which is perhaps something more than that—and none of that involves an identity.

[Wendy Rinella]

There are two types.

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

But there are civil remedies for that, of course.

[Wendy Rinella]

Yes.

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

And there must be a criminal remedy for a fraudulent use of a power of attorney.

[Wendy Rinella]

Yes, there would obviously be for fraudulent use of a power of attorney, but abuse of a power of attorney—thank you for mentioning that—I don't believe is covered.

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

So when you raised the point with the minister that it's not in the bill—and I see you have two lines on that, but I guess that's why we're here—what was the response? Could you flesh that out? You only have a line there.

[Wendy Rinella]

Would you like me to read the letter?

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

Well, it's only one line. Was it you personally who went to the minister?

[Wendy Rinella]

We wrote a letter as an association and made the same recommendations. The minister responded by indicating that the sections of the code were rarely used.

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

That's the extent of the response you and Mr. Comartin received, that it's not you, so we won't make it better.

[Wendy Rinella]

No, the minister wrote:

You specifically cite sections 386 and 387 of the Code, which pertain directly to certain aspects of fraudulent real estate transactions. It's my understanding that these offences are not charged often; rather, the general fraud offence under section 380 of the Code would be the offence most frequently charged for the crimes you are concerned about. This fraud offence is broadly worded and very familiar to prosecutors and judges. The essence of fraud is a deception of some kind coupled with an actual deprivation of money or property, or merely a risk of such deprivation. When coupled with section 21 of the Code, which makes everyone who participates in crimes that are committed by others guilty of those crimes as well, I believe the fraud offence covers all manner of fraudulent acts.

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

In closing—and I speak to the parliamentary secretary when I say this—maybe it's because Mr. Comartin intervened that the government didn't put this in. It seems like a very interesting, efficacious, and easy amendment to do in that it's not used very often. I don't use my fire extinguisher over my kitchen vent hood very often, or hardly ever, but I want it to work and be up to date.

So let's get with it, Mr. Parliamentary Secretary, and listen to the people—and even Mr. Comartin. That's all I have to say.

Thank you.

[The Chair, Conservative, Ed Fast]

Thank you.

We'll now move to Monsieur Ménard for seven minutes.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

I looked at your examples of cases for homeowners. I am trying to understand what you are doing. Do you not realize that the practice in Quebec is very different from the other provinces?

[Wendy Rinella]

In Quebec there has been some fraudulent activity. I believe there was a case involving a journalist, a quite high-profile case. The most famous real estate fraud case in Quebec involved former La Presse journalist, François Trépanier, where fraudsters made away with $243,000 and forced Mr. Trépanier to endure considerable stress and legal costs to win back the title to his home in Montreal.

Generally if a fraudulent transaction takes place in Quebec, the innocent victim must first pursue the notary who completed the transaction. Then they have to go to court. It's litigated through the civil justice system. They're usually paid out through the notary's errors and omissions insurance.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

In Quebec, none of these things can be done without a notary.