Justice Committee on Oct. 5th, 2009

[Wendy Rinella]

There are a lot of cases where legal professionals across the country have been duped. There are also cases where there have been fraudulent notarial offices and law firms developed and sent to mortgage brokers for mortgage fraud.

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

You realize that in the rest of Canada, they do not have notaries like Quebec's. In fact, what the rest of Canada calls “notaries” are actually commissioners of oaths. Since all civil law countries have notaries, none of these things are possible without the complicity of a notary. Clearly, if a notary was caught doing such things, he would lose his licence. In any case, notaries pay a rather high fee every year to compensate all victims of notarial acts. Is that right?

[Wendy Rinella]

In a word, no. There are many cases where legal professionals, notaries in Quebec as well as notaries in B.C., real estate professionals across the country, are duped by fraudsters; and it's not the fault of the notary and it's not the fault of the lawyer. So they are not involved or complicit in the action; they've actually been duped by a fraudster as well, who claims to be the owner of a property but is actually not the lawful owner and has a mortgage conveyed, and then it's registered. So it does happen.

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

Yes, but to register a mortgage, you need a notarial act, which means you have to go to a notary who has a practice and who is monitored by his professional association.

[Wendy Rinella]

There are places across Canada, both in B.C. and in Quebec, where a legal professional has to witness the document and sign and certify—it's not uncommon just to Quebec—and they have been duped. I'm sorry, but they have. They do end up putting fraudulent instruments on the land title office or on the registry system, and it has happened in every province, unfortunately.

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

Regardless, we are here to discuss identity theft. I think that in the legislation we have here, anything that relates to identity fraud, you would find satisfactory.

[Wendy Rinella]

Absolutely. We would just like to ensure that if there is real estate or title fraud, which you can think of as the jackpot of identity theft, there are provisions that capture the unique cases and the amount of devastation that creates. I think we have sections of the code that deal with that specifically, and as the member previously indicated, If it's broke, let's fix it.

[The Chair, Conservative, Ed Fast]

Thank you very much.

We'll move on to Mr. Comartin for seven minutes.

[Joe Comartin, NDP, Windsor—Tecumseh, ON]

Thank you, Mr. Chair; and thank you, Ms. Rinella, for being here.

We heard from the RCMP in previous testimony that identity theft was costing the Canadian economy about $2.5 billion a year. I don't think any of us asked them if real estate fraud was included in that figure. Do you know how many incidents there are? If the average transaction costs $300,000, do you know how many transactions there are in Canada per year of this nature?

[Wendy Rinella]

There have been many estimates. Generally what you see is that a lot of financial institutions just pay it out. There isn't one steadfast number out there. In Alberta, the real estate fraud committee reported that there were 2,750 incidents of real estate fraud for one year, in 2008. Based on that estimate, I've seen anything upwards of between $1 billion and $3 billion in terms of real estate fraud.

[Joe Comartin, NDP, Windsor—Tecumseh, ON]

I know the answer to this, but I just want you to share it with the committee. In terms of specific amendments to sections 386 and 387 that would strengthen them, do you have any specific recommendations on that?

[Wendy Rinella]

I can refer you to a bill from Georgia, which is the Georgia Residential Mortgage Fraud Act. It sets out a very good definition of what mortgage fraud should be.

They've identified that:

A person commits the offense of residential mortgage fraud when, with the intent to defraud, such person:

(1) Knowingly makes any deliberate misstatement, misrepresentation, or omission during the mortgage lending process with the intention that it be relied on by a mortgage lender, borrower, or any other party to the mortgage lending process;

That's very similar to what we have now in section 386, but it goes on to state:

(2) Knowingly uses or facilitates the use

—which is distinctive and different from what we have in section 386—

of any deliberate misstatement, misrepresentation, or omission, knowing the same to contain a misstatement, misrepresentation, or omission during the mortgage lending process with the intention that it be relied on by a mortgage lender, borrower, or any other party to the mortgage lending process;

This is where we have recommended this also be included in section 386:

(3) Receives any proceeds or any other funds in connection with a residential mortgage closing that such person knew resulted from a violation of paragraph (1) or (2) of this Code section;

So they don't have to knowingly do something, they just have to be with an intent to deceive. If you receive the proceeds of a transaction, we're saying, and they're saying in Georgia, that should be cause enough to send you to jail.

(4) Conspires to violate any of the provisions of paragraph (1), (2), or (3) of this Code section;

So we don't currently have “conspiring.” And subsection (5) is related to title:

(5) Files or causes to be filed with the official registrar of deeds of any county of this state any document such person knows to contain a deliberate misstatement, misrepresentation, or omission.

This type of definition is actually quite consistent with what CMHC has been using in terms of its definition—anything that's a misrepresentation, misstatement, or omission. So that's the type of fullness that we would like to see brought to this legislation.

[Joe Comartin, NDP, Windsor—Tecumseh, ON]

Have you shared that with the Department of Justice or the minister's office?

[Wendy Rinella]

I believe we had some discussions with them--not me personally, but other members of the Title Insurance Association.

[Joe Comartin, NDP, Windsor—Tecumseh, ON]

Finally, with regard to amending section 380.1, if I understand what you're suggesting, it's simply that real estate fraud be added as one of the aggravating factors.

[Wendy Rinella]

Yes. We firmly believe that if you steal someone's title or their equity in their home, it should be an aggravating factor under these offences.

[Joe Comartin, NDP, Windsor—Tecumseh, ON]

This is a supplementary question. Are you restricting it to residential properties, or are you including commercial properties in that?

[Wendy Rinella]

I would include all properties, even leasehold interests on native lands. I would be very extensive in what's captured.

[Joe Comartin, NDP, Windsor—Tecumseh, ON]

Those are all my questions, Mr. Chair.

Thank you.

[The Chair, Conservative, Ed Fast]

Thank you, Mr. Comartin.

We'll move on to Monsieur Petit, for seven minutes.

[Daniel Petit, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Thank you, Mr. Chair.

Ms. Rinella, I am going to ask you the same question you were asked earlier. Nine provinces and three territories use the double mandate system, that is, a person can be a notary and register mortgages, and also be a lawyer. But in Quebec, the profession was split in two categories: notaries and lawyers.

Title insurance is a unique practice that comes to us from the United States. When you buy a piece of land in that country, given that all land came from the US government and was then transferred to private owners, it can be difficult to know the true identity of the person who sold the land or who asked the bank for a mortgage. In actual fact, it is an identity problem.

I know that something like this could happen in common-law provinces or during the sale of crown land in the north or elsewhere. The Criminal Code also applies to Quebec. What you are asking us to do would hardly apply to Quebec at all.

In the legislation that we put forward and that addresses identity theft, would you be satisfied with simply making it an aggravating circumstance? There is a difference between making it an aggravating circumstance and making it a separate offence. If a judge was considering a case of real estate fraud in Quebec, and neither was the notary involved nor was there a series of identify of thefts, in terms of a conviction, would you be satisfied with the aggravating circumstance or would you need a specific offence?

[Wendy Rinella]

There is a specific provision in the code already. What we're asking is that it be updated and amended to make it effective. So there's already a section in the code. What we understand is that it's not being used effectively. It's not being used as frequently. We'd like it to be updated so that it can be used. I'm not asking for a new section. I'm just asking for the existing section to be more relevant and thus applicable.

In terms of making it an aggravating circumstance, I'll take whatever you give me. How's that? I'm not here to negotiate, but I'm happy to. If the committee would take at least one of our recommendations, we'd be delighted.

Thank you.

[Daniel Petit, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

I read your document, and I looked at the examples you provided. They are on page 2 of the English version. As mentioned by my colleague, Mr. Ménard, a former Quebec justice minister, it barely applies to Quebec. I have been a lawyer for 35 years—not a notary—and I can tell you that it hardly applies. I understand that it is applicable in the other nine provinces, but I am trying to see how it will be applicable in Quebec. If we vote for an amendment, I then have to be able to explain how it will work.

How do you think this could be applied in Quebec with respect to a mortgage or the sale of a home that is registered with a notary?

[Wendy Rinella]

As a member pointed out previously, identity theft is covered within the bill and there is a section that currently exists in the Criminal Code that talks about fraudulent registration as well as fraudulent registration of a mortgage.

We would like to ensure that if somebody is convicted of a fraudulent transaction either through title and transfer of title.... I appreciate that it doesn't happen as extensively in Quebec as it does in other provinces, but we have paid out mortgage fraud in those provinces. I know the notaries have a role where they act for both parties in the case of a mortgage. They sign and authenticate the document, and there have been cases where the enforceability of a mortgage that has been notarized has been fraudulent and we have paid that out. So it does apply in Quebec. And again, the notary is not complicit; they play a limited role. They are reviewing the identity of the person, they are reviewing the description of the property, etc., and the terms of the mortgage. I appreciate that it's not as extensive, but it does happen. We are recommending that if that person obtains that mortgage in a fraudulent manner, we would like to ensure it is captured by section 386 and section 387, because fraudulent mortgages are not covered by section 387 as it stands right now.

So there are a number of tweaks that we'd like to see made to section 386 and section 387 to make them more powerful and more up to date. I hope that answers your question.

[The Chair, Conservative, Ed Fast]

Thank you.