Stakeholders call for multi-factor ID verification to protect against real-estate fraud

Written by:  Nicole BrockbankFarrah MeraliJohn Lancaster · CBC News

When Stephanie logged online to pay her monthly bills last year she noticed something strange.

The mortgage she shared with her husband, Derrick, had disappeared from the home screen of her Canadian bank account. After making some calls, she found out her mortgage was closed.

“We knew something was wrong. We weren’t the ones to close our mortgage,” said Stephanie.

“But we didn’t know the extent of it.”

Stephanie and Derrick moved overseas for work about four years ago and had been renting out their fully-furnished Etobicoke home as an income property while abroad, they told CBC Toronto. The couple intended to move back in when they eventually returned home to Toronto.

But after finding out about the mortgage, things went from bad to worse. The couple’s property management company swung by their house only to have a stranger answer the door claiming to own the home.

And it turns out — when Stephanie and Derrick checked the title — the stranger did.

“That was probably when it really hit home that this wasn’t just some mistake,” said Derrick. “But legally, the system believes you actually no longer own your home.”

Stephanie and Derrick’s predicament made headlines earlier this month when Toronto police issued a press release for help identifying suspects involved in the fraudulent sale of the couple’s home without their knowledge. CBC Toronto is not using Stephanie and Derrick’s real names because they are the victims of identity theft.

The couple’s case is one of at least four in the Greater Toronto Area where homeowners had their houses sold out from under them by organized crime groups, according to a CBC Toronto investigation. Nearly a year after discovering something was wrong, Stephanie and Derrick are sharing their story to sound the alarm on how they say current identification requirements in real-estate transactions are failing to protect homeowners from fraud.

“All the things you need to provide to buy a house, no one ever checks if those match up when you sell a house,” alleges Derrick. “You trust these institutions to protect you and it feels like they’re doing whatever they can to do things as fast and as cheap as possible.”

The couple says the fraudsters who impersonated them to sell their house consistently spelled one of their last names wrong through the transaction, which was inconsistent with the fake ID they were using.

“I think that’s what scares you most,” said Derrick.

“You think well, if the bank fails, the real estate board will catch it. Or if the real estate board fails, the lawyer who signs off on the house sale will catch it. And so many people, so many educated people, it just passes by.”

Photo ID is not enough: title insurer

Some real-estate industry stakeholders are also calling on the province and professional oversight bodies to strengthen identification requirements to try and stop these title transfer and mortgage frauds in their tracks.

But as it stands, real estate agents, brokers and lawyers are only required to collect one piece of government-issued photo identification to verify clients are who they say they are — or review an approved alternative method of identification, like a Canadian credit file.

“The problem we have in Canada right now is that there’s no such thing as valid ID anymore,” said John Rider, senior vice president of Chicago Title Insurance Company in Canada.

“How can someone borrow $2,000,000 to buy a house with a simple piece of plastic that can be easily forged? It just shouldn’t be happening.”

Rider works for one of four title insurers operating across the country and says claims like Stephanie and Derrick’s, along with mortgage frauds, have cost the industry at least $200 million in the last two-and-a-half years.

Title insurance also covers unwitting buyers in title transfer frauds who can recover the funds they put toward purchasing a house through a fraud claim.

Multi-factor approach ‘catches most fraudsters’

Instead of relying on one or two pieces of ID, Rider argues a multi-factor identification process should be adopted for all real-estate transactions. The process would require a combination of photo ID verification, a credit report search, and checks on the cell phone number provided to make sure it isn’t a burner phone.

“This multi-factor catches most of the fraudsters,” he said. “We’re finding most of the time that the fraudsters get caught up, it’s on the cell phone number.”

Morris Cooper, a civil litigation lawyer in Toronto who successfully argued a landmark case of mortgage fraud in 2006, also says more strict forms of identification would address the root of these problems.

“There’s nobody compelling the lawyers, for example — who are clearly a gatekeeper — to require that higher level of identification for their clients,” said Cooper.

Last year, the Law Society of Ontario (LSO) added two additional options for ID verification to its bylaws — in an effort to fight money laundering and terrorist financing — but does not require lawyers to check a combination of the verification methods.

CBC Toronto asked the LSO whether it’s considering modifying the ID verification requirements for lawyers in the province so they involve multiple factors. In an email, spokesperson Wynna Brown said Ontario’s verification requirements are consistent with the rest of Canada.

“Along with our colleagues across the country, we continue to follow and monitor this matter closely,” said Brown.

Updated realtor code of ethics coming this spring

Real estate agent and broker client verification requirements stem from provincial legislation and federal and provincial guidelines. CBC Toronto asked the Ministry of Public and Business Service Delivery whether it’s considered bolstering ID requirements in its legislation to fight real-estate fraud.

In a statement, a Ministry spokesperson said an updated code of ethics for realtors under the Real Estate and Business Brokers Act will come into force on April 1.

The Ministry says the code will include a specific provision related to fraud. But the statement didn’t mention any changes to enhance ID verification requirements, beyond requiring “agents to make best efforts to ensure representations made during a sale are accurate.”

A spokesperson for the Real Estate Council of Ontario (RECO) also said it “will be reminding agents to be vigilant” in confirming IDs “in light of recent events.”

Couple wants action from province

“We need tougher laws and we need [the] government to protect its citizens more from this type of crime that is increasing in prevalence in Ontario,” said Stephanie.

The couple said they are thankful they had title insurance on their house to cover the costs related to getting the house back or receiving the sale price of the property. But they say even that protection doesn’t insulate you from everything.

“It also doesn’t account for the house being sold under market value … if fraudsters are looking to make a quick buck,” said Derrick. “You get what it’s sold for, not what it’s worth.”

The couple are close to resolving the situation with their house, but say the trauma from the experience won’t go away any time soon.

“It feels like it’ll never be done,” said Derrick.