This Div is a JS Trigger
Issue 27 | May 2014

LIANSWERS

This newsletter includes information to help lawyers reduce the likelihood of being sued for malpractice. The material presented is not intended to establish, report, or create the standard of care for lawyers. The articles do not represent a complete analysis of the topics presented, and readers should conduct their own appropriate legal research.
RED FLAGS OF REAL ESTATE VALUE FRAUD

Real estate scammers count on financial institutions not doing their full due diligence or having an on-site property value appraisal done. Eventually, the balance of the mortgage funds disappear along with the scammer, leaving the bank with a mortgage much higher than the property is worth. If you suspect that your client purchasing a property with a significant increase in value within a short period of time, ask these questions before proceeding:

  • Have there been any renovations done on the property?
  • Are there large and unusual adjustments in the Statement of Adjustments (e.g. generous credits for future renovations).
  • Are there other factors which could explain the increase in value?
  • Was it listed on MLS?
  • Are real estate agents involved in the deal?
  • Does the title indicate a pattern of mortgages being registered and discharged shortly afterwards?
  • Is the purchase price is much higher than the purchase price of recent transfers of the same property?
  • Is the client prepared to pay higher legal fees than normal for your services?
  • Has the client arranged the mortgage through a broker, and the brokerage fee is unusually high?

If there is no clear explanation for a property’s questionable increase in value, it may be wise to advise the lender in writing of the increase in value, then obtain the lender’s authorization on whether to proceed. Keep a detailed record of the lender’s instructions.

Remember, in Nova Scotia, rule 3.4-15 of the Code of Professional Conduct states: “When a lawyer acts for both the borrower and the lender in a mortgage or loan transaction, the lawyer must disclose to the borrower and the lender, in writing, before the advance or release of the mortgage or loan funds, all material information that is relevant to the transaction.”