Saying NO to real estate fraud

In the course of his daily activities, a real estate broker comes into contact with a large number of clients and uses many forms to transact real estate. Because he is at the center of these transactions, he plays a key role, representing either the seller or the buyer. He must promote and protect the interests of the party he represents, while providing fair treatment to all parties to the transaction.

In the course of these transactions, he may become exposed to fraudulent manoeuvres. A broker must not participate in any act or practice, in real state matters, that may be illegal or that may harm the public or the profession, nor can he advise or encourage a party to a transaction to engage in an act that he knows to be illegal or fraudulent. He must not wilfully turn a blind eye, but rather remain vigilant and provide sound advice.

In Québec, as elsewhere, real estate fraud is a reality, and it sometimes involves real estate brokers. The main types of fraud encountered are flips, the use of nominees, price inflating, and providing false document to lending institutions;

• A flip is a series of quick and successive transactions on the same property with a substantial and unjustified price hike in its resale price, which allows the instigator to pocket a substantial sum of money to the detriment of the lending institution. The way it works is, after identifying a property to use for this scheme, a promise to purchase is made by a nominee (also called a “dummy buyer”) at a price which is generally representative of the true value.

   This promise to purchase usually calls for a longer period to obtain a loan than is normally the practice, in order to allow time to find a buyer who is ready to pay a higher price. Whenever a broker is asked to take the property off the market, or the buyer does not visit the property or have it inspected, or the buyer’s signature varies visibly between documents, the broker should be vigilant.

• Another type of fraud consists in selling the immovable to a nominee. The instigator convinces the nominee by promising a sum of money to be paid to him after the signing of the deed of sale, telling him that he won’t have to do anything; the instigator will manage everything until the property is resold. In addition, the nominee is often promised a portion of the profit to be made on the resale of the property. Naturally this does not happen.

   In reality, this transaction is done at an inflated price, and the instigator pockets the difference between the price actually agreed to with the seller and the amount of the loan thus obtained. After a few months, the nominee receives a notice of exercise from the lender because no payments have been made. The lending institution ends up repossessing the immovable and the nominee is sued for the loss incurred, often forcing him to make an assignment of his property. Here again, the buyer will not have visited the property or had it inspected, and his signature may vary. Also, the seller’s broker is often asked to temporarily boost the asking price substantially.

• A third type of fraud where the real estate broker’s participation may be solicited is price inflating. This scheme can have different purposes, including financing some work to be done on the property, paying off a debt, or leading someone to believe that a buyer has the down payment, etc. Generally a document that is not linked to the promise to purchase states that the seller will give the buyer a certain sum of money at the notary’s. This document is not given to the lender, who grants a loan based on the price indicated on the promise to purchase. This document is sometimes created at the time of the promise to purchase, in which case the seller’s broker should recommend to the seller not to enter into such a scheme and denounce this practice.

   Other times, following an inspection, the seller may be asked to pay a certain sum at the signing of the deed of sale, whereas the condition of the property does not justify this adjustment and the normal way to proceed should be to ask for a price reduction. A broker should never participate in, or encourage buyers or sellers to agree to, verbally or in writing, terms that are different from those stipulated in the promise to purchase.

These are only a few examples, but all have something in common: they are criminal violations.

A real estate broker must always act prudently, not willfully turn a blind eye, or act complacently.

The rules that govern this type of situation include the following sections of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising:

69. A broker or agency executive officer must not participate in any act or practice in real estate matters that may be illegal or that may harm the public or the profession.

79. A broker or agency executive officer must not advise or encourage a party to a transaction to commit an act the broker or officer knows to be illegal or fraudulent.

83. A broker or agency executive officer must act with objectivity whenever advising or informing the party represented by them or the agency for which they act and all other parties to a transaction. That obligation extends to all the material facts relevant to the transaction and to its object, and must be fulfilled without exaggeration, concealment or misrepresentation.

If applicable, the broker or officer must inform the parties of products and services that concern heritage protection and relate to the transaction.

84. A broker or agency executive officer must take steps, in accordance with accepted practice, to learn of any factors that may adversely affect the party represented by them or the agency for which they act and all other parties to the transaction or the very object of the transaction.

85. A broker or agency executive officer must inform the party represented by them or the agency for which they act and all other parties to a transaction of any known factor that may adversely affect the parties or the object of the transaction.

86. A broker or agency executive officer must, to ensure that all the parties to a transaction are protected, see that their rights and obligations are recorded in writing. The broker or agency executive officer must reasonably inform all the parties to a transaction of the rights and obligations arising from the documents they sign.

It is in everyone’s best interest to refrain from participating in fraudulent transactions. A broker who engages in such practices could be investigated by the Syndic and be brought before the Discipline Committee of the OACIQ.

Last updated on: February 28, 2024
Numéro d'article: 122903