STRAW MAN SCAMS ON RISE IN LOCAL PROPERTY MARKET

New real estate fraud angle has illegal tenants setting up criminal
operations in warehouses, rented condos

When a new hotel offering rooms by the hour opened last December just
off the South Granville strip with its high-end art galleries and
antique shops, the local merchants' association was less than
receptive to its presence.

Its landlord, however, knew nothing until local media broke the
story.

While a property manager oversaw the leasing of the three-storey
townhome where the love hotel was operating, the tenants were offering
different services than the typical home-based business.

The case highlights what RCMP media relations officer Cpl. Nycki Basra
describes as a common problem for Metro Vancouver landlords: the straw
tenant.

"Those types of things do happen," she said. "Whether that's them
saying, 'I'm coming in with a family' or using fake identification .
all sorts of tactics are used."

And it's not just residential properties. Basra said the Richmond
detachment, with which she's connected, has seen tenants claiming to
be something other than what they are leasing all kinds of property.
Whether its storage lockers for meth labs or warehouses for marijuana
grow-ops, there's virtually no property that's off-limits.

But the incidence of such misrepresentation is hard to track. Basra
wasn't sure the RCMP monitors such cases, while Ken Fraser, executive
director, investigations, with the province's Financial Institutions
Commission, said reports of fraud are handled differently based on
case details.

Some cases may ultimately fall under the regulations governing
misconduct by realtors and mortgage brokers; others might form part of
the investigations into fraud cases.

One thing is clear, however, and that's the growing activity by
organized criminals in real estate scams and a rise in the number of
cases beyond the traditional categories of fraud for profit or
shelter. Fraser said there has been an increase in the number of cases
where real estate is obtained by criminal organizations for marijuana
grow ops and other drug manufacturing (crystal meth being the prime
example) or money laundering.

"Real estate fraud is primarily in order to obtain property for use by
organized crime," Fraser said. "That's sort of new over the past few
years."

Fraser said strata properties are a prime target for this kind of
enterprise. He added that a realtor might unwittingly assist organized
crime in finding and obtaining properties that could be used for the
illegal venture.

A mortgage broker might then procure a straw buyer who would,
knowingly or unknowingly, facilitate the transaction, often through a
conventional first mortgage. The mortgage broker, through a subsidiary
company, would provide the down payment and arrange for the false
documents prior to putting the straw buyers into the property they
don't own.

One recent search of a mortgage broker's files yielded only one
legitimate occupant of 50 properties searched.

"The rest of [the listed buyers] either didn't know they owned a
property (so they were the victims of identity theft) or they were
living in the property [as owners] but thought they were renting it,"
Fraser said.

"These people look for places where they can easily set up their
business, and you might find that all that's in there is a pool
table," Lynda Pasacreta, president and CEO of the Better Business
Bureau of Mainland BC regarding the securing of properties for
alternative, illegal uses.

Pasacreta blames insufficient due diligence for many of the cases, in
part because some owners don't realize that the investments they've
made require greater involvement than, say, equities.

"They wouldn't be perpetrated if people would just do the due
diligence behind whatever they're getting involved in," she said.
"This is something that could cost you a lot of money if you don't
look at who you're letting in."

The risks include not only legal liabilities stemming from whatever
activities are taking place in the suite, but being on the hook for
fees owing for violations of the rules of the property's strata
corporation. As B.C.'s heated real estate market slows and prices
increase less quickly, Fraser expects real estate and mortgage fraud
to increase.

"The professionals out there - those individuals who may be prone to
commit this type of fraud - may find that they're not making as much
money legitimately, so they may turn to the illegitimate methods of
trying to supplement their income."