The ABCs of How To Avoid Being Scammed - The Venture Capital Broker Scam & The Up Front Fee

By Kevin Bousquet, CFE

Investigate, Investigate, Investigate

After twelve years of working in the investigative industry, I am still amazed at the number of clients who have come to us for help after being victimized financially. In most cases the matter results from a failure to do their homework or make some basic inquiries before transacting a deal.

I am going to discuss with you some of the basic situations we run into on a regular basis and offer some basic advice. This is not to put the scare in you in order to generate business for our agency. It's just to let you know why we suggest that you allow us to look at things for you from the beginning instead of at the end, when it may be too late to recover your investment.

As far as fraud, white collar crime, and general commercial crime are concerned, you should be aware that most police departments that have specialized units in this area are highly backlogged. With robbery, drugs, and assault offences on the increase, your investigation is not going to be on the top of the list with any law enforcement agency.

In Canada it has become so bad that in most cases, we will simply bypass laying a complaint (or an occurrence) with the police. Instead we bind and tab up the investigation and lay the charges ourselves, privately through a Justice of the Peace.

The other aspect that most business professionals don't realize is that you can't use a criminal process to resolve a civil process. This means that you can't threaten to criminally charge someone for not returning your money. To do so is called extortion. It's a criminal offence right across North America and Europe--the law is virtually the same when it comes to extortion.
Punishment or Collection

In most cases you're going to have to make a decision. Do you want to criminally charge the person in the criminal court? Or do you want to try and collect your money in the civil court? You can ultimately do both but you have to be very careful not to break the law.
Punishment

If you choose the criminal charge, you had better be prepared to wait and hope the judge will give you a restitution order as well. This process can be frustrating, and the outcome, in terms of the actual sentence handed out, is often disappointing to the victim.

Collection

If you go civil, then you're going to have to hire a lawyer to try and collect your money (unless the amount falls within the mandate of the Small Claims Court).
In this situation you're hoping that the individual you're suing has enough assets that you'll actually be able to collect if you win your lawsuit.
The end result of a lawsuit is a piece of paper called a Judgment. The court doesn't collect your money for you and they won't do anything to an individual with a Judgment against them who just refuses to pay.

This means your Judgment could be worthless. All the Judgment has given you is the power to do things like garnish bank accounts and seize assets. These remedies are effective only if you can find the assets.

See our section on Asset Investigation.

This is why we push the principles of "Investigating before Investing" and "Investigating before Litigating." This means taking a look at things in the beginning to ensure the deal is clean, to prevent suffering in the end.

For the record, I am not talking just about big deals here. This could be as basic an renting out your basement apartment to a tenant you're nervous about, or taking on a new employee or business partner. The matter could be as extensive as conducting background investigations on individuals behind a venture capital deal. It's all the same principle.

General Comments & Advice

Never take anything at face value. You must seek professional, financial and legal advice before transacting any deal. Don't get caught up in pretty web pages and well decorated offices. Most of all, don't rush into the deal. Take your time and do your homework no matter what the pressures of the moment seem to be.
In most States and Provinces the courts will usually use the principles of "let the buyer beware." This most commonly means that the onus is on the buyer (i.e. the person on the receiving end) to do the homework.

If you are starting to get nervous about the entity you are dealing with, it is up to you to spend the time and effort to do your homework. You may very well get to the point of hiring a Private Investigator or a Forensic Accountant to look into the backgrounds of the individuals behind the deal, and most importantly, into their past deals or actions (if applicable).

It doesn't matter what end of the deal you're on. Whether you're an investor or the person seeking investment, you can be easily scammed.

There are endless PIs and Forensic Accountants who like us specialize in due diligence and background investigation. Many traditional investment firms actively retain investigators, or they may have in-house due diligence departments.

Depending on the State or Province in which you reside, you may wish to know if the individuals you deal with have criminal records, have ever been bankrupt, have been defendants in lawsuits, or have had unsatisfied judgments filed against them in the civil courts.

A complete background investigation can cost anywhere from $500 to $1,000 plus disbursements. Individual specific searches can be conducted for under $200 in most cases.

Most PI firms specialize in a number of areas, so for instance if you need a background investigation, you must retain a firm that specifically does work of that kind.

In most cases these investigations can be conducted very discreetly and lawfully without the person or company knowing they are being investigated.

It may be necessary for a credit report to be obtained to see if there are outstanding creditors and collectors. To do a credit report you will need some form of consent. All this basic information can be relevant to ensure a safe deal.

Scams To Watch For (If you are seeking investment)

If you use a company or a middleman such a loan broker to try to find you an investor or a venture capitalist, you may be asked to pay a large fee up front before any financing has been obtained. This advance payment may be called a processing fee, finder's fee, or credit application fee.

Prior to being told about the up-front fee, you will be put through an exhaustive array of frustrating paper work which will include credit applications, the business plan, references, co-signers, numerous interviews, etc.

Even though you have been told the fee is completely refundable, you may have trouble collecting your refund through the court system if the middleman has no assets.

You should be aware that there are thousands of fraudulent companies and fraudulent middlemen who make their living scamming for these processing fees.

The agreement between you will be so fine that you may find yourself in the cold as a result of some unconditional clause in the contract. There are hundreds of reasons why you could be denied independent financing under the contact.

This processing fee scam has gotten so bad there has been new legislation written in many States and Provinces to protect consumers from it. This type of scam is most commonly found in the mortgage broker and loan broker field. I could write a book on the number of mortgage brokers I have investigated in my career.

If you are using a middleman you must check references. Have them give you the name of 10 to 20 individuals for whom financing has been successfully obtained. Pick up the phone and call these individuals.

If you are nervous about paying the finder's fee, pay the fee to your lawyer in "trust." Your lawyer will disburse the finder's fee only when the financing is in place. Just have your lawyer write the middleman a letter confirming that his fees are being held in trust upon completion of financing. It must be your lawyer, and not the lawyer acting for the middleman.

There are a number of legitimate middlemen out there who work on a "No Find No Fee" basis; to find them you're going to have to call around. A reputable real estate lawyer or securities lawyer should be able to refer you to someone.
We are not stereotyping these middlemen. We're merely suggesting that if you are dealing with an individual or a company whom you don't know, you must check references. You may even wish to perform a litigation search to see if the middleman has ever been a defendant in a lawsuit. This basic search should cost you no more than $100.

Scams To Watch For (If you are an investor)

Needless to say, the investigative and due diligence efforts that have to be made by an investor cannot be summarized in a few paragraphs.

There is an endless number of situations in which investors have been scammed lending money to new ventures that were nothing more than fraudulent paper corporations with no real foundation. The money gets invested into a corporation, the directors abscond with the money, and the company goes bankrupt. The same scam can apply to fraudulent real estate deals.

We would suggest that all investors conduct extensive due diligence and investigative research before extending money to any individual or company. It is important to investigate not only the company you're looking to invest in, but most of all the individuals who are truly behind the company.

Do these individuals have criminal records? Have they been defendants in lawsuits? Is there a history of bankruptcy, in which the individual formed a company that was shortly bankrupted after being financed by investors?

It will be necessary to know where these individuals were before they started their new venture. If they were in a previous business, why did it fail? What is the likelihood of success this time around?

We would again suggest that if you do not know how to do your own due diligence or homework (or you just don't have the time) then you may wish to consider an outside source.

It is best to go to a corporate lawyer (in the city where you reside) who can refer you to a reputable Private Investigator or Forensic Accountant.

Make no mistake about it, your investment success or failure will be determined by how much time you spend doing your own research.

The Importance of the Private Investigation Industry

In order to understand the importance of the Private Investigation industry, here are some examples of the work conducted by PIs.

These are areas that are primarly conducted by PI’s or the private sector.

Adoption
Since the very beginning, private investigators have been used not only to find birth parents but to reunite families. PPIEDA has (neglected, failed or properly defined) to allow an adoption investigation as an exception. One could easily conclude that adoption investigation (trying to find birth parents, missing family members etc.,) is an invasion privacy and a violation of the act. PI’s use pretext as means to prevent alerting other family members, during a search for birth parents.

Background Investigation
Corporations hire private investigation firms to conduct pre-employment background investigation. Private investigators are not allowed to report on a person’s criminal background without consent. To obtain this information from police source without consent would be illegal.

There is continued controversy as to whether an employer is even allowed to ask for a criminal record check. Certainly, if an employer suspects he has a criminal working for him, it is unlawful to conduct a criminal search after the criminal employee has been hired without consent.

Articles have been written which say that we may see the day when employers are no longer allowed to ask for Social Insurance or Social Security Numbers.

Child Support
Millions of individuals have child support orders they can’t collect. Their failure to collect on these orders is primarily as result of the debtor not having assets in his/her name. The debtors may work for cash in a cash profession; they drive with a suspended license, and they don’t have a bank account in their name. They are, from a collection stand-point, untouchable.

Trying to find collectable assets is an investigative task. How can we collect from a person who is working for cash as part of the underground economy? A private investigator hired by a recipient might use a very expensive surveillance, following an individual into work – which can cost a single parent upwards of $65.00 an hour and $0.65 per kilometer, with average retainer requests usually in the thousands of dollars.

Alternatively, a private investigator, under pretext, might call the residence of a dead-beat parent (or someone who knows the dead-beat parent). The pretext might be that of doing a marketing survey, trying to get a work telephone number.

Once the work phone number is obtained, inexpensive inquiries can be made to confirm the place of employment in which the client can then contact the family responsibility office to issue garnishments.

Corporations
Corporations hire PIs on a regular basis to investigate theft, employee issues, collection, white collar crime, insider trading etc., PI’s often conduct background or due diligence investigations to ensure deals are safe and without surprises before they close.

Copyright, Trademark Industrial Design
It is a matter of media public record that major corporations like Gucci, Cartier, Rolex and Walt Disney have hired PIs to investigate infractions of their trademark, either directly or through their legal counsel. PIs investigate unauthorized manufacturers and distributors who unlawfully manufacture, sell and distribute these products.

With the technological sophistication of scanners and photocopiers, virtually all industries can find themselves victims of piracy in some form.

Criminal Defense & The Wrongfully Accused
Someone charged with a criminal offense may require a PI to track down witnesses, take a statements, or set up a sting operation to add other accused persons to the criminal matter. Defense lawyers hire private investigators constantly to aid in defense trials.


Debt Collection Skip Tracing & Recovery of Assets
PIs find witnesses, parties to litigation and missing debtors. Banks, trust companies, lawyers and insurance companies hire PIs to collect debts, serve documents and to aid in executing judgments. Recipients who have child support orders use PIs to find where would be payers live and work. Collection agencies also have in-house skip tracers to find debtors who owe money on behalf of banks and other entities.

Honesty Shopping
Private investigators are retained on behalf of retail head offices to pose as a customer at retail outlets. The private investigator goes into the retail outlet and purchases two items of clothing with the exact same price. The private investigator then watches the employee to see if both items are accurately processed through the cash register. This could also involve wearing a hidden video camera or even installing a hidden video camera in a discreet place in a retail outlet.

A similar form of deception is used owners of bar, and night clubs who hire PIs to to monitor their bar tenders to see if all drink orders are being purchased through the cash register. A PI will pose as a customer and continually watch the transactions processes or not processed the cash register.

Insurance Investigation
While the insurance community continues to be the biggest client to Private investigators they are in fact loosing the battle of insurance fraud. This loosing battle is one of the main reason consumers continue to find their monthly premiums increasing at alarming rates every year.

While PIs are involved in all aspect of insurance investigation they are most commonly involved in doing surveillance video taping on would be cheaters. Insurance claimant’s who are represented by a lawyers are already well protected under other legislation that would prohibit any PI (or any third party for that matter) of contacting the claimant at home or at work without their lawyer present.

However video taping cheating claimants continues to be a sensitive and controversial topic. Privacy advocates continue to fight that a residence should include the front and backyards as it has been legislated in many parts of the world. This is known as “the residence or any part there of” issue. If changed a private investigator sitting on surveillance watching a cheating claimant’s home will be refrained from video taping any movement if the claimant is in his backyard or front yard for example.

So if while on surveillance a PI observed a claimant faking an injury jumping on a trampoline with his children on the front lawn of his home the video tape will be in admissible. The PI could find himself in charged, fined or imprisoned jail for taking the video no matter how obvious. This would also make it difficult for PI’s who investigate claimants who my be working from home. A claimant for example who is fixing cars in his driveway for cash movingand bending and not reporting the income. All of these observations at a household will soon be illegal and inadmissible.

It’s believed that the legislation change will be right around the corner. While PIs are allowed to follow and video tape claimants who are suspected of faking their injuries, there has been a case before that went before Privacy Commissioner where an employer suspected an employee of faking an injury and being unlawfully on benefits. When the PI confirmed the employee was faking benefits by way of video taping the employee complained it was a violation of privacy. While the evidence held and the PI was not reprimanded it was recommend at the hearing that surveillance only be conducted “as a last resort”. It should only be contemplated if all other avenues of collecting personal information have been exhausted. The decision to undertake video surveillance should be made at a very senior level of the organization.

Any seasoned insurance investigator would agree with the recommendations but most would argue what personal information is there that can be obtained when the doors to obtain personal information are closing. How can we observe movements if we can’t follow?

Missing Persons & Children
Private investigators have been instrumental in finding our missing children. Many child abduction cases involve the parent who does not have formal custody kidnapping the child. Child abduction cases involve finding the parent who has abducted the child.

Undercover Investigation
Private investigators are hired by industry to work undercover. They pose as one of the employees and report to management on internal and theft, drugs, just to name a few. Questions about pretext and deception would arise as to if a PI is working undercover if he or she is in fact violating privacy or pretext laws.
Underground Economy

Private investigators have been investigating the underground economy from the very beginning. People work in the underground economy for many reasons, to evade taxes, creditors, child support, or mostly commonly are simply involved in crime and being paid in cash.

Virtually the only way to show that a person wakes up every morning and goes to work at a job for cash is to have them followed. The controversy of surveillance and video taping continues.

Vehicle Theft
The are a number of PI agencies that specialize in vehicle theft investigations on behalf of banks, finance companies and private bailiffs. PIs continue to be instrumental in not only finding stolen vehicles but identifying theft rings that usually involve organized crime. Many insurance companies have in house theft investigators that are working in the private sector most of them are ex-police officers.

Why Canadian Businesses Fail

Why Canadian Businesses Fail

What would happen if you were given a key to a race car for which you had only the manual (a written plan), but you had no previous driving experience? You take your new race car out on to the track and find yourself surrounded by other race car drivers on fast moving track.

You try to follow the manual (your written plan), but you discover it’s useless without practical driving experience.Within moments, you crash into a wall and bring down other race car drivers with you.

You suffer injuries that affect you and others for a very long time.Banks, lenders, and business development organizations wonder why new start-up businesses in Canada continue to crash into the wall at record rates. Even with the most perfect written business plan, many lenders no longer lend to new start-up businesses simply because the risk for failure is too high. A friend of mine was recently laid off from a job she had for many years.

Like most people she went on unemployment benefits while she struggled to look for work. Realising her hope for employment in Canada was bleak she decided to start her own business. She had no previous experience running a business. She discovered a government-sponsored program that would allow her to receive unemployment benefits while starting her own business.

The only catch to the deal was she would have to attend and complete the unemployment business training course on how to properly start her own business, or her unemployment benefits would be cut off.While taking the class she came to me almost weekly seeking help with her business plan. I soon realised that her course was very focused on the written business plan, with very little practical training involved. Every business scholar and successful entrepreneur would agree that a written business plan is crucial to the start-up process.

Before a building can be built there has to be a solid blueprint. Essentials to a business plan are strategies such as the mission statement, target market, industry analysis, competition, marketing, financial projections and so on. There is, however, a limit to what can be learned in a classroom setting, without hands-on experience or through the examples of successful entrepreneurs. If government lenders, banks and others continue to focus exclusively on well-written business plans, they might as well attach a bankruptcy application form to each loan application.

There are many reasons why businesses fail, and in most cases failure has little to do with not following the actual business plan.

CANADA’S BUSINESS TAX SYSTEM

The new small business owner may not be properly prepared to handle Canada’s tax system. After a year or so in business, the owner can expect government envelopes to begin arriving almost daily in the mail. All levels of government will be looking for their money. There will be Municipal, Provincial and Federal taxes, plus GST. If your business qualifies you may also be subject to Retail Sales Tax and Workman’s Compensation dues.

Hiring an employee or two will launch the new business owner into Canada’s complicated and expensive payroll system. Many business associations continue to lobby against Canada’s excessive business payroll tax. They maintain the expensive payroll system alone is prohibiting new start-ups from providing job opportunities. They say this is the true reason why there are few jobs available in Canada.

Entrepreneurs simply don’t want to do business here because of our tax system. A business owner can expect that more than 50% of every dollar earned will be paid out in tax. This means the tax man is your partner and you may not even know it. That is of course if you’re a business that actually pays tax as many don’t. If you do you may find yourself competing with competitors undermining your prices whom have given up and illegally joined the underground economy. Understanding Canada’s business tax system and how to manage and pay business tax on time can make the difference between success and failure.

Other Challenges

And what about other aspects of business that may not be covered in the business plan?

For example:

Renting space; dealing with commercial landlords who seek long term leases with hidden personal guarantees that may prevent your business from growing when you can’t break out of a lease.

Financing equipment and vehicles successfully, finding the right insurance for the business and its employees.

Coping with suppliers or customers who don’t pay.· Dealing with bad debt, insurance claims, lawyers, accountants, customs and freight brokers.· entering into contracts.

Learning how to hire and fire employees, and discovering their rights under the employment legislation Some of these issues alone are documented business killers.

What is the Answer?

In the early days of the Internet there was a Dot Com Venture Capital boom. Millions of dollars were being invested by Venture Capitalists and private lenders into new start-ups. Some deals went well; others were disastrous.

During this time, I read about a few Venture Capital firms who made the decision to nurture the business in which they were investing on many different levels. For example, the new start-ups were not only well-financed by lenders/investors, they were provided with office space sometimes in the same building as the lender or on the same floor.

The owners and staff were given basic business training paid for by the lender/investors. They virtually had a professional venture capitalist holding their hand each step of the way. Imagine one of Canada’s leading banks lending to new start-ups under a new training program.

Before a potential loan applicant could even get an appointment to see a loan rep, they would have to complete a joint government and bank sponsored professional business course. A course available day, nights, or weekends to accommodate any schedule, taught by qualified business professionals who were not only teachers but were successful entrepreneurs in their own right.

Entrepreneurs who focus not only on the written business plan but who could teach on all the expected struggles of running a Canadian business. A course that could cover various aspects of industry, such as retail, construction, manufacturing, technology etc.

In Canada we have subsidized housing for those who cannot afford to pay expensive rent. Imagine government-subsidized commercial space for new businesses trying to grow.

Why should we expect the government to pay or assist with such training?

Every new business created is a new tax payer to our system. A company who will pay the government 50% or more on every dollar earned. Each employee who works at the new company will also pay an array of other taxes. An employee who is making money will also spend money into the economy.The failure of a company, from a government standpoint, is the death of a tax payer.

It is in the government’s best interest to keep businesses alive and offer incentives for business to be created and to grow, so that jobs can be created.

Giving out government grants to new start ups using well-designed business plans to the untrained and unqualified only increases the financial coffers of bankruptcy trustees.

Note:

If your business failed in Canada, we would appreciate you telling us your story via our feedback of this blog. We continue to research and set up programs to help businesses grow and prevent them from failing.

FACEBOOK VS YOUR PRIVACY - You've Been Warned !!

FACEBOOK VS YOUR PRIVACY

You've Been Warned !!

My recent videos on Identity Theft

http://www.resourceschannel.com/programs-undercover.html

http://www.corpa.com/programplay.asp?show=Undercover-JaySomersetMortgagefraud

http://www.corpa.com/programplay.asp?show=Undercover-FraudVictim



While I admit to joining the klan of facebook.com I find the site very dangerous in the way of personal privacy and people should be very concerned and warned. I have written articles and even did a tv show on how impersonation is out of control. People who have had their lives destroyed because someone got a hold of their personal information and applied for credit in their name.

I interviewed a lady on my tv show (see video above) who woke up one morning to a collection agency phone call. She discovered that someone impersonated her identity and managed to purchase two houses in her name in Gretzky’s home town of Brantford Ontario. She had no idea that someone had used her identity by applying for credit in her name.

It took years for her to get her life back.Yet people who register on facebook post their name and their date of birth right out in the open for anyone to see. Many on facebook will argue they use their privacy settings and only close friends see personal information. This is great for those who actually use their privacy settings.

There are networks after networks of interest groups that allow people who you may not directly know to see your personal information. They are allowed to see it because your privacy settings have allowed people in the same network to see your personal data.

Many assume because they have an interest in common with someone, skiing, music, church, city events that a person in that network is not going to compromise their data. Do you really know everyone in your network? Yet bigger city networks like “Toronto” or joining a network where in the city where you reside can be a great place for would be fraudsters to take your personal information and apply for credit.

Your Name & Date of Birth is all it takes




People need to realise that all it takes is your name and date of birth to steal your identity.Facebook A Great Place To HarvestThe word to be aware of is “harvesting”. Right now I can go on facebook and within less that an hour I can harvest names and dates of birth of dozens after dozens of people. If I really tried I could probaby average 100 names and dates of birth in an hour. People who I don’t know, who are not in any network.

Personal data out in the open makes you vulnerable to attack by fraudsters to get your data to apply for credit in your name. Problem is people don’t realise just how bad the problem is. There is no recourse, you’re on your own trying to clean up your life if you’re impersonated. Don’t expect the police to do it for you and don’t expect that the fraudster will actually get caught. Act proactive rather then reacting to a crisis later. Impersonation fraud is the biggest growing crime on a world wide level.

If you have a home you could also be a victim of mortgage fraud or have your house sold right from under you with the aid of the data you gave up on facebook.comTeenagers and children are the best targets. Kids who have not yet established credit ratings.

A nice clean name, date of birth and address is all a fraudster needs to start applying for credit in your child’s name. The Federal Trade Commission just did a warning to the public that over 400,000 children and have already had their identity stolen and many don’t even know it yet. This will include teenagers.

If your address is posted all the better. If they get a hold of your Social Insurance Number or Social Security Number you’re done like dinner you may never get your life back.You’ll spend years trying to clean up your credit rating convincing creditors and collection agencies that you’re you and not the fraudster who managed to swindle thousands from banks and credit agencies using your name.

There was just a news article recently where a victim of impersonation was reported dead to the government, yet he was alive and well. He spent months just trying to convince the government he was not dead and his problems continue.

You could find the IRS or Revenue Canada knocking on your door or even the police or perhaps immigration. The answers to virtually all verification questions asked by a bank or credit agency to prove you are you can be answered on facebook.com Let’s start with the most common question that all credit card companies ask to verify you? “What’s your mother’s maiden name”? Your dog’s name, where did you attend school. Your previous addresses. Take a look at the verification questions used by web based email services like hotmail.com when you sign up.

Many of these questions could be answered by looking on facebook.com.There may be those who may want to use your name and date of birth to commit a crime or get a job when they don’t have status to work in the country. Ask yourself could someone easily recreate your resume from facebook depending on the information you posted? I am fascinated by those who post their resume. Where you went to school, what degrees you have, your past jobs, your marital status. Your interests, where you volunteer, you associations and degrees. Even your religious beliefs. What about child predators seeking to hurt and exploit children.People continue to post pictures of their children, some have posted where they go to school or daycare and even what time they are picked up. Your toddler could even be at risk.

The security risks to openly posted personal data are endless.If you give away too much personal information your jugglar vein is exposed waiting for the kill. If you’re impersonated there are only two things in the world that can prove you’re you. Your DNA and your fingerprints. You’ll spend a lifetime trying to get your life back.

Be careful what personal information you give up on any website.

The Key To Resloving Mortgage Fraud in Ontario

The Key To Resloving Mortgage Fraud in Ontario

My recent videos on mortage fraud:


http://www.resourceschannel.com/programs-undercover.html


http://www.corpa.com/programplay.asp?show=Undercover-JaySomersetMortgagefraud


http://www.corpa.com/programplay.asp?show=Undercover-FraudVictim



The Canadian Institute of Mortgage Brokers and Lenders says mortgage fraud is on the rise and costing Canadians hundreds of millions of dollars each year. The most common method used to perpetrate mortgage fraud is to misrepresent the purchase price of a property.




(CBC Marketplace)
Ontario Land Title Registry Office: Responsible for province-wide administration of local and title offices. Tesoro was able to walk into a local land title office with forged documents and transfer title to six homes to himself.In 1999, the province began a pilot project allowing online registration of land titles. By September of 2002, the service was extended to 12 municipalities, including Toronto.

The Law Society of Upper Canada is aware of increasing instances of fraud in relation to mortgage loan transactions. These frauds usually involve either complicit or fraudulent purchasers, and/or real estate agents, mortgage brokers and unfortunately, in some cases, lawyers.Typically, mortgage fraud involves the use of false identities and the artificial inflation of property values. Both these elements can be present in the same transaction.

A PROPOSAL TO SOLVE THE MORTGAGE FRAUD PROBLEM
THE HOUSE KEY

Your mortgage and the title of your propery is as sensitive as your credit card number. Yet the problems of mortgage fraud continue to increase as a result of computerization of the land titles system.

All of this could be avoided if a property was given some sort of a passcode.

For example:

An owner of a home is given a card with an 18 digit code. This code is kept by the true owner of the property and the government land titles office.

The filing of the code does not form part of the land titles public record but is filed with the land titles office. Title cannot be transferred, conveyed, or charged unless the pass codes match between the land titles office and the true property owner when instruments are to be applied to the title of the property.

This concept would have to be administrated through the government land titles office. Private corporations who have been selected to computerize the land title data would have to work with the government to administrate the program.

The main resolve to this problem lies in the hands of the registry office and the companies they have selected to computerize their land registry data. A House Key program could be a free or paid service whereby property owners have to voluntarily subscribe to the program to protect their properties.

Insurance companies could insist that property owners subscribe to the program before underwriting any policy be it, property insurance or title insurance.
Alternatively if the program can be enforced, insurance companies could agree to reduced rates if you subscribe to the program.

Why are other fraud programs failing?

Proactive vs Reactive

Kevin Bousquet, a Certified Fraud Examiner and President of The Corpa Group, a 15 year old Private Investigation agency maintains the focus of most fraud programs are on a failing REACTIVE programs.

Reactive meaning "after the fact". Reacting to the fraud after it has been perpetrated. Giving people bandaids after they are bleeding.

If there are a bunch of fires happening on a street do we go and form associations and clubs trying to lobby the government to hire more firemen? No, we set up a PROACTIVE program to stop the fires from happening in the first place. We do inspections, we make sure home owners are protected ahead of time with fire extinguishers and smoke detectors.

This problem is no different then protecting your credit card number. The credit card company has the responsibility to set up passwords, and security procedures to make sure your, you, when the credit card is used.

This is not a police problem there is not enough police in the world to combat fraud. Fraud in general is worse then ever before in the history of mankind. With the growth of the internet there are now more fraudsters and more victims in play.

With the sophistication of scanners and photocopiers its a mathematical certainty the problem will get worse.

There is no incentive to even resolve on a proactive level. Everyone everyone is making money on the problem. Insurance companies, lawyers, forensic accountants, private investigators all stand to profit from the costs associated from aiding a person after they have been a victim.

This is nothing more then giving a person a band aid when they are already bleeding. We need to prevent the problem before it can happen and stop handing out bandaids.

Bousquet’s agency continues to be retained by title insurance companies and their legal counsel and states that his case load is increasing more and more each month. Victims of mortgage fraud (and fraud in general) are relying on public law enforcement to punish perpetrators and the civil court system to collect their losses. "Both of which will most certainly fail" says Bousquet.
Municipal Police forces are backlogged over a year on fraud matters, some over two says, Bousquet.

By that time the perpetrator has ample time to get away. Witnesses have probably moved, documentation relating to the matter can become harder to find. "It’s all a big waste of time says Bousquet".

Law enforcement and punishment through the courts is not a deterrent to this crime." says Bousquet.

It’s worth it for these criminals to get some probabation and maybe a little jail time on the weekends to pocket $50,000.00 to $100,000.00 of stolen money.

"If you think you’re going to actually collect your losses through the civil court system you’re well mistaken" says Bousquet.

Most perpetrators have no assets in their name. The proceeds from fraud (or any crime for that matter) are seldom deposited in any bank account that could be garnished.

While victims of fraud may succeed in getting a civil court judgment (or a criminal restitution order) it will most certainly be an uncollectible worthless piece of paper.
Bousquet says, "the rules of civil collection with a judgment or a restitution order are very simple.

You have to try and collect on a bank account, employment wages, property, or a vehicle that has no lien on it". "Good luck and don’t expect the court to help you find these assets in order to collect on them, you’re on your own" says Bousquet.

These methods of attacking fraud are nothing more then punishment and collection all of which fail without doubt. At the end of the day the property owner is completely victimized and in some cases financially ruined forever with their credit record destroyed.

Bousquet argues that a true fraud program should be towards a PROACTIVE program to stop the act before it can occur. This starts with password protecting or computerized landtitle system.

A clear program with the cooperation of the government land titles office and the companies that they are using to computerize the land title data to protect property owner. In a password protected system the true property owner is notified every time an instrument is being applied to the title of their property be it a mortgage, lien, transfer or conveyance. "No different then a password or secret code that may be associated with your credit card" says, Bousquet.

However the title can not be touched unless the passwords match.

A kind of system where the land registry office must see the true owners secret code when the documents are being filed either at the land registry office or through the computerized system.
Bousquet has forwarded his ideas to Teraview, a company that has been responsible for computerizing the land title data in Ontario.

Bousquet maintains mortgage fraud is completely out of control. The true resolve to this problem starts with the government implementing this kind of a program or at least focusing on a Proactive system.

While many experts are maintaining that people should be checking their credit bureau file on a regular basis. Bousquet maintains this is still a "reactive view". It has to start with the government implementing a new proactive password protected system.

I find it funny that there are now companies in place that can notify you, call you, or send a letter to you (the true owner) whenever someone even takes a peek at your credit bureau file. Yet the land registry system and the companies who computerise them can’t develop a password protected land title system.

Real simple…you can’t alter, add, or charge my home unless the password that I filed at the land registry office on the date I purchased matches.

Foot Note:

Why Can't They Implement This in Ontario

================================

Giving The Fingerprint: Home Law Raises Concern

Sellers Will Be Required To Provide Thumbprint Before Deal Is Approved Reporting

13 March 2008

Mike Puccinelli CHICAGO (CBS) ―

Real estate certainly has its risks and fraud is a growing problem, but now there's a new law that's supposed to protect buyers. As CBS 2's Mike Puccinelli reports the new law will also place an unusual burden on the seller.

Fingerprinting is something we often associate with crime. So the fact that Cook County home sellers--and homeowners across the state--will soon have to provide a thumb print left some people shocked.

"I wouldn't like that at all. I don't think that's necessary," said Chicagoan Donald Hayes.

"I don't know what I think about that. Not very good, I think, said Jenny Armstrong of Lake Villa.

The new law, which is set to go into effect June 1, 2009, will force anyone selling property in Cook County to provide a thumbprint from their right hand.

"No more so than any law abiding citizen walking down the sidewalk should be fingerprinted; just for selling my house, that's ridiculous," said Gerald Cain of Land Acquisitions, Inc.

Cain has been in the real estate consulting business for decades. He says the law is intrusive and threatens to create fraud when it's designed to prevent it.

Cain has been notarizing documents for more than a quarter century, but he says unless the fingerprint rule is revoked, he plans to get out of the business.

"I would probably just quit; liability for me is too much," Cain said.

Joseph Rogul of the Professional National Title Network isn't worried about the law and rather welcomes it.

"We're in favor of it. Fraud has been a big problem for title companies like us. We don't think it will add too much of a burden on us," said Rogul.

Rogul says consumers will likely have to pay a little more, but he believes the benefits will outweigh the costs, because widespread fraud in the industry means widespread costs, which are typically passed on to the consumer.

The law specifies that consumers can be charged up to $25 to cover fingerprint processing costs.

Unless it's reintroduced, the thumbprint rule is set to expire in 2013. Cain is calling on lawmakers to repeal the provision.

(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)

http://cbs2chicago.com/local/Mike.Puccinelli.fingerprint.2.957819.html

WHY YOUR CHILD SUPPORT WILL NEVER BE PAID

Child support orders are rapidly becoming worthless (no different than judgments). It’s not a collection problem, it is an ability to have some power to get access to information like bank accounts, employment, the vehicles owned so you can collect on your order.

For example, how in the world is anyone expected to find the bank account of their ex-spouse and determine if there is any money in the account?

Due to the fact that there is so much attention in the media about the Family Responsibility Office (FRO), right now, about collecting child support, I am going to help people understand the real reason why their child support will never be paid or collected.

There is no point in blaming the FRO – they run into the same problems as any starving recipient trying to collect support. They send letters, they make phone calls and they manage a payment systems for those payers (lets call them debtors) who actually pay.

The failure to collect these order is not about collection at all. It’s about trying to find the assets, the employment, the bank account, the property or the vehicle of the debtor so you can collect.

Your on your own and it’s and “investigative task” not a “collection task”. This is the main reason why assigning support orders to collection agencies will never work. Collection agencies make phone calls, write letters, and report the debt into the debtor’s personal credit bureau file.

They have no access to bank account information nor do they have any power to obtain the actual information you need to collect on your order. This is an investigate mission on all fronts and someone has to play detective and it won’t be any government agency doing if for you.

Here are your responsibilities

Find a bank account.

Find property (land or a house).Find employment.Suspend the debtor’s driver’s licence.

Finding A Bank Account

You are expected on your own to find a bank account with money in it. You need to identify the bank (i.e. the institution) and the actual bank branch where you believe the debtor might have a bank account. You do not have to have an actual account number.

How on earth is someone expected to lawfully find a bank account on a person but most importantly if there is actual money in the account? The banks certainly won’t give out this information, as they will protect their customers, and even more so now, with the new privacy legislation and fraud and identity theft on the rise.

There is no system, nor any powers of a support order, which will allow recipients of support orders to properly and lawfully get bank account information in order to proceed with a garnishment. What about if the debtor works at a job for cash? or perhaps the account is joint? or is in some other name? or even a company name as with a self employed person?

Finding Property (land or a house).

It is possible in most states and provinces to take a debtor’s name and run the name through a computerized database to see if they own land or a house. But very few child support debtors put property in their name. Some may be found to own property jointly however depending on where you live you may be able to register an execution on the property.

This would merely allow you collect monies only when the debtor sells the property. You would collect what is left over after all the mortgages and expenses have been paid on the sale.

Finding Employment

While you may find employment on the debtor through word of mouth, friends, relatives etc… Trying to garnish employment wages can be very difficult if not impossible if your debtor falls under one of the categories:

(Working For Cash)
(Working Under Contract)
(Self Employed)
(Low Waged Employee)
(Working For Cash)

One of the biggest reasons your child support will never be paid is the underground economy which is nothing more then a term for people who go to work everyday and are paid in cash.

Millions of people go to work every day and work for cash. They are paid in cash and never deposit their cash wages into any bank account or report their income to the IRS or Revenue Canada.

If they are paid by check from a cash employeer they simply cash their check at a local cash stop store and pocket their wages in cash. People who live like this do not fear collection agencies nor are they concerned about their credit rating. They don’t need credit cards or credit as they pay cash for their expenses.

Finding out if a person is working for cash can be impossible on your own. There is no other way to show a person is working for cash then to have them followed.

How do you show cash from hand to hand? The normal course of investigation would be to have the debtor followed into work. Obtaining video or pictures of a debtor spending every business day at the same job site for eight hours yet never reporting a nickel of income.

But many who are starving for child support can not afford to hire private investigators at $50.00 to $75.00 per hour plus kilometers and expenses. Doing surveillance on your own could be illegal and dangerous from a driving stand point.

When you have a debtor working for cash not paying child support or filing tax returns who then is responsible for this mess?? Is it the Family Responsibility Office or the IRS and Revenue Canada who is responsible for cleaning up the underground economy?

It is logical to expect the FRO, the IRS or Revenue Canada to follow a cash paid dead-beat dad into work at 6:00 amto a construction job-site? With all the controversy surrounding privacy concerns can we expect that anyone can solve this problem?

(Working Under Contract)

One of the biggest scams going to avoid child support (and judgments) is employers who hire a person (a debtor) under contract and call it ”contract”. This is most commonly used by employeers to avoid paying payroll taxes. When we use the word “contract” we are not talking about about a contract position or an agreement.

We are talking about a situation where an employer pays an employee (the debtor) by check and makes it look on the books like the employee/debtor is a business who invoiced the company.

The debtor merely gives an invoice to the employer every second friday for his wages. No tax is deducted and no income is ever reported.Many employers create actual written agreements where the employee has to promise in writing to file taxes at the end of the year.

But what many don’t realise is that this contractual relationship can be very very illegal. If in the tax year the debtor has worked for only one employer that whole year and he has not invoiced any other company, the IRS and Revenue Canada could consider the relationship illegal.

Both the employee and the employer could face fines, penalties, and be compelled to pay all appropriate payroll taxes and deductions. Many starving recipients of child support often wonder how the debtor they are chasing is able to go to work everyday for the same employeer yet not one nickel from the garnishment served on the company has ever been paid.

THE OTHER SIDE OF THE COIN

But what about the other side of the coin? Much of the reason why child support is not being paid is that many payers of child support cannot easily and cheaply apply to the court to have their support orders reduced if there is a change in their employment of financial situation.

The result is that these payers fall drastically into arrears, being unable to afford to get their orders to reflect their true income.The ultimate result is that the payer will become so far in arrears their only alternative is the underground economy (working for cash under the table) to avoid a large garnishment of wages that may, in fact, be unfairly registered against them.

Lets do the math!! The average retainer to a lawyer to have a support order reduced (or the legal term “varied”) can be anywhere from $2000.00 to $6000.00. Days will be spent preparing court papers and attending at court hearings. For example: a seasonal worker in like a landscaper, may earn very high wages in the warm, summer months, but in the winter the wages drop or he/she may earn nothing at all.

The seasonal worker may be paying $700 per month in support, based on a job he/she had two years ago at the time of the divorce. Now, years later, the income has dropped. At $2000.00 to $6000.00 in legal fees to get an order varied who can afford to keep up every single time there is a change in employment circumstances. Some courts will allow you to file the paper work and attend on your own (without a lawyer) yet some judges will insist you be represented by a lawyer.

It’s a crap shoot if you think you can do it on your own and find a judge who will listen to you. The Law Society of Upper Canada has just recently licensed Paralegals in Ontario.

In the past a payor of child support could perhaps hire a Paralegal to cheaply assist in completing the forms to have a support order reduced. It is now illegal for Paralegals to advertise this service and to do may aspects of family law or divorce law. This now makes it more expensive to get your support order reduced. Learn the word “no standing” real quick.

There will be nothing more humiliating if you file your papers and attend at court when you are drastically in arrears depite the reasons you may have. Chances are you won’t have any standing at all before the judge despite the legitimate reasons you may have for being unable to pay and being so far into arrears. As long as their is no system in place to reduce a child support order inexpensively and less time consuming the family court system will continue to manufacture no payers into the underground economy.

You can roll your eyes all you want but no-one in their right mind will spend the time and money to have their order changed every time there is a change in financial circumstances.As would be payers fall into the underground economy, they will not only continue to not only avoid paying child support, but also personal income taxes.

To recap:

1. Until the court is willing to give more judicial powers to support orders and judgments information be impossible to find to allow people to collect on their Orders and Judgments Things like the order having authority or power to force a payer’s employer to give circumstances regarding employment.

A bank being served with a support order to be compelled to report on all bank accounts registered in the payer’s name. The department of transportation upon being served with a support order being compelled to provide a vehicle and address information so a vehicle could be seized or a license suspended. Assets have to be identified before there can be collection and/or enforcement.

2. Until a simple paper system is in place to allow parties to go to court (with or without a lawyer) to get their orders changed, simply and cheaply, there is a change in their financial circumstances, payers will continue to outsmart the system, go underground and not pay support or income taxes.

It is possible to represent oneself in small claims court and landlord tenant Court but not in the family court. These hearings could be conducted with a simple set of forms and be heard by a referee, arbitrator or registrar, instead of busy judges with overloaded family court dockets. The system right now is too complicated, time consuming and expensive.

3. The only way to catch a person working for cash is to follow them in to work – plain and simple. No search method on earth will reveal how a person is truly spending their working day if he or she is not reporting his income.Government Insurance companies like the Workmens Compensation Board (now the WSIB) spend millions of dollars to hire independent private investigation firms to use private investigators to follow (via surveillance) on would-be cheaters of the insurance system to see if they are continuing to work or faking their injuries during the business day.

It’s the only way to fight this kind of fraud. Revenue Canada (or the IRS in the United States) should be teaming with the FRO to help fund Private Investigation agencies to conduct surveillance and inquiries on cheaters not only of child support but working underground for cash. A person working for cash trying avoid child support is not only cheating the family court system but is in fact committing tax evasion.

This makes the problem a joint responsibility of Revenue Canada and the IRS who continue to unsuccessfully battle the underground economy. The underground economy is partly manufactured by the failing family court and FRO system.

Privatization of the FRO, or forwarding child support orders to collection agencies, will accomplish nothing in the way of actual collection. Collection agencies make phone calls, send letters, and report to credit bureaus. It will be a waste of your tax money on a system that is already failing both sides of the coin.

You can’t collect on what you don’t find. Finding assets is an investigative mission. Dead-beat parents need to be followed into work – plain and simple – there is no other way.