So much so, one title insurer is bolstering underwriting guidelines to crack down on fraudulent transactions due to increasing concern.
In a departure from traditionally reporting on residential real estate fraud, First Canadian Title will be raising awareness among commercial lenders, lawyers and investors on account of a rising number of fraudulent deals committed last year.
“In 2012, FCT’s commercial underwriting team suspected fraud in commercial transactions valued at $28 million. These frauds represented a tiny percentage, less than 1 per cent of the commercials deals that FCT underwrote in 2012,” said Eric Haslett, vice president & chief underwriter for the company. “However they average a potential $3.5 million loss to a commercial lender, so the impact of one commercial fraud can be substantial.”
Haslett points to the need for discretion when going into details of the new guidelines so as not to “tip off fraudsters as to what we are tracking,” but does mention that transactions of vacant commercial lots are particularly prone to fraud.
Scams in the commercial sector outweighed activity in the residential, with the fraudulent dollar amount estimated to be $23.5 million. Due to the significantly higher price of commercial real estate and land, the average suspected residential fraud is just one-tenth of that in commercial.
The FCT warns investors that, as with any real estate transaction, due diligence is key to avoiding being burned by swindlers.
“We want purchasers of commercial properties, commercial lenders and their legal counsel to know that when it comes to their deals we are just as vigilant on commercial as on residential transactions,” says Haslett. “We constantly monitor trends and update our underwriting processes with a view to protect their interests.”
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