Mortgage Fraud Scheme Manipulated 'Puppet' Purchasers

Norman Ave. is a two-block long street near St. Clair Ave. W., and Lansdowne
Ave. Number 16A is a small row house that recently became the subject of an
apparent mortgage fraud case in Ontario Superior Court.

A title search of the property shows that it was sold to Winchester Financial
Corporation in November 2004, for $153,500. Just four months later it was
"flipped" to Danny Meneses at the inflated price of $299,000, almost double the
original cost. National Bank provided Meneses with high ratio financing of
$293,230. The mortgage was guaranteed by Oldemiro Demeneses.

Default occurred under the mortgage, and in July 2007, National Bank sold the
property under the power of sale in its mortgage for $212,000. After deducting
expenses, real estate commission, property management fees, legal fees and
realty taxes, the net proceeds of the sale were just under $192,000. The bank
was left with a shortfall of $98,642.67, and sued the borrower and guarantor to
recover its loss.

After receiving statements of defence from the defendants, the bank applied
to the court for what is known as a summary judgment – in effect, a final
decision in the bank's favour based on its assertion that there was no genuine
issue for trial.

At the hearing before Master Andrew Graham in Superior Court in March, the
defendants Meneses and Demeneses claimed that they were innocent victims of a
fraud, and that the bank had a duty to exercise "due diligence" to prevent the
fraud. (A master is a court official who makes judge-like decisions on
procedural matters.)

The defendants claimed that they had been approached by a family friend who
was interested in buying a property to renovate, lease and then resell, and that
in return for signing the paperwork, Meneses would be paid $5,000. Meneses was
told that mortgage payments would be made by a third party, and that he would
have no personal liability.

Meneses admitted receiving payment of $5,000 for signing "the paperwork," but
claimed that if the bank had taken more care and appraised or inspected the
property, it would not have made the loan. In effect, he argued that the bank
was the author of its own misfortune.

Meneses and Demeneses also argued that they were innocent victims of a fraud
involving a property flip at an inflated price, and that their lawyer never
explained to them the consequences of the documents they were signing.

It turns out that the facts in the case of National Bank v. Meneses are not
unique. Twice in 2007 alone, the Ontario Superior Court heard cases involving
the use of "puppet" purchasers in circumstances similar to the Norman Ave. case.
Both cases were sent on for a full trial based on allegations of fraud against
the lawyer involved in one case, and the lawyer's misrepresentations in the
other case.

Analyzing these two cases, Master Graham noted that there was no allegation
that the lawyer in the Meneses case made any fraudulent representations which
could cancel the bank's right to recovery on the loan. The borrower and
guarantor were not induced to sign anything by misrepresentations of the lawyer
– even though the allegations against him, if proven, might amount to

The court concluded that the alleged negligence of the lawyer did not raise a
genuine issue for trial, and it awarded judgment against the borrower and
guarantor for $98,642.67.

Offering puppet purchasers a tempting sum of money to sign "some papers" is
the latest development in the techniques of fraudsters in mortgage scams.

If anyone offers you or anyone you know to sign "some mortgage papers,"
consult an independent lawyer or call the police. If it sounds too good to be
true, it probably is.

Bob Aaron is a sole practitioner at the law firm of Aaron &
Aaron in Toronto.  Bob specializes in the areas of real estate,
corporate and commercial law, estates and wills and landlord/tenant
law. His
Title Page column appears Saturdays in The Toronto Star and weekly on Move Smartly.  E-mail

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