On August 16, the Law Society of Ontario (“LSO”) released a notice to the professions on exploitative loan agreements. The purpose of this notice is to alert Law Society licensees to the risks of acting for clients in the registration of Notice of Security Interest (“NOSIs”),[1] or, in the course of completing mortgage loan transactions in cases involving vulnerable people.
The LSO notice comes in response to a recent wave of predatory lending schemes targeting the elderly and the vulnerable. These schemes subsequently involve loans that were secured against the homes of vulnerable or older adults through transactions in which Ontario lawyers and paralegals have played a role. In fact, it was recently reported that one lawyer has already been suspended for allegedly participating in or facilitating a predatory mortgage loan scheme involving vulnerable older adults.[2]
According to the LSO, these transactions surround senior homeowners being pressured by fraudsters (posing as door-to-door salespeople) to enter contracts for home renovations and the purchase of other goods and services. The seniors are then led into loan agreements from private lenders to finance the products and services. Afterwards, the lenders will register NOSIs on the title to their property to secure the loans. Often, the older adult has no idea this has taken place and is later induced to take out larger mortgage loans, secured against their homes, to pay off some of the NOSIs and finance further home renovations. The mortgages feature significantly higher than market interest rates and substantial lender and broker fees. Under some of the mortgages, enforcement proceedings have been commenced where the homeowner defaulted on payments.
According to the Advocacy Centre for the Elderly (“ACE”), adult homeowners are approached by a “groomer”, who makes repeated visits and false promises to get the adults out of the unfair contracts, free of charge. They promise the homeowners “rebates” if they sign documents presented to them which can pay for “free” renovations. The older adults are pressured to sign immediately, not given time to review the documents, and not provided with copies of the documents they signed.[3]
As the LSO warns, “[i]n these transactions, a lawyer may be asked by a broker or other intermediary to represent the lender or the borrower and may receive purported instructions from the same intermediary, rather than the actual client.”[4] For lawyers and paralegals, due diligence must be exercised. This means that before accepting such retainers, and during the course of the retainer, lawyers must inform themselves of their clients’ circumstances and ensure they are in a position to act in the best interests of their clients and in compliance with their professional obligations.
The LSO also released a practice support and resource guide titled Exploitative Loan Agreements which provides helpful guidance on obligations of lawyers and paralegals, identifying red flags, and dealing with breaches of professional obligations. The LSO resources also include materials to assist lawyers involved in real estate transactions by heightening their sensitivity to the warning signs of fraud and how to comply with ethical obligations in the face of suspected exploitative or dishonest conduct targeting a vulnerable client.[5]
Snapshot of the Victims
This is a complex and multi-jurisdictional scam that has been reportedly targeting seniors in Ontario since 2017, possibly even earlier.
In March of 2023, the CBC reported on the findings of a Marketplace investigation into the scam. CBC found that the mortgages usually involve a one-year term with 25 per cent interest and monthly payments paid up front, meaning that most of the homeowners don’t realize they have a mortgage until it comes due a year later.
Karl Hoffman, a 79-year-old who had suffered a brain aneurysm nearly 40 years ago was one of the targeted homeowners. In late 2022, he received a foreclosure letter saying he had two weeks to leave his Bowmanville home he had been living in for the past 50 years.
Property records reveal that Hoffmann and his late wife had been signed up for several door-to-door rental contracts for home equipment as early as 2017. The records also show that there were 11 liens registered on Hoffman’s property by several different companies from 2017 to 2021 for a total of $103,478.66. In one case, a lien worth $34,699 was registered against his property for “plumbing valve upgrades and home surge protection equipment.” Four days after that lien was placed on his home, a one-year mortgage with 25 per cent interest was registered on his property for $130,000.
The CBC reported that other victims of the scam included an 88-year-old legally blind woman and her son, a retired Canadian Armed Forces officer with PTSD, who ended up with a $500,000 mortgage they didn’t want (or even knew they had). In another instance, a 69-year-old widow who cannot read or write, ended up with a $150,000 mortgage. She eventually lost her Port Hope home which she had lived in for over 40 years.[6]
The Ontario Provincial Police (“OPP”), through their Serious Fraud Office (“SFO”) and in collaboration with other police agencies, report that they have been investigating a similar sounding scheme, but have not identified the companies or individuals under investigation.
Karen Steward, staff litigation lawyer with the Advocacy Centre for the Elderly (“ACE”), a legal aid clinic for low-income seniors in Ontario, reports that her organization started investigating the scheme after receiving phone calls in the summer of 2022. In March, Graham Webb, the executive director of ACE lamented that “I don’t think that a week goes by where we don’t get a call about one of these matters.”[7]
Tips to Avoid Becoming a Target
ACE has provided some helpful measures which can be adopted to protect against unfair door-to-door sales and NOSI scams, including:
- Not allowing unsolicited door-to-door salespeople into your home. Know that local utility companies, government agencies and regulatory organizations do not send salespeople door-to-door;
- Research any company that contacts you and contact them directly. Search the company’s name with the Better Business Bureau and cross-reference with the government of Ontario’s Consumer Beware List found here;
- Do not sign any contracts on the spot. Take the time to review contracts carefully, ensuring you fully understood all the terms you are agreeing to. You have a right to cancel a home service contract without any reason within a 10-day cooling off period which begins upon receiving a written copy of the agreement; and
- Do not sign any documents with any potential lender unless you have received independent legal advice from a lawyer of your own choosing (not a lawyer referred to you by the lender).[8]
What to do if you’ve been targeted
In Ontario, there is a general two-year limitation period to commence civil actions. This begins when you knew or ought to have known you had a claim. Homeowners who believe they have fallen victim to a mortgage or home service scheme, therefore, should seek legal advice immediately.
If you suspect you or a loved one of friend has been a victim of a predatory lending scam, contact your local police and consider reporting the fraud to the Canadian Anti Fraud Centre (“CAFC”). In 2022, Elder Abuse Prevention Ontario (“EAPO”), reported that only five to ten per cent of victim’s report scams and frauds to the CAFC or law enforcement.[9]
All individuals and businesses who carry out regulated mortgage brokering activities are required to be licensed with the Financial Services Regulatory Authority of Ontario (“FSRA”) unless otherwise exempted by the relevant legislation. Complaints about a mortgage agent, broker, brokerage, and/or administrator, or an individual or business carrying out regulated mortgage brokering activities without a license can be made using FSRA’s online complaint form found here or by phoning 1-800-668-0128.
Door-to-door sales of goods and services worth more than $50 in Ontario are generally regulated by the Consumer Protection Act, 2022 which provides that you must be given a contract when purchasing goods or services exceeding $50 from a door-to-door salesperson. If a business has misrepresented their services or goods, you can withdraw from the contact by providing the business notice within one year to receive a full refund. If the business refuses to provide you with a refund, you can take legal action or file a complaint with the Ministry of Public and Business Service Delivery. Their online complaint form can be found here or you can call Consumer Protection Ontario at 1-800-889-9768.
—
[1] Notices of security interest are liens against equipment that are registered to the title of your home. A lien is a claim or legal right against assets that are typically used as collateral to satisfy a debt. In these instances, when it comes time to sell or refinance your home, the notices of security interest are generally required to be paid out before you can do so. For more information on these kinds of liens, see Pro Bono Ontario “You Found a Lien on Your Home. Now What?” (March 29, 2023), accessed online: https://www.probonoontario.org/2022/03/29/you-found-a-lien-on-your-home-now-what/
[2] See Law Society of Ontario v. Harrison, 2023 ONLSTH 80.
[3] Advocacy Centre for the Elderly, “Cross-Ontario Mortgage & Notice of Security Interest (NOSI) Scheme” (2023), accessed online: https://www.acelaw.ca/consumer-protection-resources/warning-scams-targeting-seniors/cross-ontario-mortgage-notice-of-security-interest-nosi-scheme/ [ACE, NOSI Scheme].
[4] Law Society of Ontario, “Notice to the Professions: Exploitative loan agreements” (August 16, 2023), accessed online: https://lso.ca/news-events/news/latest-news-2023/notice-to-the-professions-exploitative-loan-agreem
[5] Law Society of Ontario, “Exploitative loan agreements” (August 16, 2023), accessed online: https://lso.ca/lawyers/practice-supports-and-resources/topics/the-lawyer-client-relationship/exploitative-loan-agreements#supports-and-resources-7
[6] Caitlin Taylor, Stephanie Kampf, David Common, and Katie Swyers, “Elaborate scam leaves seniors with high-interest mortgages they didn’t want or understand” (March 31, 2023), accessed online: https://www.cbc.ca/news/business/seniors-mortgages-marketplace-1.6795104
[7] Ibid.
[8] ACE, NOSI Scheme, supra note 3.
[9] Elder Abuse Prevention Ontario, “The RCMP, CAFC, and OPP raise awareness after an increase in emergency-grandparent scams” (2023), accessed online: http://wwww.eapon.ca/grandparent-scams-2023/
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Written by: WEL Partners
Posted on: August 31, 2023
Categories: Commentary, WEL Newsletter
On August 16, the Law Society of Ontario (“LSO”) released a notice to the professions on exploitative loan agreements. The purpose of this notice is to alert Law Society licensees to the risks of acting for clients in the registration of Notice of Security Interest (“NOSIs”),[1] or, in the course of completing mortgage loan transactions in cases involving vulnerable people.
The LSO notice comes in response to a recent wave of predatory lending schemes targeting the elderly and the vulnerable. These schemes subsequently involve loans that were secured against the homes of vulnerable or older adults through transactions in which Ontario lawyers and paralegals have played a role. In fact, it was recently reported that one lawyer has already been suspended for allegedly participating in or facilitating a predatory mortgage loan scheme involving vulnerable older adults.[2]
According to the LSO, these transactions surround senior homeowners being pressured by fraudsters (posing as door-to-door salespeople) to enter contracts for home renovations and the purchase of other goods and services. The seniors are then led into loan agreements from private lenders to finance the products and services. Afterwards, the lenders will register NOSIs on the title to their property to secure the loans. Often, the older adult has no idea this has taken place and is later induced to take out larger mortgage loans, secured against their homes, to pay off some of the NOSIs and finance further home renovations. The mortgages feature significantly higher than market interest rates and substantial lender and broker fees. Under some of the mortgages, enforcement proceedings have been commenced where the homeowner defaulted on payments.
According to the Advocacy Centre for the Elderly (“ACE”), adult homeowners are approached by a “groomer”, who makes repeated visits and false promises to get the adults out of the unfair contracts, free of charge. They promise the homeowners “rebates” if they sign documents presented to them which can pay for “free” renovations. The older adults are pressured to sign immediately, not given time to review the documents, and not provided with copies of the documents they signed.[3]
As the LSO warns, “[i]n these transactions, a lawyer may be asked by a broker or other intermediary to represent the lender or the borrower and may receive purported instructions from the same intermediary, rather than the actual client.”[4] For lawyers and paralegals, due diligence must be exercised. This means that before accepting such retainers, and during the course of the retainer, lawyers must inform themselves of their clients’ circumstances and ensure they are in a position to act in the best interests of their clients and in compliance with their professional obligations.
The LSO also released a practice support and resource guide titled Exploitative Loan Agreements which provides helpful guidance on obligations of lawyers and paralegals, identifying red flags, and dealing with breaches of professional obligations. The LSO resources also include materials to assist lawyers involved in real estate transactions by heightening their sensitivity to the warning signs of fraud and how to comply with ethical obligations in the face of suspected exploitative or dishonest conduct targeting a vulnerable client.[5]
Snapshot of the Victims
This is a complex and multi-jurisdictional scam that has been reportedly targeting seniors in Ontario since 2017, possibly even earlier.
In March of 2023, the CBC reported on the findings of a Marketplace investigation into the scam. CBC found that the mortgages usually involve a one-year term with 25 per cent interest and monthly payments paid up front, meaning that most of the homeowners don’t realize they have a mortgage until it comes due a year later.
Karl Hoffman, a 79-year-old who had suffered a brain aneurysm nearly 40 years ago was one of the targeted homeowners. In late 2022, he received a foreclosure letter saying he had two weeks to leave his Bowmanville home he had been living in for the past 50 years.
Property records reveal that Hoffmann and his late wife had been signed up for several door-to-door rental contracts for home equipment as early as 2017. The records also show that there were 11 liens registered on Hoffman’s property by several different companies from 2017 to 2021 for a total of $103,478.66. In one case, a lien worth $34,699 was registered against his property for “plumbing valve upgrades and home surge protection equipment.” Four days after that lien was placed on his home, a one-year mortgage with 25 per cent interest was registered on his property for $130,000.
The CBC reported that other victims of the scam included an 88-year-old legally blind woman and her son, a retired Canadian Armed Forces officer with PTSD, who ended up with a $500,000 mortgage they didn’t want (or even knew they had). In another instance, a 69-year-old widow who cannot read or write, ended up with a $150,000 mortgage. She eventually lost her Port Hope home which she had lived in for over 40 years.[6]
The Ontario Provincial Police (“OPP”), through their Serious Fraud Office (“SFO”) and in collaboration with other police agencies, report that they have been investigating a similar sounding scheme, but have not identified the companies or individuals under investigation.
Karen Steward, staff litigation lawyer with the Advocacy Centre for the Elderly (“ACE”), a legal aid clinic for low-income seniors in Ontario, reports that her organization started investigating the scheme after receiving phone calls in the summer of 2022. In March, Graham Webb, the executive director of ACE lamented that “I don’t think that a week goes by where we don’t get a call about one of these matters.”[7]
Tips to Avoid Becoming a Target
ACE has provided some helpful measures which can be adopted to protect against unfair door-to-door sales and NOSI scams, including:
What to do if you’ve been targeted
In Ontario, there is a general two-year limitation period to commence civil actions. This begins when you knew or ought to have known you had a claim. Homeowners who believe they have fallen victim to a mortgage or home service scheme, therefore, should seek legal advice immediately.
If you suspect you or a loved one of friend has been a victim of a predatory lending scam, contact your local police and consider reporting the fraud to the Canadian Anti Fraud Centre (“CAFC”). In 2022, Elder Abuse Prevention Ontario (“EAPO”), reported that only five to ten per cent of victim’s report scams and frauds to the CAFC or law enforcement.[9]
All individuals and businesses who carry out regulated mortgage brokering activities are required to be licensed with the Financial Services Regulatory Authority of Ontario (“FSRA”) unless otherwise exempted by the relevant legislation. Complaints about a mortgage agent, broker, brokerage, and/or administrator, or an individual or business carrying out regulated mortgage brokering activities without a license can be made using FSRA’s online complaint form found here or by phoning 1-800-668-0128.
Door-to-door sales of goods and services worth more than $50 in Ontario are generally regulated by the Consumer Protection Act, 2022 which provides that you must be given a contract when purchasing goods or services exceeding $50 from a door-to-door salesperson. If a business has misrepresented their services or goods, you can withdraw from the contact by providing the business notice within one year to receive a full refund. If the business refuses to provide you with a refund, you can take legal action or file a complaint with the Ministry of Public and Business Service Delivery. Their online complaint form can be found here or you can call Consumer Protection Ontario at 1-800-889-9768.
—
[1] Notices of security interest are liens against equipment that are registered to the title of your home. A lien is a claim or legal right against assets that are typically used as collateral to satisfy a debt. In these instances, when it comes time to sell or refinance your home, the notices of security interest are generally required to be paid out before you can do so. For more information on these kinds of liens, see Pro Bono Ontario “You Found a Lien on Your Home. Now What?” (March 29, 2023), accessed online: https://www.probonoontario.org/2022/03/29/you-found-a-lien-on-your-home-now-what/
[2] See Law Society of Ontario v. Harrison, 2023 ONLSTH 80.
[3] Advocacy Centre for the Elderly, “Cross-Ontario Mortgage & Notice of Security Interest (NOSI) Scheme” (2023), accessed online: https://www.acelaw.ca/consumer-protection-resources/warning-scams-targeting-seniors/cross-ontario-mortgage-notice-of-security-interest-nosi-scheme/ [ACE, NOSI Scheme].
[4] Law Society of Ontario, “Notice to the Professions: Exploitative loan agreements” (August 16, 2023), accessed online: https://lso.ca/news-events/news/latest-news-2023/notice-to-the-professions-exploitative-loan-agreem
[5] Law Society of Ontario, “Exploitative loan agreements” (August 16, 2023), accessed online: https://lso.ca/lawyers/practice-supports-and-resources/topics/the-lawyer-client-relationship/exploitative-loan-agreements#supports-and-resources-7
[6] Caitlin Taylor, Stephanie Kampf, David Common, and Katie Swyers, “Elaborate scam leaves seniors with high-interest mortgages they didn’t want or understand” (March 31, 2023), accessed online: https://www.cbc.ca/news/business/seniors-mortgages-marketplace-1.6795104
[7] Ibid.
[8] ACE, NOSI Scheme, supra note 3.
[9] Elder Abuse Prevention Ontario, “The RCMP, CAFC, and OPP raise awareness after an increase in emergency-grandparent scams” (2023), accessed online: http://wwww.eapon.ca/grandparent-scams-2023/
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