Source: The Canadian Press

The Bank of Montreal’s sweeping lawsuit against hundreds of people in a $70 million alleged mortgage-fraud scam is just the surface of an industry-wide problem, a forensic account says.

“This is hitting the news because of the size of the operation and the fact a bank has decided to take such forward action on it,” Greg Draper, with firm Meyers Norris Penny, said in an interview Wednesday.

“But it’s happening on a smaller scale to financial institutions across the country on a regular basis.”

The Bank of Montreal, in a lawsuit filed in Calgary, says it has been scammed by hundreds of people, including lawyers, mortgage brokers and even some of its own staff, in a series of schemes that were first flagged four years ago.

Bank spokesman Ralph Marranca declined comment Wednesday, but the bank figures it will only be able to recoup about $30 million.

Draper said what surprised him about the allegations was “the size of the operation and the number of people involved.”

“I think that’s the only way you’re going to pull off an operation of the size this one appears to be,” he said.

The bank alleges the scammers would find undervalued houses in upscale neighbourhoods. They would pay someone to put their name on a mortgage application. Documents were then forged to inflate the value of the property and to fool the bank into believing the buyer had the ability to pay.

Once the mortgage was approved, the fraudsters pocketed the profit and the money was sent overseas, the bank says.

The allegations have yet to be proven in court.

Draper said the scheme was ripe for Calgary in 2006, when a booming oil and gas industry dropped Calgary’s vacancy rate to near zero and saw homes bought and sold within hours of being put on the market.

The bank began investigating in 2006 after a security check of the mortgages revealed irregularities.

Draper said the problem can put banks in a bind.

“Banks have to look at the cost-benefit of taking action that they do and whether it’s in a public forum or something more discreet and what they’re likely to recover for their shareholders,” he said.

“The way you stop it is by doing exactly what the Bank of Montreal has done. You can’t prevent it. You put detector measures in place to identify it as early as possible and once a problem is uncovered you take swift and decisive action, as seems to be the case here.”