Equitable Trust reveals details about $14m fraud

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More details have emerged about that $14 million mortgage fraud case at Equitable Trust, including information about legal claims both initiated by and against the lender.

“The company has commenced an action against several parties to the subject loan transactions and has been named, along with other defendants, in two separate statements of claim made by parties seeking relief from mortgage amounts owing,” the broker channel lender revealed last week in third quarter financials. “Management will defend these claims and will cross claim against a number of the defendants and will continue to review all legal options available to it in pursuing its recourse.”

The barrage of legal proceedings centres on four condominium corporation loans for a total outstanding balance of about $14 million. That amount, while reduced to $13.9 million as a result of a partial recovery, represents one of the biggest alleged fraud cases to hit the channel in a decade. It has also prompted Equitable to hire external legal counsel.

The lender has also moved the loans from the account receivables column, making a $5 million provision, recorded in Q3.

It was in August that Equitable Trust’s parent company announced its investigation into the fraud, also hinting at the possibility of legal action now, in fact, underway. It hasn’t yet revealed the extent of broker involvement, although industry insiders point to the lender's originations model in suggesting brokers may have facilitated the commercial transactions.

The cases revolve around what appear to have been unauthorized loans taken out by the management company for upscale condominium buildings in Toronto, at least one with a prime downtown address. Condo owners of that particular property have named Equitable in legal action initiated against the management company. Equitable denies any prior knowledge of the fraud, pointing to its own losses.

The company is now looking to mitigate any potential liabilities.

“In addition to any potential recoveries under its claims,” writes Equitable, “the company will also claim under its Financial Institution Bond, which is intended to protect against fraud losses, however, there is no assurance that proceeds or recoveries, if any, will be received in a timely manner or that such proceeds will be sufficient to recover the full amount of the loans.”

On a conference call last week, Equitable Group President and CEO Andrew Moor warned that a legal resolution could be two or more years in the offing.

That uncertainty aside, Equitable still recorded a healthy quarter driven by 55 per cent uptick in single family originations compared to the year-ago period.It also recorded a net income of $13.4 million for Q3, compared to the same quarter in 2010.


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