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Notice to the Profession - Re: Not Being Used as the Tool or Dupe of an Unscrupulous Client

Posted July 12, 2006

Chapter 3, Commentary 7 of the Code of Professional Conduct says that:

When advising the client the lawyer must never knowingly assist in or encourage any dishonesty, fraud, crime or illegal conduct, or instruct the client on how to violate the law and avoid punishment. The lawyer should be on guard of becoming the tool or dupe of an unscrupulous client.

A lawyer should be alert to and avoid unwittingly becoming involved with a client engaged in criminal activities such as mortgage fraud. . . . Vigilance is required because the means for this activity . . . may be transactions for which lawyers commonly provide services such as purchasing and selling real estate.

Before accepting a retainer or during a retainer, if a lawyer has suspicions or doubts about whether he or she might be assisting a client in dishonesty, fraud, crime or illegal conduct, the lawyer should make reasonable inquiries to obtain information about the client and about the subject matter and objectives of the retainer, including who are the legal or beneficial owners of property and business entities...The lawyer should make a record of the results of these inquiries.

A series of transactions has come to the attention of the Society which has raised some concerns. In a typical scenario A will find residential properties which have clear title but are in tax arrears. A will approach the homeowner and offer a loan in exchange for a security interest in the property. Unbeknownst to the property owner, he/she is not simply signing a mortgage but a Transfer of Land in favour of A or a corporation beneficially owned by A or members of A’s family.

If retained by A for the purpose of preparing, witnessing or registering the Transfers of Land, members of the profession ought to be making appropriate inquiries so as to ensure that they are not being used as the tool or dupe of an unscrupulous client.

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