Sunday, September 18, 2011

Be careful About Condo Fraud in Toronto and the GTA

Is it Safe to Buy a Condo ~ $ 20 million Fraud

Ontario Real Estate Source

By Brian Madigan LL.B.

Channel Property Management operated in Toronto for years under Manzoor Khan of Brampton, Ontario.

Channel specialized in condominium management and gained the confidence in many cases of immigrants who identified with him from his native Bangladesh , where he has now returned.

It appears that Manzoor looked after about 15 residential condominium buildings.

While it does not really seem that sophisticated, here is what he did:

1)     Manzoor had his employees pose as senior officers of the condominium corporation,
2)    As President and Secretary, they could issue certified copies of the by-laws of the company,
3)    They certified a new banking by-law and/or borrowing by-law authorizing certain loans to be negotiated,
4)    The proceeds of the loans were placed in bank accounts over which Manzoor Khan had signing authority,
5)    The total borrowed appears to be about $20 million and such loans are secured against about 7 properties.

The arrangement is simple enough. The fraud is clear and the man has fled the country.
But, are the owners of the residential condominiums at risk? They might be!

The lenders are innocent and the homeowners are innocent. Both were duped by the same person. Hopefully, they all had insurance bonds as against Manzoor and his company. If they did, then they will be compensated.

This may not be just the fault of the lender. At the outset, it will be necessary to determine whether the board of directors might be liable. There may be directors and officers liability insurance. That would be helpful too.

However, the fundamental question for the courts is going to be whether these mortgages were valid.

This is an extremely costly undertaking. And, it could be that one or more of the residential condominium corporations do not have insurance and is therefore at risk of liability.

In the meantime, if you were a purchaser about to close a deal, you would want a very large holdback and if you were looking for a condo to purchase, you would probably avoid these buildings until the issues are resolved.

With all this uncertainty, homeowners will just have to put their lives on hold. And, this could go on for years!

Make sure you see and understand the financial statements of the condominium before you buy. Ask yourself whether the property manager is reputable and whether the board members are sophisticated. Get professional assistance right from the beginning.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888