Flipped Junction homes taken on a wild real estate ride ending in fraud allegations

By Tony Van Alphen

Something strange was going on in The Junction.
At least seven modest homes, all on avenues in the working-class west end of Toronto, experienced a pattern of flips and price jumps as much as 60 per cent in less than a day.
Most of the deals didn’t include deposits. Purchasers got money back. Mortgages exceeded the value of homes. The same buyers and private lenders popped up in many sales. In one sale, a buyer effectively sold a home to herself.
A few sales even involved a notorious real estate agent who ended up in prison last year for helping mastermind marijuana grow operations in scores of other houses across Toronto.
And behind all the 2003-2005 deals that often defied common sense is a freewheeling lawyer — Ron Allan Hatcher — representing multiple parties and running roughshod over his profession’s rules of conduct.
A real estate expert, Jerry Udell, reviewed the complex and convoluted deals for the Law Society of Upper Canada in a subsequent disciplinary case. He concluded that all of them pointed to one thing — mortgage fraud. A lot of it.
Mortgage fraud remains a serious problem in the real estate industry. In the U.S., it undermined the housing market during the bubble years of 2004-2005 and brought it crashing down.
But proving fraud in the U.S. and Canada can be time-consuming and elusive.
Finding victims is sometimes even harder. In the case of the seven Junction houses, police never laid charges or opened a criminal investigation.
The Ontario Real Estate Council, which regulates the industry, confirmed in Novemeber that it had opened an investigation into the transactions involving the houses and possibly more properties.
Except for a one-year suspension for professional misconduct against lawyer Ron Allan Hatcher by a law society panel recently, no one has experienced repercussions from the flips and other financial gymnastics involving those houses.
In response to requests from the Star for an interview, Hatcher noted in a brief email that the law society found “there was no fraud” and he suggested waiting for the panel’s reasons and “all of the relevant facts.”
The law society’s panel ruled in October 2011 Hatcher engaged in professional misconduct for “participating in or knowingly assisting in dishonest or fraudulent conduct” by clients obtaining mortgage funds under “false pretenses.”
It also found Hatcher, who became a lawyer in 1994, wasn’t honest or candid with clients, didn’t disclose conflicts of interest to them, or meet the standard of a “competent lawyer.”
Former clients have also won at least two default judgments totalling more than $230,000 against him in civil courts for deficient work on house loans.
Mortgage fraud usually involves people falsifying information such as property values on loan applications so they can gain larger amounts of funds. In many cases, they default on payments and mortgage funds disappear.
A normal real estate transaction involves a seller receiving money for a home. But in the case of these seven houses, buyers received unexplained or unaccounted funds as well.
Flips at much higher prices would follow, with a combination of mortgages from financial institutions and private lenders. In some instances, there were two flips.
In the final flip, the purchaser would gain as much institutional financing as possible based on the much higher prices negotiated between familiar players in each case.
While the law society panel focused on Hatcher’s conduct in its deliberations, a stinging review of Hatcher’s work by real estate lawyer Udell cited more than 20 “red flags” of “potential fraud” in the transactions.
One of the more curious series of transactions involved 148 Edwin Ave,. where Ivor Pinkett and his sister-in-law Helen Pinkett closed a deal to buy a house for $270,000 on Nov. 17, 2003. Their names would appear repeatedly in The Junction juggling.
The Pinketts’ real estate agent for the purchase was high-flying Sau San (Jennifer) Wu, who would plead guilty to marijuana cultivation, tax evasion, utilities fraud, money laundering and violating bail conditions in May of this year.
Wu admitted acting as an agent in renting 54 houses to marijuana farmers and received a 6½-year prison term. None of the grow operations involved the seven houses, according to police.
Hatcher represented both the buying Pinketts on the Edwin Ave. sale and private lenders, who provided a $279,000 mortgage — more than the actual purchase price.
A numbered company for the Pinketts then flipped the Edwin Ave. house for $310,000, or 15 per cent more. Oddly, the deal closed Nov. 14, three days before the first transaction.
The expert review by Udell, a Windsor lawyer with 35 years experience, said the price “was significantly inflated.”
Furthermore, one of the buyers was Helen Pickett, who effectively bought the house from herself. There was to be a downpayment of $5,000, but the review couldn’t find any record of it.
“The second agreement makes no sense and is an obvious sham,’’ said Sean Dewart, a lawyer for the law society, in a brief at Hatcher’s disciplinary hearing.
Hatcher ran into further conflicts in the latter transaction by acting for the Pinketts’ numbered company (now the seller), and lender Bridgewater Financial Services, which provided a first mortgage of $284,580.
He also arranged for two more mortgages on the property totalling almost $100,000, which easily exceeded the purchase price again.
Udell’s review for the law society said although Hatcher complied with a rule limiting mortgage amounts while representing borrower and lender, he should have declined the work in “such a clearly manipulated mortgage transaction.”
The review also said Hatcher may have “misled” Bridgewater by telling the financial firm he held $37,100 in a trust account for Helen Pickett’s downpayment. In fact, the property was bought with no equity.
In July 2004, Helen Pinkett defaulted and the property was sold under a power of sale process to another investor who was involved in a transaction on one of the other seven houses. Bridgewater collected $265,000, almost $20,000 less than its original mortgage investment.
Udell’s review said Hatcher’s multiple positions in the transactions were “extremely unusual.”
It should have put Hatcher “on alert for a potential fraud” in connection with no deposits, price increases and mortgages exceeding 100 per cent. He also failed to inform lender clients about the oddities, the review noted.
Ivor Pinkett, a house painter by trade, acknowledged buying and selling some of the houses, but stressed he didn’t make any money and never suspected improprieties. Nor was he aware of the law society’s case against Hatcher.
Pinkett’s also worked on renovating the homes to boost their value in a resale.
“There were flips all over the map,” he recalled. “On some of the houses I worked on, we just walked away and never made anything.”
He described Hatcher as a “nice guy and straight up,” but added he was unaware about the suspension and hadn’t talked to him in years. Helen Pinkett described him as “one of the nicest men I’ve ever met.”
Meanwhile, the Edwin Ave. property continued to sell in transactions that involved some of the same players in previous Hatcher deals.
In 2006, the house sold for $450,000 under another power of sale, with the buyer receiving most of the financing from Money Connect Home Lending. The listing described the home as “completely renovated.”
The owner defaulted in 2009 and Money Connect conducted yet another power of sale. This time, the house sold for $360,000, leaving Money Connect with a loss. The listing indicated “renovations started.”
Transactions at a house on 176 St. Clarens Ave. again featured Hatcher representing the Pinketts as buyers. There was a second flip with a 64-per-cent price increase in 14 months — from $329,000 to $540,000 — with no deposits and private lenders providing more than 100 per cent financing.
In that flip, which the society review described as “suspicious,” Hatcher took on a new role — buyer. Hatcher, his wife and mother bought the house when the owner who purchased from the Pinketts defaulted.
The price had also soared despite a gutting of the house, which made it uninhabitable.
The review also found “substantial” funds were paid to renovate the property before closing the deal to the Hatcher family and the work was ultimately paid for by sale proceeds.
Udell said he had never seen such a practice in more than three decades of work. Fellow lawyer Dewart had a blunt assessment of the St. Clarens transactions: “It was a sham and a fraud,” he told the society.
He also charged in a brief to the law society that Hatcher had participated in transactions which he knew were frauds.
While admitting the failure to notify lender clients about jumps in property prices was “unprofessional and negligent,” Hatcher insisted those actions didn’t support allegations of complicity in fraud.
It remains a mystery whether Hatcher gained anything financially. In his filings with the law society, Hatcher said there was no evidence he received excessive fees or payments on any of the seven properties.
TD Canada Trust, the Bank of Nova Scotia and Bridgewater Financial Services — which provided some of the mortgages for the properties — would not comment on whether they lost money. Money Connect Home Lending, did not respond to inquiries.
Mortgage fraud can also have an impact on the local real estate market. For example, quick house flips and a jump in prices can artificially raise the value of neighbouring properties. In this case, it is unclear whether the big price increases or a general uptick in the market pushed up values on the same streets or nearby.
So where are the victims? One veteran real estate lawyer who looked at the seven deals said it is possible that there were no victims because significant increases in market value swept away any possible losses.
“It appears the deals were designed to artificially inflate property values to get higher mortgage amounts than should be permitted,” said the lawyer, who requested anonymity.
“But in these cases, everyone just got lucky and no one got hurt because market values eventually increased so much in Toronto. In the case of the banks, perhaps they just didn’t do their due diligence and looked the other way. If property values had remained stagnant, it may have become a police matter.”
In its arguments, law society staff told Hatcher’s hearing that financial damage is not necessary to prove fraud under the law.
Some real estate officials say there is an industry impression that police only pursue major incidents of possible mortgage fraud.
However, Det. Sgt. Cam Field, who heads the Toronto Police Service financial crimes section, counters that his department will devote the staff and time if there is evidence of mortgage fraud.
“We know, based on the information from the law society, the potential of more victims in this alleged scheme,” Fields noted. “If people think they were criminally defrauded, we strongly suggest they contact us.”
In addition to the suspension and an order for $30,000 in costs, the law society rapped Hatcher with a reprimand and $2,000 in further expenses for failing to co-operate in the investigation of his conduct.
But society staff said the penalties aren’t enough. They have appealed to a higher society panel to disbar Hatcher.