Bill Bishop has been a lawyer in Kingston for 40 years. He's an icon, and I've had the pleasure of meeting him on a couple of occasions. I began my own career in Kingston, and he was the 'go-to' person for solicitor-side practice issues in the firm with which I practiced at the time. His office was in North Kingston, in an area where there are a lot of people without much money, and his career consisted largely of helping folks who couldn't afford to pay him, but he had a thriving real estate practice which appears to have paid the bills.
A little over a year ago, he was found to have engaged in professional misconduct "by participating in or knowingly assisting in dishonest and fraudulent conduct by his vendor/purchaser clients and others in obtaining mortgage funds under false pretences in connection with Transactions."
This is typically a capital offence for a lawyer. But there's a reason for that. Real estate fraud is generally really serious: There are a number of different kinds of fraud, but they usually entail a rogue third party tricking the bank into lending the homeowner a lot more money than the house is worth, taking a large cut, then leaving the bank to try to collect against an impecunious homeowner who can't pay the mortgage. There are a lot of variations, but the usual feature is that the bank is left out in the cold without sufficient security and without recourse against the person who actually took the money.
And there are a lot of red flags as to such fraud, which lawyers are supposed to watch out for, so as to avoid being dupes of fraudsters. It's easy for a lawyer to fall into the "I'll do whatever my client instructs", without stepping back and asking "Why does my client require this?"
So a lot of lawyers have been disbarred for participating in real estate fraud or allowing themselves to be duped by fraudsters.
But Bill's case is different.
Bill's misconduct dealt with 14 transactions from 2002 to 2005, during which time he closed thousands of real estate deals. The gist of the 14 transactions in question is that they involved a scheme to avoid the down payment requirements of CMHC insurance that existed at the time.
You get a bona fide purchaser, who can't put down enough money to qualify for a mortgage, looking to buy a home. In steps an 'investor', who purchases the home outright, then turns around and 'flips' it, the same day or shortly thereafter, to the purchaser for a purchase price of 20-30% more, leaving room for (a) transaction fees, (b) a phantom down payment, and (c) profit for the investor. Bill acted for the 'investor'.
Flips are supposed to set off alarm bells. They aren't inherently improper, but one should always question why, in a short period of time, one person is willing to buy for that much more than another was willing to sell. It's not part of the lawyer's job to provide an opinion as to the value of the property, and certainly not the seller's lawyer on the mortgage transaction. In the ordinary course, the purchaser's lawyer will also act for the lender, and so owes obligations to the banks to disclose flags of fraud. The ultimate purchaser's lawyer in these transactions, Sutherland, was disbarred two years ago.
What's Wrong With This Picture?
There may have been some mischief in the transaction that Bill Bishop should have been or was aware of, and he was required to tinker with the Statement of Adjustments to make the numbers jive with the mortgage advance. The fact that there was no down payment means that there were probably laws broken...
...but it's not entirely clear that there was actual fraud, in the sense of material misrepresentations being made. The claim is that the original purchases were of houses being sold below fair market value, and that the subsequent markup put them up to fair market value, as appraised by a realtor, and therefore the banks do have adequate security.
The hearing panel was sceptical of the appraisal, and felt that the 'fair market value' was more accurately determined with reference to the purchase price agreed upon between arms' length parties in the initial transaction. Not an unreasonable approach...I mean, if the original purchaser had to lower the price to that level, why wouldn't the banks have to as well?
But wait...why are we arguing about fair market value in a real estate fraud case? If the purchasers defaulted and the banks had to realize on their security, shouldn't we just be able to point to the bank's shortfall?
The Absence of Loss
And here's the rub: The purchasers didn't default. They made their mortgage payments. Some sold the properties later and discharged the mortgages fully out of the proceeds of the sale. Some still live in the properties and have not only renewed their original mortgages, but they refinanced their mortgages to higher amounts. In other words, the banks aren't too upset about this whole ordeal.
Bill pulled out the big guns in his defence. As an expert witness, he called Sidney Troister. To put this in perspective, when I was learning the ropes of real estate law a few years back, the real estate lawyer in my firm at the time handed me a textbook that Troister had written decades earlier and told me to read it for a good foundation. My understanding is that Troister is the authority on real estate law in Ontario.
Troister's evidence included the following:
Usually invariably, in my experience, mortgage fraud meant mortgage theft, meant money stolen that is unrecoverable. With lenders, as the Law Society program said, the lender is left holding the bag. In my experience on all of the mortgage fraud cases that I saw– and I have seen many – typically, the mortgages go into default within six months because what happens is that the crooks take out the new mortgage. They put enough money in a bank account to cover post‑dated cheques for six months. The money dries up, and by then the crooks are gone. The mortgagee, then, is selling the property and typically selling the property under value for less than they lent.He goes on to highlight that this is not what happened in this case.
The Hearing Panel noted that, nonetheless, there was elevated risk to the banks...and yes, this may well be true, but to the extent that it may be, that really is Sutherland's fault, being the lawyer tasked with protecting their interests. The banks have their own means of valuing properties, and it really is not the job of the vendor's lawyer to help do so. Imagine that I'm selling my house, and I find a foolish purchaser willing to pay 50% more than the value my appraiser gave me...am I under some obligation to tell the purchaser's lender about the lower appraisal value? Absolutely not. Would my lawyer be? Quite the opposite, my lawyer would be prohibited from disclosing it.
The risk in terms of value of security is not, in and of itself, the vendor's problem. The fictional down payment, however, involves misrepresentations by the parties, which Bill likely ought to have been alive to, and does indeed suggest a lack of equity, which means that there's no cushion for the lender...if the property decreases in value, it's underwater.
So yeah, I'm not trying to say that Bill's hands are clean...he didn't do everything he probably should have, and his omissions could hypothetically have contributed to a risk of loss to the banks (or CMHC, as the case may be)...
...but there's an added twist: The entire scheme was designed to facilitate zero-down mortgages, which were illegal at the time. The risk to the bank by reason of Bill's conduct is probably a function of the zero-down nature of the transactions.
And shortly after the transactions at issue, the Federal government loosened regulations on mortgage eligibility, and the banks uniformly leapt to lend money to people who couldn't afford to make a down payment. Good policy? Absolutely not. But the politicians were saying the exact same thing that Bill Bishop said: Helping people of modest means to purchase houses is the right thing to do. And the banks, too, were thrilled to lend to such people. So the trouble with the transactions isn't that the banks wouldn't have lent the money had they known everything, it's simply that they couldn't have lent the money at the time due to regulations which have been changed various times.
I would lean towards concluding that the hearing panel was right to find that Bill engaged in professional misconduct.
After the finding of professional conduct in 2012, I was exchanging emails with a friend of mine who had been a client of Bill's, and who was planning to move, and I inquired if she was planning to use him again or looking for a different lawyer - I know a few - and I remarked of Bill's situation that "It's a case of relatively marginal misconduct in the first place, which will mitigate the penalty...but given that the *usual* penalty for complicity in RE fraud is disbarment, I'm thinking suspension may be on the table despite the fact that nobody suffered a loss."
I'm shocked by the outcome here.
And even more shocked in light of the fact that he really pulled out all the stops in the penalty phase. It looks like the most senior judges in the Kingston area, and a whole line-up of senior Kingston lawyers, testified on his behalf at the penalty hearing. Justice Belch spoke of Bill not having a dishonest bone in his body. Other judges spoke of how important his practice has been for the disadvantaged in north Kingston, and how harmful it would be to the community to shut him down, noting that this was an isolated mistake which was unlikely to recur. Although of limited evidentiary value, there was also a 'resolution' entered into evidence supporting him signed by around a hundred Kingston-area lawyers...and in the Kingston area, that's a lot of lawyers.
The trouble for Bill is that he was up against a legal test that has been established by scores of unscrupulous lawyers who compromised the integrity of their practice in the interests of making a quick buck, causing losses of hundreds of thousands of dollars to innocent third parties. As a result, there's a strong presumption of disbarment for these cases. The majority of the hearing panel concluded that there weren't the 'exceptional circumstances' needed to relieve against that penalty. There was, however, a strong dissent.
In the absence of an exculpatory medical condition, it's hard to imagine a clearer case for relieving against disbarment. Hard to imagine a lawyer with a longer record of spotless service to the community, hard to imagine more compelling evidence of good character, hard to imagine a case where the consequences of the misconduct are less severe, hard to imagine conduct that is less egregious while still constituting the misconduct found.
The message this sends to real estate lawyers is less firm than it is frightening, that there is no room for restraint in penalizing those involved in fraudulent mortgage transactions.
I don't know if Bill's planning to appeal, or will instead decide that it's time to retire. Either way, I wish him the best.
Edited August 7, 2013:
Bill contacted me and advised me that he is planning to appeal, and has obtained permission to practice pending the outcome of the appeal.
Edited May 27, 2014:
The Appeal Panel's decision was released earlier this month. Unfortunately, they dismissed the appeal, and upheld the license revocation. (Which is not effective immediately, and Bill may yet seek recourse at the Divisional Court.)
Edited August 20, 2014:
It appears, from a recent interlocutory decision of the Divisional Court, that Bill appealed, and that the appeal is slated to be heard tomorrow, August 21, 2014. Best of luck, Bill.
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