It may be as simple as falsifying information on a mortgage application or as complex as acquiring property and then artificially increasing the property’s value through a series of sales and re-sales involving a network of accomplices. Regardless, mortgage fraud is a criminal offence and continues to be a serious issue for the real estate industry. For example, in 2010-2011, the Real Estate Council of Ontario (RECO) conducted 23 investigations related to allegations of mortgage fraud.
Mortgage fraud can affect anyone involved in a real estate transaction, sometimes unbeknown to the parties involved. It most often hurts financial institutions that lend money. Similarly, title fraud (another form of mortgage fraud) affects individual homeowners. This type of fraud involves using stolen identifies or forged documents to transfer a registered owner’s title to another person, who then obtains a mortgage on the property. Once the funds are advanced, that person disappears.
Therefore, it is incumbent upon registrants to be wary of typical fraud practices and report suspicious transactions to RECO. RECO has the power to investigate allegations of fraud (under the Real Estate and Business Brokers Act, 2002), and reports fraudulent activities to police.
Protecting Your Clients
Advise homebuyer clients to purchase title insurance through a real estate lawyer. Under the Land Titles Act, defrauded homeowners with title insurance can recover title or be compensated.
Collect and verify personal information from clients.
Track the source of funds received during a transaction.
Ask for proof of identification of all buyers and sellers in a transaction (including corporate clients).
Keep documentation on all funds received for five years.
Know your client and be alert for signs of fraud.
RECO noted the following “red flags”:
Seller wants to meet somewhere other than the property he/she plans to sell.
Seller insists the property be listed at a price over any reasonable market value.
Seller just purchased the property and wants it listed again at a significantly increased value.
Seller from another area wants a property listed.
Seller finds his own buyer.
Principle of Mortgage Financing (elective articling course) also identified warning signs:
Inconsistent personal details.
Buyer who has a significant down payment but no tangible assets.
Buyer not wishing to see the property personally.
Client who can only be contacted by cell phone.
Lawyer acting for both the buyer and seller in a transaction.
Salesperson repeatedly involved with multiple representation in transactions involving a particular buyer.
Salesperson doing the majority of business with few clients and refers buyers/sellers to the same lawyer, appraiser, etc..
Listing information does not align with the facts.
Client requests that the deposit be held by a party other than the listing brokerage for no apparent reason.
Several transactions involving the same property within a short timeframe.
Listing/sale price history that doesn’t make sense based on market trends.
For More Information
For more information about mortgage and other types of real estate fraud:
OREA – REALTOR® Edge – http://www.orea.com/Members/EDGE-Newsletters/EDGE-Newsletter-Archives/2010/February
OREA Real Estate College – Principles of Mortgage Financing – http://www.orea.com/en/OREA-Real-Estate-College/Become-a-Real-Estate-Salesperson/Articling-Segment/Principles-of-Mortgage-Financing