Mortgage fraud is a criminal offence, regardless of whether it’s falsifying information on a mortgage application or acquiring property and then artificially increasing the property’s value through a series of sales and re-sales.
Mortgage fraud can affect anyone involved in a real estate transaction, but it most often affects financial institutions that lend money. And, it continues to be an issue in real estate. For example, in 2013-2014, the Real Estate Council of Ontario (RECO) opened 17 investigations and closed 21 investigations related to allegations of mortgage fraud.
Title fraud, a type 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.
As a real estate professional, you should be aware 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.
How to protect 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.
How to protect yourself
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
Warning signs of potential fraud:
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
Buyer has a significant down payment but no tangible assets
Buyer does not want to see the property personally
Client can only be contacted by cell phone
Client provides inconsistent personal details
One 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 the deposit be held by a party other than the listing brokerage with 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
Please remember that the above scenarios do not necessarily mean that fraud has occurred. They are simply red flags to watch for.
Ontario Real Estate Association (2009). Principles of Mortgage Financing. Don Mills, ON: Ontario Real Estate Association.
Real Estate Council of Ontario (2014). 2013-2014 Annual Report. Toronto, ON: Real Estate Council of Ontario
Real Estate Council of Ontario (2015). Can you tell me what “mortgage fraud” is? Retrieved from www.reco.on.ca.