Understanding Mortgage Fraud
Mortgage fraud is a serious issue that many homebuyers and sellers in Manitoba are unaware of. Since 2013, mortgage fraud has increased by more than 50 per cent across Canada, particularly in ‘hot’ real estate markets such as Toronto and Vancouver, but Manitobans are not immune.
A mortgage fraud occurs whenever someone lies about an important fact or fails to disclose an important fact in order to facilitate obtaining a mortgage loan. The misrepresentation can be either verbal or in writing. The fraudster could be stealing from the legitimate homeowner or the lender. They could also be using real estate to launder the proceeds of crime.
Mortgage fraud has serious financial and potentially criminal consequences, and can take several forms, including Fraud for Shelter, Foreclosure Fraud, Title Fraud, and the use of Nominee Buyers.
- Fraud for Shelter
Fraud for Shelter simply means lying on a mortgage application in order to qualify for a mortgage or for a larger mortgage than your income or credit history allows.Some borrowers may think making a false statement on the application is not a serious issue. It’s even sometimes known as ‘soft fraud.’ A recent Equifax survey showed that 13 per cent of Canadians felt it was okay to ‘tell a white lie’ when applying for a mortgage to get the house they want; 16 per cent said they believe mortgage fraud is a victimless crime; while 8 per cent admitted to misrepresenting the facts on a credit or loan application.However, Fraud for Shelter is certainly a crime. Borrowers who misrepresent material information are committing mortgage fraud and will be liable for any financial shortfall in the event of default. They may also be held criminally responsible for their misrepresentation.
- Foreclosure Fraud
In this case, the fraudster targets homeowners who are in danger of losing their homes by defaulting on their mortgage payments or property taxes. The fraudster offers to refinance the outstanding debt into smaller payments. In some cases, the homeowner is misled into signing documents transferring the title to the fraudster. They effectively become tenants in their own homes and are evicted if they default on the payments. In other cases, the fraudster just steals the payments made by the homeowner without paying the mortgage lender or tax arrears.
- Title Fraud
Title Fraud, or ‘Fraud for Title’, is a form of identity theft. When you buy a home you buy the title to the property and you are registered with the Property Registry as the owner of the property.With title fraud, the fraudster steals the identity of the legal owner of real estate and either sells the property and keeps the proceeds, or obtains a mortgage against the property and keeps the money. It can take months or years for the legitimate owner to prove their identity was used fraudulently.
- Nominee Buyer
In this situation, the fraudster convinces or pays an individual, sometimes called a ‘Nominee’ or ‘Straw Buyer,’ to buy real estate and apply for a mortgage on the fraudster’s behalf. Typically, this is because the fraudster either does not qualify for a mortgage or wants to hide their involvement in the purchase of the property. Once the mortgage is in place the nominee is liable for the mortgage payments and could be held criminally responsible for the misrepresentation.
Red Flags of Mortgage Fraud
The following are some potential indicators of Mortgage fraud:
- Lying or allowing misrepresentations on your mortgage application about income, work status or any other information.
- Being offered money for someone else to use your name and credit information to obtain a mortgage.
- Getting monetary kickbacks to go with a specific mortgage lender.
- Handing over large amounts of cash during the home buying process can be suspect—always ask for receipts.
- Being offered (as a borrower) an interest rate or mortgage amount that’s too good to be true, particularly if the borrower has already been turned down by other lenders.
- Being discouraged by a seller or investment adviser from seeing or inspecting the property you are buying.
- Not receiving a formal commitment letter outlining the terms and conditions of the mortgage.
- Not receiving copies of all documents during the application process when requested. Retain ALL copies of documents and review other copies of documents to ensure facts and figures match up.
- Signing a blank mortgage application or being asked to leave signature lines or other important areas on a loan application blank. A broker should never ask you to make any type of false statement on a mortgage application.
Brokers’ Responsibilities to Prevent Mortgage Fraud
Mortgage brokers have a critical and proactive role to play in detecting and preventing fraud.
For more information on broker responsibility and anti-fraud resources, visit the Mortgage Broker Regulator’s Council of Canada website:
Report Suspected Mortgage Fraud
If you suspect you might be a victim or target of a scam or mortgage fraud or you are aware of a broker who is committing mortgage fraud, report it.
Winnipeg Police Service: 204-986-6246
Crime Stoppers: 1-800-222-TIPS
Canadian Anti‑Fraud Centre: 1-888-495-8501
The Manitoba Securities Commission:
204-945-2548 or Toll Free in Manitoba: 1-800-655-5244
Sources: Mortgage Brokers Regulators’ Council of Canada, Financial and Consumer Services Commission of New Brunswick, The Financial Services Commission of Ontario, and Equifax Canada