Steering Clear of Mortgage Fraud – Part 1
To avoid mortgage fraud, it is important that borrowers are educated about what it is and the different types.
Since 2013, mortgage fraud has increased by more than 50 percent across Canada, particularly in “hot” real estate markets such as Toronto and Vancouver, but Manitobans are not immune.
What is Mortgage Fraud?
Mortgage fraud occurs whenever someone lies about 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 or could also be using real estate to launder the proceeds of crime.
Types of Mortgage Fraud
Mortgage fraud has serious financial and potentially criminal consequences, and can take several forms, including:
Fraud for Shelter
Fraud for Shelter 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. 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
- 8 per cent admitted to misrepresenting the facts on a credit or loan application
Beware! While this is sometimes referred to as “soft fraud,” it is fraud nonetheless. Borrowers who commit fraud like this will be liable for any financial shortfall in the event of default and may also be held criminally responsible for their misrepresentation.
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, 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.
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.