Some easy tips on how to protect yourself from mortgage fraud

  
Getting back into the swing of things, I thought I might make this post about mortgage fraud. It is becoming an increasingly prevalent problem, and it’s becoming increasingly difficult to detect and deal with.

There are actually two main types of fraud we need to be wary of when we talk about real estate.  Mortgage Fraud and Title Fraud.

Mortgage Fraud

By far the most common type of mortgage fraud involves someone obtaining a property, then increasing its value through a series of sales and resales involving the fraudster and someone working in cooperation with them. A mortgage is then secured for the property based on the inflated price.

Following are some red flags for mortgage fraud:

·         Someone offers you money to use your name and credit information to obtain a mortgage

·         You are encouraged to include false information on a mortgage application

·         You are asked to leave signature lines or other important areas of your mortgage application blank

·         The seller or investment advisor discourages you from seeing or inspecting the property you will be purchasing

·         The seller or developer rebates you money on closing, and you don’t disclose this to your lending institution

Another type of mortgage fraud is the “straw” or “dummy” homebuyer scheme. In this scheme, someone who does not have a good credit rating; or is self-employed and cannot get a mortgage; or doesn’t have a sufficient down payment, cannot purchase a home. S/he or an associate approaches someone else with solid credit. This person is offered a sum of money (as much as $10,000) to go through the motions of buying a property on the other person’s behalf – acting as a straw buyer. The person with good credit lends their name and credit rating to the person who cannot be approved for a mortgage for his or her purchase of a home.

Other types of criminal activity often dovetail with mortgage or title fraud. For example, people who run “grow ops” or meth labs may use these forms of fraud to “purchase” their properties.

Fortunately (for you, at least), mortgage fraud typically hurts the lender the most.

Canadian precedents have been set in which banks are held responsible for mortgage fraud. The BC Court of Appeals recently ruled that “the lender – not the rightful property owner – is the one out of luck in a fraudulent mortgage scheme” and that lenders “must ensure their mortgages are valid by taking steps to ensure that the registered owner obtained title to the property legally.” The same conclusion was made by the Ontario Courts a couple of years ago.

Banks, as you can imagine, aren’t too thrilled about this trend.

Title Fraud
Title Fraud is actually more akin to identity theft than mortgage fraud.  As the homeowner, you have not been approached, you have not been offered anything, and in fact most of the time you have no idea anything has happened until it is too late. In contrast to Mortgage fraud, it is unfortunately the homeowner – not the lender – who is hurt the most.

Here’s what typically happens with title fraud: A criminal, using false identification to pose as you, registers forged documents transferring your property to another name, then registers a forced discharge of your existing mortgage and gets a new mortgage against your property. Then the fraudster either makes off with the new home loan money without making mortgage payments, or turns around and sells the property without you knowing it. Whether you are the homeowner whose house was essentially stolen, the person whose name was used to secure a mortgage on which no payments are being made, or the person who inadvertently buys a house from a person who does not legally hold the deed, you stand to lose hundreds of thousands of dollars.

Title fraud is difficult to detect while it is happening, but following are ways you can protect yourself:

·         If you find your mortgage payments have stopped coming out, contact your lender immediately

·         If you would like to give someone the right to deal with your assets, consult with your lawyer first, and make sure you can cancel if need be.

·         Consult your provincial land registry office to ensure the title is in your name

·         Check your credit report on a regular basis to make sure information is accurate.  You can get a free report by mail here, or pay to get the results right away here

·         Keep your ID safe

·         Shred documents with personal information on it

·         Only share personal information with companies you trust

For more tips and information on identity theft, please visit the Financial Consumer Agency of Canada. They have a lot of great information that goes beyond this blog post.

When I first started working at the bank, I was told the number one thing to remember is to trust my gut. If something doesn’t seem right, there is a good chance it isn’t. The same is true when it comes to your mortgage. Always deal with people and companies you trust, and don’t be afraid to get a second opinion.