The following article appeared in the April 2011 issue of New Home Buyer’s Magazine.
Incidents of real estate title and mortgage fraud are very real in Canada and cost property owners and mortgage lenders millions if not billions annually. Even though you are buying a new home from a builder, you may still be at risk of real estate title or mortgage fraud.
Mortgage Fraud is any scheme designed to get mortgage financing under false pretences. It can be a simple act of falsifying information on a loan application or more complicated schemes among several parties to obtain financing on a property that exceeds the market value of the home.
Once you become the owner of your new home or lot, you may be at risk of Real Estate Title Fraud. Real Estate Title Fraud usually involves the use of stolen identify or forged documents to transfer the property owner’s title to the fraudster. The fraudster then obtains a mortgage on the property, keeps the mortgage funds, and the property owner is left to pay.
Fraud schemes come in many creative forms and new schemes are constantly being discovered. Often these frauds are committed by organized groups, but sometimes an individual homeowner may unknowingly be part of mortgage fraud. Here are some examples:
- Undisclosed Cash Backs – It is mortgage fraud, if the Seller agrees to give the Buyer cash back after the closing without disclosing this on the purchase agreement, to your lawyer, or to your mortgage lender.
- Falsifying Information on your mortgage application –Your mortgage broker may facilitate mortgage fraud if they misrepresent, misstate, or omit information that may be relied on by the lender in making their decision to extend credit such as your income, employment, or liabilities. This may happen with or without your knowledge. The Buyer may be committing the fraud with the primary interest of obtaining a home, while the broker facilitating the fraud is motivated by their profit from closing the loan.
- Misrepresenting whether the property will be owner occupied – It is mortgage fraud if you tell your mortgage lender that you intend to live in the property when you actually intend to rent it. The mortgage lender is giving you a mortgage and assessing their risk on the belief that you will be living in the property.
- Inflated Purchase Price – It is mortgage fraud if you have 2 purchase contracts and you send the purchase contract with the higher purchase price to your mortgage lender with the expectation of getting a higher appraisal and loan amount. It is mortgage fraud if you indicate a higher purchase price on the purchase agreement, then what is actually being paid by the Buyer to the Seller.
- Falsifying Deposits – It is mortgage fraud if you indicate on your purchase agreement that a deposit was paid to the Seller and it actually was not.
- Identity Theft – The Fraudster registers a fraudulent transfer of a property to himself. The property does not have a mortgage. The Fraudster then arranges mortgage financing on the property and keeps the mortgage advance. The property owners have no idea that the property has been transferred or that a mortgage has been placed on their property. They usually find out once the mortgage lender starts to demand payment on the mortgage.
In order to protect yourself from Real Estate Title Fraud, you should check your credit report regularly as well as the title to your property to ensure the title is still in your name. You may also want to consider purchasing a Title Insurance Policy which may cover your losses related to a title fraud.
The best way to avoid Mortgage Fraud is simply not to make any misrepresentations to your mortgage lender about your credit worthiness, the value of the property, or the purchase price. Remember that Real Estate Title and Mortgage Fraud is a crime and punishable by the law.