Mortgage Fraud in Canada – What You Should Know and How to Prevent It

In real estate, some corporations and consumers knowingly misrepresent properties in order to obtain financing and advantages that they wouldn’t otherwise receive with the truth in hand. This is mortgage fraud, and it’s illegal. Sadly, mortgage fraud in Canada does occur. It applies to any sort of fraudulent action relating to acquiring a mortgage, oftentimes with the lenders being the victims. Homeowners and buyers can also be the victim of mortgage fraud if they have been misled or defrauded by mortgage brokers and creditors in the process of trying to acquire financing.

Any borrower who misrepresents information about a property to acquire a mortgage unlawfully is liable for financial shortfalls should there be a default. Furthermore, they can be held criminally responsible for this deliberate misrepresentation.

Different Types of Mortgage Frauds in Canada

As stated, the different types of mortgage frauds and mortgage fraud schemes are most often committed by borrowers. They use various mechanisms and strategies to misrepresent a property in an attempt to gain mortgage financing. From mortgage application fraud to mortgage document fraud, there are dozens of types of mortgage fraud in Canada to be aware of.

• A borrower can declare themselves a full-time employee when they are self-employed or only work part-time.
• A borrower may deliberately misstate income, job position, or their period of employment.
• They may misrepresent themselves as property owners when the property is registered and owned by a different party.
• They may claim a property is owner-occupied while intending to or already using it as a rental property.
• A borrower may misrepresent the source of funds for their down payment or misrepresent the amount of down payment.
• They may inflate the value of their property to secure a higher mortgage.
• A borrower may purposefully lie about debt obligations or existing mortgage obligations in a new mortgage application.
• They may add co-mortgagees on the application, using individuals who have no intention of taking on this responsibility.
• A borrower may act as a ‘straw buyer’, a person who buys a property on someone else’s behalf to help navigate legal restrictions or enable fraud.

Mortgage Fraud Schemes to Be Aware Of

Some mortgage fraud schemes are more commonly used than others – ranging from occupancy fraud to straw buying and others.

Straw Buyer. As mentioned, a straw buyer scheme is when a borrower involves a third party – often one with a solid credit history and the necessary funds – to buy a property on their behalf. Should the person behind the straw buyer default, ultimately, it’s the straw buyer themselves who are left responsible and criminally liable for their misrepresentation.

Fraud For Shelter. A borrow may misrepresent themselves to gain access to housing they couldn’t otherwise obtain. This is considered fraud for shelter. This is a crime, making those who provide false information or purposefully omit certain information liable for any and all defaults.

Syndicated Mortgage Fraud. Syndicated mortgages are mortgages where a borrower uses private investors to invest in a property, combining funds to create a single mortgage. Thus, they can start out and remain legitimate. That said, investors often advertise lucrative returns and will inflate the value of a property to acquire and walk away with the investor funds.

There are lots of mortgage fraud schemes that are a little more nuanced. You may find yourself wondering if you are being involved in a mortgage fraud scheme. If someone is trying to falsify information or deprive an owner of any portion of property assets or the title to a property, it may be considered a fraud attempt. Here is what to look for in looking at mortgage fraud in Canada.

• You have been asked to provide false information on a mortgage application.
• You are being asked to apply for a mortgage higher than the property value.
• You are discouraged from having a property inspected or from even visiting the property.
• You are being asked by someone for them to use your personal or credit information.
• You are asked to sign a blank or incomplete mortgage application.
• You are not receiving regular contact from your lender, tax authority, or utility bills.

Should you do any of these scenarios, you could be considered an accomplice to mortgage fraud. Furthermore, with mortgage fraud examples like these, you very well could be the one who is left financially responsible for a property you cannot afford or criminally liable for the aforementioned fraud.

Protecting Yourself From Mortgage Fraud

It is the applicant’s responsibility when applying for a mortgage to verify the information provided is accurate. Consult a mortgage fraud lawyer immediately if you believe you are the subject of mortgage fraud, an accomplice, and have become involved in a mortgage fraud scheme. Here are some general recommendations to help protect yourself from mortgage fraud.

• Don’t add your name to another person’s mortgage unless you intend to make payments on it.
• Do not make a deposit on a home directly to the seller. Ensure it’s being held ‘in trust’ by a third party such as a real eastate lawyer or notary.
• Before buying a property, get its sales history, have it inspected and appraised, and check to see if any other stakeholders have a financial interest in it or if there are any liens or tax arrears associated with it.
• Beware of anyone or any property where it sounds ‘too good to be true’. Where there’s smoke, there’s fire.
• Do not sign papers you do not understand. Consult a lawyer to verify what you are signing is indeed what you believe it to be.

Mortgage fraud is on the rise in Ontario as real estate prices have dramatically increased over the past decade. As someone might decide to inflate their income and be sincere in intending to make mortgage payments, falsifying information on a mortgage application constitutes mortgage fraud. It is ultimately up to borrowers to do their research about fraud and avoid making a categorically untrue claim. Should a borrower be found to be committing mortgage fraud, a lender will provide this information to the authorities.

How mortgage fraud is detected is through fraud management algorithms and networks that monitor customer documents. In many cases, mortgage fraud is detected when a borrower fails to make a payment and violates their mortgage. However, as mortgage fraud continues to rise, particularly amongst high-income cities such as Toronto, lenders are capitalizing on more advanced algorithms and other mortgage fraud prevention tools to help identify fraudulent information.

The penalty for lying on a mortgage application varies depending on the nature of the fraud and the severity of the consequences. In almost all cases, the borrower providing the false information is liable for any financial losses stemming from a mortgage default. In addition, they can be held criminally responsible, being charged with fraud, forgery, uttering forged documents, and procession of property obtained by crime. If you have provided fake documents for a mortgage or are convicted of fraud, sentencing can be fairly severe with up to 10 years of imprisonment.

How You Need to Report Mortgage Fraud in Canada

Reporting mortgage fraud in Canada is fairly straightforward. If you suspect that you have been a victim of mortgage fraud or are aware of potential mortgage fraud being committed, contact a local Ontario police department or the Canadian Anti-Fraud Centre. This is where to report mortgage fraud. Without delay, you will also want to contact a mortgage fraud lawyer. They can provide insight on how to handle mortgage fraud and fraud reporting in Ontario, protecting your rights and ensuring that any damage to your reputation is minimized. This applies to those subject to mortgage fraud, those who have witnessed it, and those accused of mortgage fraud. If you have been charged with mortgage fraud, contact an experienced lawyer today.