What can I do to protect myself from mortgage fraud?
Public awareness is an important way to combat fraud, so I’m glad you’ve asked. March is fraud-prevention month, so your question is timely, too.
During fraud prevention month, consumer-protection organizations such as RECO have an opportunity to reach out to consumers with information that can help them protect themselves from falling prey to fraud.
As with many types of fraud, mortgage fraud (also known as value fraud) can have a terrible impact on victims. But it can be challenging to understand it. That’s why it’s worth the effort to learn some basic facts so that you can protect yourself.
The details can vary from case to case, but at its core, mortgage fraud involves somebody tricking a bank into lending money when it otherwise wouldn’t, or tricking the bank into lending more than it otherwise would. While banks have processes to try to prevent mortgage fraud, they are not bulletproof.
Sometimes it’s an individual conducting the fraud, but it can also be a team of fraudsters working together.
The goal of the fraud can also vary. In some cases, it’s just about the fraudster trying to make a profit. Other times, it can be someone who wants to buy a house that they can’t really afford.
The impact of mortgage fraud is broad, going far beyond the bank that’s doing the lending. Mortgage insurers have to make more payouts, which leads to higher insurance costs for everyone else.
Even if the insurer covers the loss, handling a defaulted mortgage carries a high administrative cost for the bank, which can lead to higher lending charges. And the investigation can strain the resources of the police and other enforcement agencies.
Individuals can also be unwittingly pulled into the scam. When that happens, they could end up with a home they don’t really want, a mortgage they can’t afford and a damaged credit rating.
So how do you protect yourself? If there’s one thing you remember from this column, it should be this: If a “deal” sounds too good to be true, it probably is.
If someone wants you to complete a real estate deal through dishonest means, or without giving you the information you need to make a decision, do not proceed.
Here are other key tips to keep in mind:
- Never sign a document without taking the time to understand what it means. If you’re unsure about something in it, talk to your lawyer about it.
- Never sign blank documents or forms.
- Never let someone else use your name and credit information in exchange for payment. People have been tricked into co-signing a mortgage for a stranger or an acquaintance, or “lending” their name in exchange for a few thousand dollars. In the end, they were on the hook for all the mortgage payments.
- Never falsify information on a mortgage application. Fraudsters may ask you to falsify your employment information. Typically, this involves overstating your income. They could offer to provide a false employment letter, pay stubs or T4 forms to get a mortgage that you wouldn’t otherwise qualify for. Don’t do it.
- Never get involved in a real estate transaction where the purchase price is notably higher than comparable properties in the neighbourhood and the buyer is aware the reported price is artificially high. This may occur because there is some kind of side arrangement to get cash back, which can be an amount that is equal to all or part of the down payment.
- If you see the signs of a mortgage fraud, you should report it to the police immediately. If you are concerned about the conduct of a real estate professional, you should also report it to RECO. We will investigate, take appropriate action within our jurisdiction, and work with other law enforcement authorities.
By reporting a mortgage fraud, you can protect other would-be victims and prevent a mortgage default that could have broader costs for society.
If you have concerns about mortgage fraud, your broker or salesperson is a great source of information.