Area of Law: Criminal Law
Answer # 1804
Mortgage fraudRegion: Ontario Answer # 1804
What is mortgage fraud?
Mortgage fraud typically occurs when a consumer deliberately misrepresents or omits information to obtain mortgage financing that they would not otherwise be given if the information provided was true. It can be committed by people who:
- own property
- are purchasing property
- impersonate a property owner
However, mortgage fraud can also occur when a fraudster buys property, and then artificially increases the property’s value through a series of sales and re-sales between the fraudster and someone in cooperation with them. Then they secure a mortgage based on the false inflated value of the property.
The victims of mortgage fraud are most often the financial institutions that have provided the financing.
Common types of mortgage fraud
Mortgage fraud by homeowners
There are many other ways that mortgage fraud can be committed by homeowners who want additional financing that they can’t legitimately qualify for. According to Canada Mortgage and Housing Corporation, the following seven are among the most common committed by the homeowner:
- Deliberately stating incorrect employment information, including position, income, or length of service.
- Reporting that you are a salaried or full time employee when you are self-employed, or a contract, part time, hourly or commission-based employee.
- Misrepresenting the amount of your down payment, or where it came from.
- Purchasing a rental property and misrepresenting it as owner-occupied.
- Omitting existing mortgage and/or debt obligations on your application.
- Misrepresenting property details or omitting information in order to make the property value appear greater than it is.
- Adding co-borrowers to the application who will not be living in the home and do not intend to take responsibility for the mortgage.
Straw Buyers – putting your name on someone else’s mortgage
Another common form of mortgage fraud occurs when a fraudster convinces someone with good credit to put their name on a mortgage application. This person is called a straw buyer.
As incentive for agreeing to put their name on the mortgage application, straw buyers are offered cash or promised high returns when the mortgaged property is sold. In addition, straw buyers may be deceived into thinking they will not be responsible for the mortgage payments, when in reality they are.
Syndicated mortgage fraud
A syndicated mortgage is when a borrower finds more than one private lender to invest money in a property instead of going to the bank. Each investor is individually registered on the land title, even though their money is combined to create a single mortgage. Most investors are looking to earn better interest than they can get at a bank. Some of them say the investments are attractive because they’re backed by the underlying value of the land on which the mortgage is registered.
While syndicated mortgages can be legitimate because legal investments are used to help develop a property, they can also be used to perpetuate fraud. In a legal syndicated mortgage, the amount an investor lends is less than what the property is worth, so that they will get their investment back once the property is sold.
In a syndicated mortgage fraud many things can happen:
- the investors collectively lend much more than the property is worth,
- the fraudster misrepresents the information, and provides illegitimate documents such as contracts and ledgers,
- the fraudster assures investors that it is a safe and secure investment, and ‘guarantees’ they will get their money back, when in reality, the property may not even exist, or if it does, it may be owned by someone else, and
- the fraudster may keep a percentage of each investment to cover “referral, management and consulting fees” along with a commission.
While the investors might initially receive interest on their investments, ultimately, the whole thing is a scam, and they end up losing the rest of their money.
Identity theft used in mortgage and title fraud
With identity theft, fraudsters can use stolen or fake identification or documents to obtain mortgage funds on property owned by others. For instance, they may:
- pretend to be a homeowner and obtain one or more mortgages on the property, then walk away with the cash, or
- register forged documents to discharge any existing mortgages, then transfer the property to themselves and register a new mortgage against the property’s clear title, pocketing the proceeds.
The victims of title fraud are most often individual homeowners who have paid-off their mortgage. Although these matters can eventually be resolved, there can be significant legal and filing costs to the homeowner, as well as suffering emotional trauma. Having title insurance can help protect against loss from this type of fraud.
How to help protect yourself
There are things people can do to protect themselves from being involved in a mortgage fraud.
When applying for a mortgage, you should not:
- intentionally misrepresent information on your application, such as how much money you earn,
- lie about whether you will live at the property or rent it out,
- accept money, guarantee a loan, provide your credit information, or add your name to a mortgage unless you intend to purchase the property,
- sign legal documents without reading them thoroughly, being sure you understand them, and having your own lawyer review them,
- be discouraged from visiting the property, or conducting your own appraisal or inspection, or
- jump into a deal that sounds too good be true, for instance being told you are made an offer by someone you don’t really know to make quick, easy money in a real estate deal.
When applying for a mortgage you should:
- know who you are doing business with,
- use licensed or accredited mortgage and real estate professionals,
- seek independent legal advice from your own lawyer and talk to them about methods of protection such as title insurance,
- obtain the sales history of any property you are thinking about buying from your lawyer or real estate professional,
- have the property appraised and inspected by the appropriate licensed professionals,
- if giving a deposit, be sure the funds are payable to and held in trust by the vendor’s realty company or a lawyer, and
- ask your lawyer if anyone other than the seller has a financial interest in the home or if there are any outstanding liens or tax arrears.
What happens if a borrower commits mortgage fraud?
If a borrower misrepresents information, or acts as a straw buyer, they are committing mortgage fraud. In both cases they will be liable for any money still outstanding in the event of a mortgage default, and may also be held criminally responsible for their misrepresentation. Furthermore, if someone allows their personal information to be used for a mortgage they could be held responsible for the entire debt even after the property is sold.
What happens if a real estate professional commits real estate fraud?
If a real estate agent or broker has committed mortgage or title fraud, they can be:
- sued in civil court for recovery of the loss
- reported to their governing body which can revoke their registration, and freeze their assets or trust funds
- charged criminally
In addition, depending on the circumstances, it may be possible to make a claim payable by the real estate agent’s errors and omissions E&O insurance, which includes consumer deposit insurance.
If you discover you are a victim of fraud, it is a good idea to contact a fraud recovery expert for advice.
If you have been charged with a fraud or any criminal offence, contact our preferred criminal law experts, The Criminal Law Team .
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