Mortgage and title fraud: How does it happen and what can you do to protect yourself?

These days, with the amount of information shared on the internet and social media, identity theft and Ponzi schemes are happening regularly. Many homeowners are taking the necessary steps to protect one of their largest investments, which is their home. The last thing they want to worry about is yet another way to lose their hard-earned money.

As a homeowner, you need to be aware of two crimes that are on the rise in Canada: Mortgage fraud and real estate title fraud. In 2020, First Canadian Title (FCT) identified and worked to prevent $96 million in suspicious residential transactions. In 2021, that number increased to $231.9 million, in 2022 it was $350 million, and it continues to rise. As a higher cost of living and credit demand also increase, it could lead to a higher probability of fraud.

Mortgage fraud

Some people may think that providing false documents and making false statements when purchasing a home is not a big deal. However, the Criminal Code clearly states that obtaining funds, including a mortgage, by providing false information is a crime.

The most common type of mortgage fraud is when a fraudster obtains a property, then increases its value through a series of sales and resales involving themselves and someone working in collaboration with them. A mortgage is then secured for the property based on the inflated price.

Here 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 will rebate to you your money on closing, and you don’t disclose this to your lending institution.

Title fraud

When you purchase a home, you purchase the title to the property. Your solicitor registers you as the owner of the property in the provincial land title office.

Title fraud normally starts with identity theft. This occurs when your personal information is collected and used by someone identifying themselves as you. There are several ways criminals can steal your identity without your knowledge, which include:

• Dumpster diving
• Mailbox theft
• Phishing
• Computer hacking

Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes into default and the lender begins foreclosure proceedings. Even worse, as the homeowner, you are the one hurt by title fraud, rather than the lender, as is often the case with mortgage fraud.

Unlike with mortgage fraud, however, during title fraud, you haven’t been approached or offered anything – this is a form of identity theft.

Here’s what happens with title fraud:

A criminal – using false identification to pose as you – registers forged documents transferring your property to his/her name, then registers a forced discharge of your existing mortgage and gets a new mortgage against your property. Then the fraudster makes off with the new home loan money without making mortgage payments. The bank thinks you are the one defaulting, and your economic downfall begins.

Ways to protect yourself from title fraud:

• Ensure you keep personal information confidential when on the internet or phone until you know who are dealing with, how it will be used and if it will be shared with anyone.
• Only carry minimal information and identification in your wallet, don’t have your social insurance card with you.
• Check your credit report regularly. You can get them free when you request them from Equifax and Transunion when they mail them to your home. If you notice anything suspicious, contact the credit bureau right away.
• Check your financial, bank and credit card statements regularly for any inconsistencies and unknown charges.
• Consider obtaining a title insurance policy, as title insurance protects against many title risks associated with real estate transactions.
• Check your mailbox regularly for mail, if not every day.
• Shred and destroy any financial and personal identification documents, as well as any unsolicited credit card applications rather than just simply throwing them away.
• If you don’t receive your bills or other mail, follow up with your creditors.
• If you receive credit cards that you didn’t apply for or if you did apply for them and didn’t receive them.
• Contact your mortgage lender first if you are having difficulty making your mortgage payments.

How to protect yourself from title fraud when purchasing or refinancing a home:

• Make sure you work with a licensed real estate agent who is familiar with the area you are interested in buying. Select to work with someone who can provide trusted referrals and check on them.
• Check listings in the community where the property is located. Compare features, size and location to establish if the asking price seems reasonable.
• Always view the property you are purchasing in person. Don’t buy without seeing it first.
• Beware of a real estate agent or mortgage broker who has a financial interest in the transaction.
• Ask for a copy of the land title or go to a registry office and request a historical title search.
• In the offer to purchase, include the option to have the property inspected and appraised.
• When giving a deposit to purchase a property, ensure the funds will be held “in trust” with a solicitor or a real estate agency and not directly with the seller.
• Insist on a home inspection to guard against buying a home that has been cosmetically renovated or was previously used as a grow house or meth lab.
• Ask to see receipts and permits for recent renovations.
• Consider the purchase of title insurance.
• Review and make sure you are comfortable with the terms and conditions of the mortgage commitment letter or approval.
• Review the “cost of borrowing disclosure statement” and be aware of any additional fees or charges. Ask questions if you are not sure.
• Know and understand what you are signing. If you have questions, ask. If you are not comfortable or something is not right, do not sign the documents.
• You might want to consider using your own solicitor for legal advice if you are asked to use the same lawyer as the seller.

“Straw buyer” scheme

Another term for mortgage fraud is the “straw” or “dummy” homebuyer scheme. For instance, a renter does not have a good credit rating or is self-employed and cannot get a mortgage, or doesn’t have a sufficient down payment, so he or she cannot purchase a home. He/she or an associate approaches someone else with solid credit. This person is offered a sum of money (can be 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 to purchase a home.

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

Red flags

It’s important to remember that if something doesn’t seem right, it usually isn’t. Always follow your instincts when it comes to red flags during the homebuying and mortgage processes.