Mortgage fraud: How to Protect Yourself When Purchasing a Home

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Promises of easy money in real estate are something to be wary about. Consumers who intentionally misrepresent information when buying or refinancing a home are committing mortgage fraud.

What is Mortgage fraud?

Mortgage fraud happens when someone knowingly misrepresents information in order to gain a mortgage loan that would not have been granted if the truth had been known. This may include:

Giving a false position or inflating your income or length of time worked at your job
Stating you are a full time employee with a salary when you are a contract, part time, hourly or commission-based employee
Misrepresenting the amount or source of your down payment
Buying a rental property and misrepresenting it as owner-occupied
Not admitting to an existing mortgage or debt
Misstating property details or leaving out information in order to increase the property value
Including co-borrowers who won’t be living in the home and do not intend to take responsibility for the mortgage

Fact: a common form of mortgage fraud is when a con artist manipulates someone with good credit to act as a “straw buyer”. A straw buyer is someone who agrees to put his or her name down for a mortgage application on behalf of another person (in this case, the con artist). In return for this favour, straw buyers might be offered cash or promised high returns when the property is sold. Straw buyers are usually deceived into believing they will not be responsible for the mortgage payments.

The Consequences of Misrepresentation

People who apply for a mortgage loan who misrepresent information and straw buyers who deliberately facilitate a property being purchased in their name are committing mortgage fraud and will be held liable for any financial shortfall in the event of default. In addition they may be held criminally responsible for their misrepresentation.

What Can You Do to Protect Yourself?

To protect yourself from becoming a victim or accomplice to mortgage fraud, be an informed consumer. Never intentionally misrepresent information when applying for a mortgage. Do not accept money, promise a loan or add your name to a mortgage unless you actually intend to purchase the property. If you let someone use your personal information for a mortgage, you could be held responsible for the entire debt even after the property is sold. Know who you are doing business with. Use licensed or accredited mortgage professionals.Thoroughly read any legal documents and understand them before signing anything. You may obtain a second legal opinion. Get independent legal advice from your own lawyer. Talk to them about title insurance and other methods of protection. Your lawyer can let you know if anyone other than the seller has a financial interest in the property. If a deposit is needed, make sure that the funds are payable to and held “in trust” by the seller’s realty company or a lawyer. Beware of anyone who approaches you with an offer to make easy money in the real estate market. A key thing to keep in mind is if a deal sounds too good to be true, it most likely is.

There are also easy steps you can take to protect yourself from another, more known form of fraud: identity theft. These include never giving out your personal information until you know who you are dealing with and what they need your information for. Be cautious with requests for information in person, by mail, or over the phone or online. Never answer to e-mails or phone calls that ask you for your banking information, credit card information, passwords or other personal or sensitive information, especially when you are not the one to initiate the exchange. Review your mail, bank statements and other financial statements regularly. Make it a habit to look for any inconsistencies. If you do not receive a bill when it is due to arrive, follow up with your service provider immediately. Try to contact your Postal Outlet to verify that your mail has not been held or re-routed. Invest in a shredder or use one at work to destroy all sensitive or personal information on financial documents instead of just throwing them out. Check your credit report annually by contacting Canada’s two credit-reporting agencies: Equifax Canada at www.equifax.ca and TransUnion Canada atwww.transunion.ca.