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The Canadian Association of Accredited Mortgage Professionals, defines mortgage fraud as “the material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a mortgage loan.”

On the recent Mortgage Fraud Prevention episode of Canadian Mortgage Hangout Jeremy Nicholls explained the two categories of mortgage fraud: fraud for housing and fraud for profit.

Canadian Mortgage Hangout: Mortgage Fraud Prevention

Fraud for housing, is when the borrowers, who are the intended residents of the subject property, make representations that are false on the application. Fraud for profit is usually perpetrated by organized crime or by individuals who are using the property purchase for illegal purposes, such as grow-ops or money laundering.

The following is a list of mortgage fraud red flags provided by RECA that are specific to Alberta mortgage brokerage professionals.

What are Mortgage Fraud Red Flags?

According to RECA,

Mortgage Fraud Red flags identify the more common issues found to be present as potential indicators of fraudulent real estate or mortgage brokerage transactions. Considered individually, these red flags might appear innocent enough. When two or three red flags appear in the same transaction, it can be an indication of the presence of mortgage fraud. If several red flags are present, a mortgage brokerage industry professional should exercise greater care. The transaction may require further scrutiny to determine whether it is a legitimate or fraudulent transaction.

Mortgage Fraud Red flags Associated with the Identity of Buyers/Borrowers:

  • The buyer/borrower will not provide photo identification when requested
  • The transaction involves a relative of the industry member
  • Existence of other offers, subject to financing, that collapsed
  • Parties are “undisclosed,” appear as “care of listing brokerage,” or “nominee”
  • The land title records do not match with the seller information
  • The buyer is a numbered company seeking a high-ratio mortgage
  • Corporate search shows the industry member, spouse or family member are a director
  • Partial buyer or sellers names, such as no first name or only an initial for the first name
  • Information about a buyer’s income doesn’t match the industry standard
  • Buyer purchases a property far from his or her employment for no apparent reason
  • Buyer purchases an investment property yet does not own a principal residence
  • Buyers purchases multiple properties with high-ratio mortgages with different names/name variations
  • Parties have no formal office (e.g. communicate by cell, email or fax, hold meetings at restaurants)
  • The source of the deposit cheque(s) is other than the buyer
  • The deposit is provided in cash or by money order
  • The buyer or seller is represented by a person acting on a power of attorney
  • Mortgage Fraud Red flags Associated with the Property Value:

  • Vendor take back mortgage and/or other forms of equity arrangements
  • Sweat equity arrangements as opposed to a reduced price
  • Vendor take back or sweat equity arrangements not referenced in the purchase contract
  • Chattels are used as deposit or as partial payment
  • Renovation value included in the sale price
  • Property has illegal/nonconforming suites
  • Property is a combination of residential and commercial components not reflected in the financing arrangements
  • Commercial property has residential type financing or loan-to-values ratios
  • Listed property is owned by a corporation but has mortgage in excess of 80% of property value
  • Purchase price is same as, or higher than list price
  • Property list price or purchase price of property is unusual for the neighbourhood
  • Appraisals were provided by the parties to the trade
  • Mortgage Fraud Red flags Indicating Unusual Transactions:

  • Quick succession of trades on one property
  • Seller in the “business” of selling real estate and buys and sells many properties
  • Use of “Seller’s Rights Reserved” on listings
  • Uncommon commission arrangements, unusual adjustment to commissions, low fees
  • Listing associate’s instructions refer inquiries to unlicensed person for showings or information
  • MLS information is unusual or inconsistent with the transaction; e.g. listing is removed from MLS prior to sale, sale is not reported, listing reappears at higher price, listing associate on MLS is different from the purchase contract, MLS history doesn’t support pricing, etc.
  • Seller’s real estate representative is asked to produce a feature sheet on the property with an inflated price
  • One lawyer represents both parties to the transaction
  • Condition allowing buyer to show unit to prospective tenants; note: most high-ratio mortgages require owner occupancy
  • All or many units of building are sold at the same time with coinciding possession dates
    Immediate possession dates
  • Firm transaction with none of the usual conditions; in particular, a transaction requiring high-ratio financing, yet is unconditional
  • No counter offer
  • Contract indicates unusual statement; i.e. “this is a private sale”
  • Names appear to have been added to or deleted from the contract
  • Not all parties named on the contract have signed it
  • Purchase contract indicates both parties signed at the same time
  • No buyer’s or seller’s associate information provided for delivery of documents
  • Schedules or addendums exist but are not indicated in the contract, or, schedules or addendums do not reference the originating contract
  • Deposits are not held at brokerage; particularly applies when brokerage is not even provided with a photocopy of the deposit cheque
  • Mortgage Fraud Red flags Associated with Industry Member Behaviour:

  • Industry member’s lifestyle is not consistent with income received through the brokerage
  • Industry member section of the contract not filled out
  • Industry member tends to use same lawyer on most transactions
  • Industry member primarily does transactions with only certain other associates
  • Industry member tends to always refer clients to the same mortgage broker
  • Signatures are witnessed by someone other than the real estate associate(s)
  • Industry member buys and sells his/her own properties regularly
  • Industry member lends down payment to client
  • Number of listings or sales an industry member has posted on the MLS system does not correspond to brokerage records (possible fraudulent broker load situations)
  • Industry member regularly advertises properties as “low down,” “assumable,” “no down,” “no qualifying,” “quick possession,” etc
  • Industry member holds both real estate and mortgage associate licence
  • Mortgage Fraud Red flags associated with brokerage operations:

  • Broker has no fraud prevention or detection policies
  • Brokerage has no policies or oversight related to personal trades/deals in mortgages
  • Brokerage administration staff are not trained to recognize suspicious transactions
  • Brokerage does not require property title be pulled and examined with each new listing
  • Brokerage does not require the original transaction documents to be filed with them
  • Brokerage does not check that all transaction documents are filed with them
  • Brokerage does not check background of prospective industry members and/or employees
  • Brokerage does not disclose what information it has or has not verified
  • Brokerage does not comply with the requirements of the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)
  • Broker does not review transactions on a regular basis
  • Conveyancing staff not trained to recognize suspicious transactions
  • Advertisements are not approved prior to publication and/or are not reviewed by broker
  • How Can Mortgage Associates Report Fraud?

    If you have found information to be false or misleading on a mortgage application or supporting documentation, contact the lender to advise them. If the persons involved are other industry members (real estate associates/brokers, mortgage associates/brokers or appraisers), you can report them to RECA in writing.

    If you suspect fraudulent and/or other illegal behaviour, contact your local police or RCMP.