Beware of Mortgage or Title Fraud
With identity theft and Ponzi schemes making headlines every day, the last thing you need is another threat to your hard-earned money.
But if you own a home, there’s something else you should watch out for—mortgage fraud and real estate title fraud. These rising scams could put your property at risk.
Mortgage Fraud
One common mortgage scam happens when a fraudster gets hold of a property and teams up with an insider to artificially boost its value. They buy and sell the property back and forth, making it seem worth more than it actually is. Then, they take out a mortgage based on this inflated price, leaving lenders—and sometimes unsuspecting buyers—at a huge loss.
Watch out for these warning signs of mortgage fraud:
- Someone wants to pay you to use your name and credit to get a mortgage.
- You’re told to lie or exaggerate details on your mortgage application.
- You’re asked to sign forms with blank spaces or missing details.
- The seller or agent doesn’t want you to visit or inspect the property before buying.
- You receive a cash rebate from the seller at closing but are told not to mention it to the lender.
If something feels off, trust your instincts and do your research before moving forward!
“Straw Buyer” Scheme
With the recession hitting hard, many people are desperate to keep their homes. Recently, a couple in Canada was caught tricking 100 families in the U.S. who were trying to prevent foreclosure, taking advantage of their situation.
Another form of mortgage fraud is the “straw buyer” scam. Here’s how it works: Someone who can’t qualify for a mortgage—whether because of bad credit, being self-employed, or lacking a down payment—finds someone with good credit to help. The person with strong credit is offered a cash payment (sometimes up to $10,000) to pretend to buy the property on behalf of the other person. Essentially, the person with good credit is lending their name and financial history to help someone else get a mortgage they wouldn’t otherwise qualify for.
Other crimes often go hand-in-hand with mortgage or title fraud. For example, individuals running illegal operations like drug labs may use these scams to “buy” properties for their activities.
The Fallout for Lenders
Luckily for you, mortgage fraud usually impacts the lender the most.
In Canada, courts have set precedents where banks are held accountable for mortgage fraud. For example, the BC Court of Appeals recently ruled that if fraud occurs, it’s the lender— not the rightful property owner—who ends up suffering. The court said that lenders must take the necessary steps to ensure the mortgage is legitimate and that the property’s title was obtained legally. A similar ruling was made by Ontario courts a few years back.
Understandably, banks aren’t happy with this trend. In fact, the Royal Bank of Canada recently filed a lawsuit against a former employee over an alleged mortgage fraud scheme.
Title Fraud
Unfortunately, the main warning sign of title fraud shows up when your mortgage unexpectedly goes into default, and the lender starts foreclosure. The worst part is that in title fraud, it’s the homeowner who suffers, not the lender—unlike mortgage fraud.
With title fraud, you don’t get approached with offers or promises. Instead, it’s a type of identity theft where someone else illegally takes ownership of your property.
Here’s how title fraud works: A criminal uses fake ID to impersonate you, then files forged documents to transfer your property into their name. They also arrange for your original mortgage to be discharged and take out a new loan on your property. The fraudster then disappears with the loan money, leaving the bank thinking you’re the one who’s missed payments. That’s when your financial troubles begin.
Here’s how you can protect yourself from title fraud:
- Always visit the property in person before buying.
- Research the area and compare property details like size and location to ensure the asking price is fair.
- Make sure you’re working with a licensed real estate agent.
- Be cautious if a real estate agent or mortgage broker stands to gain financially from the deal.
- Request a copy of the land title or visit a registry office for a historical title search.
- In your purchase offer, include a clause to have the property appraised by a qualified, accredited appraiser.
- Insist on a home inspection to avoid buying a property that may have been renovated for cosmetic purposes or used for illegal activities.
- Ask to see receipts for any recent renovations.
- Ensure your deposit is held “in trust” to protect your money.
- Think about purchasing title insurance for extra security.
And always remember: If something feels off, it probably is. Trust your instincts when spotting red flags during the home buying and mortgage process.