If you’ve recently applied for a mortgage lately, you’ve likely noticed that it’s a lot more difficult now than it was last year, and especially prior to 2009.
This is by design, mostly to protect the economy from a U.S. style economic failure, but also to thwart all sorts of illegal activity.
As a homeowner, you need to be aware of crimes on the rise known as mortgage fraud and real estate title fraud to protect yourself.
The most common type of mortgage fraud involves a criminal obtaining a property, then increasing its value through a series of sales and resales involving the fraudster and someone working in cooperation with them. A mortgage is then secured for the property based on the inflated price.
Mortgage fraud – following 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 and the seller or developer rebates you money on closing, and you don’t disclose this to your lending institution.
‘Straw Buyer’ Scheme – due to the recently passed recession; more people are desperate and eager to find a way to hang onto their homes. A couple was recently arrested in Canada after duping 100 families looking for help to avoid foreclosure in the U.S.
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 for his or her purchase of 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.
Fortunately (for you, at least), mortgage fraud typically hurts the lender the most.
Canadian precedents have been set in which banks are held responsible for mortgage fraud. The B.C. Court of Appeals recently ruled that “The lender – not the rightful property owner – is the one out of luck in a fraudulent mortgage scheme” and that lenders “Must ensure their mortgages are valid by taking steps to ensure that the registered owner obtained title to the property legally.” The same conclusion was made by the Ontario Courts a couple of years ago.
Banks, as you can imagine, aren’t too thrilled about this trend. Royal Bank of Canada recently sued a former bank employee over an alleged mortgage fraud scheme.
Title fraud – 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 the case with mortgage fraud.
Unlike with mortgage fraud, 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.
Following are ways you can protect yourself from title fraud:
– always view the property you are purchasing in person.
– check listings in the community where the property is located – compare features, size and location to establish if the asking price seems reasonable.
– make sure your representative is a licensed real estate agent.
– 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 appraised by a designated or accredited appraiser.
– insist on a home inspection to guard against buying a home that has been cosmetically renovated or formerly used as a grow house or meth lab.
– ask to see receipts for recent renovations.
– when you make a deposit, ensure your money is protected by being held ‘in trust’.
– consider the purchase of title insurance.
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 home buying and mortgage processes.
Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres- Regional Mortgage Group in Red Deer.