If you’re looking to purchase a home, your best option is to consult an independent professional you choose yourself (Getty Images/Leo Patrizi)
Even with a range of financial support measures being offered to Canadians as a result of the COVID-19 pandemic, many property owners will find it difficult to make their mortgage payments in the months to come due to a lack of work and income. The Canadian Bankers Association (CBA) reported that member banks have already processed more than 710,000 mortgage deferrals or skipped payments.
Sylvain Paquette, president of the Canadian Credit Bureau, which specializes in consumer protection against fraud and credit misuse, warns that fraudsters are aware of this precarious situation and highlights a few types of real-estate fraud to watch out for.
1) FORECLOSURE FRAUD
Most banks are allowing the deferral or skipping of mortgage payments for up to six months, says Paquette. However, during this period, the accrued interest will be added to the principal amount owing thereby increasing the total cost of borrowing. “When this period ends, some people may still be out of work, while others will have accumulated debt. Fraudsters will jump at the chance to offer them non-traditional financing,” he says.
The goal is to get the victim to sign a first, second or even third mortgage, or a builders’ legal hypothec (that ensures the owner of the property cannot sell without payment of debts to builders and renovators) or lien, thereby allowing the fraudster’s name to appear on the title. After that, all the fraudster needs to do to foreclose on the mortgage is to instigate a loan default, on the pretense that the victim failed to comply with some vague clause. “If the victim is unable to pay, they will have no choice but to sell the property in order to repay the lender,” says Paquette.
According to the Financial Consumer Agency of Canada, “Foreclosure fraud usually happens when you are having problems making your mortgage payments. You may be tricked into transferring your property title to somebody to get a loan that will help you make your payments.
“Fraudsters usually keep the payments you make and also possess the title to your home, which they can resell or remortgage,” the agency says.
“All homeowners, be they in urban or rural areas, can fall prey to this type of fraud,” cautions Paquette. “However, commercial buildings that have appreciated in value over time are the most lucrative. Victims often don’t realize they’ve been scammed, so they don’t file complaints. They think this is the normal procedure for repossessions, are ashamed and just hand over the keys.”
How can we protect ourselves? “Never accept offers from debt consolidation or financial reorganization companies on social media,” advises Paquette. “And don’t call the numbers on We buy houses for cash signs, which are strategically placed to attract specific property owners. Your best option is to consult an independent professional you choose yourself.”
2) TITLE FRAUD
To steal a title to property, a fraudster must commit identity theft first. Victims are often mortgage-free or don’t have much left to pay off on their property.
To assume the owner’s identity, the fraudster may use data that has been stolen from an organization or get the information directly from the victim. Mail or email interception, phone scams and phishing attacks are just some of the methods these con artists use, and the current pandemic is stoking their greed and creativity.
One strategy is likely to become even more prevalent, given that more than one million Canadians lost their jobs in March. “Fraudsters use phoney job offers to freely gather loads of personal information directly from candidates,” explains Paquette.
Once they have the data they need, fraudsters make fake identification with their own pictures and forge documents, such as titles to property, says Paquette. “Notaries don’t necessarily ask for originals, so the scammers, claiming to be the owners, remortgage the property. If the property is mortgage-free, they can walk away with up to 80 per cent of its value.”
“If they’re really greedy, they may go as far as selling the property, but this is more complicated,” says Paquette. “Potential buyers have to visit the house, so it needs to be empty. Snowbirds are away several months a year, making them the perfect target. Selling property involves more people, so the risk of error is greater, but nothing is impossible.”
While the risk is often minimal in title fraud, according to Paquette, the reward can be substantial with a single transaction bringing in hundreds of thousands of dollars. Scammers can also apply for a credit card in your name, on a home equity line of credit for example, and give another delivery address and telephone number. “You’ll only find out about it when the collection agency calls and then you’ll have to prove you knew nothing about it,” he adds.
3) MORTGAGE FRAUD
This type of fraud generally occurs between the bank and the notary, by way of the broker. The owners may not notice anything, until it becomes difficult for them to pay their mortgage and they realize the home they purchased was, in fact, not within their means. “Just like some buyers may be tempted to lie on their mortgage applications, brokers sometimes forge documents to get loans approved,” notes Paquette.
In one case, an income of $57,000 became $75,000 with the simple rearrangement of two numbers. In another, a bank employee altered details such as credit scores on more than 110 mortgage applications totalling $46 million. In 2015, Home Capital Group Inc., one of Canada’s largest alternative mortgage lenders, cut ties with 45 mortgage brokers—who had supplied it with $960 million worth of mortgage applications—after receiving an anonymous tip that they were forging employment letters and income statements.
“What’s more, when they become aware of the fraud, many institutions don’t report it to protect their image,” says Paquette. “They just demand that the perpetrator resign, so he or she is free to go and work elsewhere or move to another area. If the clients were to learn about the fraud, they could sue the bank, claiming that their application should never have been approved.”
“Protecting your personal information any way you can is crucial,” says Paquette. If you suspect fraud, the Canada Mortgage and Housing Corporation urges you to report it to your local police department and contact the Canadian Anti-Fraud Centre. The CBA also recommends the following:
- Unless you have initiated contact or know whom you’re dealing with, don’t share your personal information on the phone, through email or text.
- If it sounds too good to be true, it probably is. Before you give out any personal information, find out how it will be used and if it will be shared.
- Make note of your billing cycles and follow up with creditors if payment notices don’t arrive on time.
- Protect your mail by removing any mailbox items soon after delivery. If you move or change your mailing address, ensure you have your mail forwarded.
- Safeguard items with personal information. Identity thieves will go through garbage and recycling bins, so tear or shred receipts, copies of credit applications, insurance forms, physician statements and credit offers received in the mail.
- Keeping tabs on your credit report can reveal if someone has opened unauthorized financial accounts in your name. Review your report by requesting free copies from Equifax Canada and TransUnion Canada—the two credit reporting agencies in Canada.
- To check the title of your home is in your name, conduct a property search at your province land registry.
- Consider purchasing title insurance, which covers legal fees and other expenses associated with fraud claims. Some provinces compensate consumers for financial losses resulting from certain types of real estate fraud, such as Ontario with the Land Titles Assurance Fund.
According to CPA Canada’s 2020 Fraud Survey, nearly 450,000 Canadians fell victim to fraud in 2019. With the ongoing COVID-19 pandemic, fraudsters are getting creative.
To stay safe, find practical tips on spotting fraud in Protecting you and your money: A guide to avoiding identity theft and fraud. Also stay vigilant about SIN scammers and highly sophisticated ransomware purveyors with this expert advice.
In addition to foreclosure fraud, title fraud and mortgage fraud, the following money-laundering schemes are often found in the real-estate sector.
Criminals looking for a place to carry out their activities (e.g. money laundering) offer someone a few thousand dollars to buy property for them. An accomplice provides counterfeit documentation for employment and income verification.
The rich student
To launder a large sum of money, the perpetrators bribe a student to buy a luxurious condo. Because it is the student’s principal residence—at least on paper—and the student doesn’t pay much income tax, reselling the condo is even more lucrative. The student then transfers the profits to the real owner.
Property is bought to be resold very quickly following extensive renovation work. To maximize profits, the investor hires workers under the table. A straw person claims that the property is their principal residence, thereby minimizing the tax payable on the capital gain on resale.
Inflating the purchase price
Using forged documents, a fraudster and an accomplice quickly sell property back and forth to inflate its price, thus driving up perceived value of the house. One of them then applies for a mortgage for an amount far above the house’s original worth, then provides those funds to the partner as payment for the house. They then disappear, leaving the bank without recourse.
Purchasing below market price
The perpetrator offers to buy someone’s property below market price and pays the difference in cash, without declaring it. According to the Canadian Security Intelligence Service, this is a fraudulent practice because the true nature of the transaction (purchase price, source of income, employment, etc.) is hidden. The criminal can then resell the property at its real value and launder illicit funds.