*This post was created in collaboration with Mortgage Maestro.
It’s tough to get approved for a mortgage these days, especially with soaring housing prices, sky-high interest rates, and stringent mortgage stress tests. Many prospective homebuyers may find themselves out of luck for financing without a little help, and real estate agents are giving buyers the boost they need to get approved. Unfortunately, the “help” these real estate agents are providing is considered mortgage fraud.
Recently, CBC journalists went undercover to investigate real estate agents and mortgage brokers participating in mortgage fraud schemes as a way to boost commissions. The scam involves enticing buyers to submit fake loan applications and supporting documents to increase the odds of loan approval, often without the buyer’s knowledge.
Let’s find out more about this latest real estate scheme that’s lining the pockets of professionals in this industry while putting homebuyers and the housing industry at risk.
How Are Real Estate Agents Pushing People Into Mortgage Fraud?
To make sure they get the sale and close the deal, real estate agents are fudging the numbers on loan applications and supporting documents. The goal is to ensure the loan application is approved and the deal is sealed so that real estate agents and mortgage brokers can earn a commission on the transaction. Essentially, they’re pushing homebuyers into fraud.
While some homebuyers may play a willing part in their quest to get approved for a mortgage to buy a home, many others have no idea that they’re participating in fraudulent activity.
Not only are buyers getting themselves into potential legal trouble (either aware or unaware), but they’re also putting themselves at risk of defaulting on their mortgages. If they couldn’t qualify for a mortgage on their own merit, they’re likely not capable of keeping up with mortgage payments.
Submitting a fraudulent loan application is not only a violation of the Real Estate and Business Brokers Act (REBBA) and the Mortgage Brokerages, Lenders and Administrators Act (MBLAA) in Ontario, but it’s also a crime under the Criminal Code of Canada
Who Are Targeted For Mortgage Fraud?
Newcomers, in particular, are at greater risk because they’re not entirely familiar with the home-buying process in Canada. As mentioned, many buyers involved have no idea that they’re being targeted. And since buying a home in Canada is different from what newcomers may be used to, they’re at risk of being taken advantage of.
Newcomers to Canada are also less likely to be eligible for a home loan from a traditional bank since they’re often arriving in Canada with no credit history. Those who are new to the country cannot transfer their credit history to Canada from their home country, no matter how good their credit scores may have been. So, they’re essentially starting from the ground up.
As such, newcomers must depend on other factors to get approved for a home loan. This can include their assets or employment. This makes it very challenging for newcomers to qualify for a home loan, especially if the household income is low. Predatory agents capitalize on these opportunities to make a profit through mortgage fraud.
How To Get A Mortgage Legally?
Whether you’re a newcomer with a limited credit history or a borrower with bad credit, you can still qualify for a mortgage in Canada if you have the income or assets to support it. There are many alternative lenders in Canada who offer mortgages to credit-constrained borrowers. One such broker is Mortgage Maestro. They offer customized mortgage solutions through their large network of reputable lenders.
Apply and gain access to multiple lenders and the best rates on the market.
Types Of Paperwork Considered As Mortgage Fraud
There’s a lot of paperwork involved in taking out a mortgage. Your lender will want to look over various documents to assess your employment, income, assets, and debts. If the numbers are not strong enough, you risk being turned down for a mortgage.
But with a little embellishment on these figures, your lender may approve your application. Unfortunately, providing inaccurate documents or purposely leaving out important information is considered fraud.
The following can be classified as fraudulent paperwork:
- Fake or modified pay stubs and employment letters
- Inaccurate information about your job, including your status, position, and wages
- Lying about the amount or source of the down payment
- Undisclosed debts
- Addition of other purchasers’ names on the mortgage application who will not be responsible for the mortgage
- Inaccurate information about the subject property, including its current appraised value
- Misrepresentation of the purpose of the property
Always look over all documents to ensure complete accuracy before signing them and submitting them to your lender.
What Happens If You Falsify Information?
As mentioned, falsifying information on a loan application is an offence under the Criminal Code. It’s also a breach of REBBA and MBLAA, and puts a damper on the housing sector.
If you’re found guilty of fraudulent activity, not only will your loan application be denied, but your name could even be blacklisted. This will make it next to impossible to get a loan in the future. You also risk a hefty fine and can even face prison time.
If you were caught after receiving the loan funds following loan approval, the lender will quickly demand repayment of the total amount borrowed. If you don’t pay up, the lender may involve law enforcement.
How To Avoid Mortgage Fraud
To protect yourself against participating in a fraudulent mortgage scheme, keep the following considerations in mind:
Don’t Sign Anything You Don’t Understand
Make sure you carefully review the documents and fully understand your obligations before signing them. If something is unclear, seek legal advice. And never add your name to someone else’s mortgage documents unless you’re willing to make mortgage payments yourself.
Get Independent Advice
Always involve a skilled real estate lawyer when buying a home. Your lawyer will look over all paperwork related to the transaction to ensure everything is accurate and will explain the documents to you. You may also want to ask your lawyer about taking out a title insurance policy. It can protect you against title fraud.
Make Sure The Broker Is Licensed
Do a little background homework on the mortgage broker and real estate agent you’re working with. Make sure they’re licensed and have the credentials required to work in their field of expertise.
Never Give Your Deposit Directly To Seller
Never give your deposit directly to the seller when the offer is accepted. Instead, make sure the deposit cheque is held in trust by the seller’s brokerage. Ideally, the brokerage will hold the deposit funds and release them only after the entire transaction has been finalized.
Check Property History
Before you sign a purchase agreement to buy a home, look into the property’s past sales history. Be sure to also check if there are any liens. You can access this information through the land registry office. Otherwise, hire a professional appraiser to have the home appraised.
What Is Canada Doing About The Fraud?
After their findings, the CBC reached out to the Real Estate Council of Ontario (RECO), which is the authority in real estate and the business brokers act in the province. According to RECO, several registrants have already been disciplined and charged under the Provincial Offences Act for their involvement in mortgage-related fraud.
Most cases of fraud are handled by the Financial Services Regulatory Authority (FSRA). It may also be handled by law enforcement due to the criminal nature of these schemes.
Why Canada Needs To Do More To Stop Mortgage Fraud
Mortgage fraud not only puts buyers involved at risk, but it also has negative effects on the housing market. All Canadians may eventually suffer from the effects of mortgage fraud.
Lenders can and should do what they can to verify a mortgage application to ensure it’s accurate. But at some point, that’s a cost the lender has to assume. And if it’s high enough, the cost will be placed on all Canadians who will eventually be paying higher interest rates.
The more mortgage fraud occurs, the greater the risk for buyers involved. If housing prices fall, these are the people who would be the most likely to default on their mortgages. As interest rates increase and home prices plateau or dip, buyers involved in these schemes are at risk of becoming delinquent on their loan payments.
This, in turn, can put downward pressure on the housing market. It can create an unfair market by increasing the pool of buyers while risking more mortgage defaults and panic sales.
Final Thoughts
Real estate agents and mortgage brokers looking to make a quick buck by pushing through fraudulent mortgage applications are doing a disservice to their clients and the overall real estate market. Granted, getting approved for a mortgage in a hot market in Canada can be very challenging. Especially without a strong financial and credit profile. But falsifying documents to ensure mortgage approval is just setting buyers up for failure. And eventually, it could wind up costing everyone, including the professionals perpetrating the scheme in the first place.
