By the Financial Services Commission of Ontario
Buying a home isn’t easy, and with increasing interest rates, new lender rules and a tougher mortgage ‘stress test’ in place, the desire to own a home is driving some buyers to commit mortgage fraud or to be susceptible to unethical professionals during the home buying process. Since 2013, mortgage fraud in Canada has risen 52 per cent (*Equifax, 2017).
Mortgage fraud has many different faces, but generally it occurs when someone, such as a homebuyer, a mortgage broker, a real estate agent or a lawyer, misrepresents, intentionally withholds facts, lies or exaggerates information to obtain a mortgage that would not have been granted if information had been accurate.
Temporary or part-time employees, independent contractors, business-for-self, and self-employed workers are maybe at increased risk of mortgage fraud.
It is often more difficult for these workers to prove their income, employment status and employment length, as they may not have access to the traditional proof of income documents such as pay stubs and a letter of employment typically provided by an employer. Independent contractors, business-for-self and self-employed workers particularly, have more difficulty showing the viability and stability of their income source from the past two years. In cases where these workers are not able to provide satisfactory income proof, the impulse to fake or falsify these documents, either themselves or alongside a home buying professional, might lead to trouble.
Lying about income or debts, omitting or embellishing details about the property, and fabricating paperwork are the most common types of mortgage fraud that homebuyers commit. Professionals in the home buying process, such a mortgage brokers or agents, real estate agents and lawyers can also pocket money through mortgage fraud. If you’re starting the mortgage application process be aware of these additional red flags:
- Fabricated paperwork that is being completed for you by a mortgage professional.
- Receiving a verbal offer of a loan with no paperwork to back it up.
- Being offered a monetary payment for choosing a certain lender.
- Being asked to pay cash at any time during the home buying process.
- Not receiving a lender commitment letter stamped with the lender’s logo outlining conditions and terms of the mortgage.
- Too good to be true offers – promises that you can obtain a loan or a low interest rate, even though you have already been declined by other lenders like banks.
Mortgage fraud comes with severe consequences. If fraud is detected before the closing date, the lender could cancel the loan, which could cause the seller to sue you or you could lose your deposit, leaving you unable to buy the property. If you’ve already given up your current property or rental, you could be left having to find another home.
If fraud is detected after you have the home, the lender could “call in” the loan, requiring you to pay the whole mortgage immediately. If you can’t pay, you will lose the home through foreclosure or power of sale, damaging your credit score and making it very difficult to get a mortgage or other loan in the future.
If you suspect fraudulent mortgage activity, first report it to your local police or the Canadian Anti-Fraud Centre. If you wish to remain anonymous, you can submit a tip to Crime Stoppers. You can also report suspected mortgage fraud to FSCO. To learn more about mortgage fraud and how to report it, visit www.fsco.gov.on.ca/mortgage-fraud.
*Equifax Canada, January 2017. Mortgage Fraud on the Rise; 13% of Canadians Say ‘a Little White Lie’ is Okay to Get the House You Want. / http://www.marketwired.com/press-release/equifax-canada-mortgage-fraud-on-the-rise-nyse-efx-2187597.htm