There is much conversation recently regarding a fraud case in Ontario in which a home was sold without the knowledge or consent of the owners. With multiple parties involved in the home closing process, it’s important to understand the information available to you to help ensure a valid transaction takes place.
Fraud comes in many different forms and is a serious problem that Canadian homeowners, lenders and mortgage brokers face. As lending and mortgage professionals you play an important role in executing due diligence during the application process to ensure to the best of your efforts you aren’t allowing a fraudulent deal to get approved. Validating key data points such as ownership information, sales history, property value and registered mortgages is the best way to prevent fraud from happening.
According to CPA Canada, the three most common forms of fraud that Canadian homeowners, lenders and mortgage brokers face are mortgage fraud, title fraud and foreclosure fraud.
Kinds of real estate fraud
Mortgage fraud
Mortgage fraud occurs when an individual tries to obtain a mortgage from a lender under false pretenses. A common form of this fraud occurs when an unlicensed player gets involved in the home-buying process and takes advantage of a homebuyer by charging them unlawful fees or inflated interest rates. In some extreme cases the fraudster may submit fraudulent mortgage applications.
Title fraud
Title fraud generally means that identity fraud has already happened as a fraudster will have stolen a homeowner’s personal information in order to fraudulently sell a home or apply for a new mortgage.
Foreclosure fraud
Foreclosure fraud commonly takes place when a homeowner has trouble paying their mortgage payments and are looking for assistance with the loan. They may look into non-traditional financing options for an additional mortgage or loan, which results in adding a fraudster to the title of the property. This fraudulent financer will usually keep the future payments and as they are on title will potentially attempt to resell or remortgage the home.
Fraud flags to watch out for…
As a mortgage professional, you may come across homeowners attempting to obtain a mortgage fraudulently. Or your clients could be unknowingly attempting to purchase a home that is being sold without the owner’s consent. Recognizing fraud flags may help you stop a fraudulent deal from going too far. Reviewing and validating key data points such as ownership information, sales history and registered mortgages will help you in your work to prevent fraudulent deals. Here are some common fraud flags that can alert you to dig a little deeper:
- Registered mortgages – Is there a mortgage currently registered on the property? Were mortgages discharged soon after the property changed hands? Properties with no mortgages on title require further investigation as they are often the target of fraud.
- Price consistency – Has there been a big jump in the property’s value? Was the property recently sold for much less than the value stated on the application?
- Past transactions – Was the last transaction on the property a cash sale?
- Property ownership – Were past owners related somehow (non-arms’ length transactions)?
Additional due diligence to perform
In addition to the fraud flags we’ve mentioned above, there are a number of steps mortgage and lending professionals take when vetting applications. Here are a few best practices to help prevent fraud:
- Have your client validate some of the information on title to ensure they are familiar with details of the property.
- Conduct a thorough title search at the beginning of the application process. Be sure to pay attention to patterns of inactive or deleted instruments on the Parcel Register. If something seems suspicious dig deeper into the application.
- Ask your clients about any discrepancies you may find against their application. In some cases, it may have been an innocent oversight that you are able to correct, such as adding their spouse to the application.
Using PurView to mitigate fraud
PurView offers licensed mortgage brokers and lenders access to authoritative property data, enabling you to learn everything you need to about a property, neighbourhood and homeowner. PurView reports give you the ability to review ownership information, property value, registered mortgages and many other data attributes that can help you spot potential fraud early in a deal. The Ontario report also features a fraud check section, which runs checks on some common indicators of fraud and will alert you to any aspects of a property or its history which may require further due diligence to ensure fraud is not present.
PurView’s authoritative data can help you spot problems as you work to mitigate risk.
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