Mortgage fraud

Types of mortgage fraud

Understanding the four different types of mortgage fraud will help you recognize and avoid it.

Mortgage fraud for housing

What is it?

Mortgage fraud for housing is when you provide false information on a loan application to qualify for a mortgage you wouldn’t otherwise get. It also includes representing on the loan application that you are going to live in the home, when you have no intention to do so.

How does it work?

The goal of a mortgage fraud is to own a property or a more expensive property for which you would normally not qualify. This is done by homeowners misrepresenting income and the level of their debt so they receive a lower interest rate or qualify for a larger loan.

How do I prevent it?

You have a responsibility to provide accurate and truthful information on a mortgage application. Providing false or inaccurate documents to support the mortgage application is also part of the fraud.

Mortgage fraud for profit

What is it?

This type of fraud is the most complex. Mortgage fraud for profit usually involves a number of individuals working together to inflate the price of a home or get loans for non-existent homes.

How does it work?

This type of fraud is normally done with industry insiders, motivated by financial gain. Professionals involved in this could include a:

  • real estate appraiser
  • mortgage broker
  • real estate broker
  • lawyer
  • credit agency employee
  • lender
  • title insurer
  • outside investor

It may also include a seller or a "straw buyer".

Straw buyer

A straw buyer is a person who makes the purchase on behalf of another person. If the real buyer has poor credit and can’t get financing, they would approach a straw buyer to buy for them.

The straw buyer may, for a piece of the profit, lend their identity and good credit to purchase a home. By lending your identity and credit, you become a straw buyer. The real buyer then promises to make all payments and pay the straw buyer for the use of their identity and credit rating.

These insiders may, knowingly or unknowingly, accept the use of false personal or financial information, use inaccurate appraisals, or transfer mortgage funds to an individual knowing they will be misused.

Straw buyers can be held legally responsible for the debt they take on for others. The straw buyer takes the risk if the real buyer cannot or does not pay.

One common outcome of the scam is that the professionals pocket the cash and the straw buyer is left with the property and no means of paying for an inflated mortgage on the property. A person who has had their identity stolen may unwillingly become a straw buyer.

Other schemes

Other mortgage fraud schemes for profit can be carried out by individuals who take money from investors and promise it will be invested in high yield mortgages.

In some cases initial promises aren’t followed through and the actual transaction as outlined may not even occur. If the transaction involves a scheme or arrangement where the purchaser may earn a return through the efforts of a third party in connection with real estate, it may be considered a sale of a security and would fall under the jurisdiction of the Alberta Securities Commission (ASC). Remember that any investment involves some level of risk. Usually, higher returns mean a higher level of risk.

How do I prevent it?

Keep an eye out for abnormal dealings with your broker. If they are trying to pressure you into making a decision you aren’t comfortable with, they may be trying to scam you.

Always deal with a broker who is registered through the Real Estate Council of Alberta (RECA), and report any unusual transactions to the RECA.

Real Estate Council of Alberta

Mortgage fraud for title

What is it?

Mortgage fraud for title occurs when someone uses your stolen identity, fake documents and identification to change the title on your home.

How does it work?

The criminal uses fake documents and your stolen identity to take out a mortgage on your home. The bank lends money to the criminals under your name, leaving you in debt. Even if they didn’t change the title of the home they could leave you with a mortgage debt that you didn’t agree to.

They could also take the title to your home without your knowledge.

How do I prevent it?

Check the title on your home and regularly check your credit rating to ensure that everything is in order.

If the fraud happens, you will have to prove that you did not authorize the title change and mortgage. Although you may be able to sort the fraud out, it takes time and effort to unravel identity theft. Take precautions to prevent this type of fraud.

Mortgage fraud for foreclosure

What is it?

Foreclosure scams generally target vulnerable, low-income individuals whose homes are in foreclosure, or who are at risk of defaulting on their loans.

How does it work?

While there are many variations within foreclosure scams there are several common elements:

  • a criminal approaches a legitimate owner with a debt-consolidation scheme that typically involves the owner paying upfront fees and transferring the property title (sometimes unwittingly) to the criminal
  • the legitimate owner typically receives a cash payout from the fraudster to address immediate bills and remains in the home paying "rent" or "consolidated debt payments" to the criminal
  • the criminal pockets all payments from the owner and ignores bills and taxes, which leads to debt-collection procedures against the owner
  • the criminal may remortgage or sell the property to an accomplice, leaving the owner without the property title, homeless and in debt

How do I prevent it?

If someone is trying to pressure you into a scheme using any of the above-mentioned tactics, refuse.

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Related services

Mortgage fraud tipsheet (PDF, 4 pages)