Mortgage Basics

Mortgage Fraud: What Is It & Who To Trust

Mortgage Fraud: What Is It & Who To Trust
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  • Tvine
| May 1, 2023
Reviewed, Jun 27, 2023
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    Mortgage fraud is a serious crime that can result in financial losses for lenders, borrowers, and investors. It involves the deliberate misrepresentation, omission, or concealment of information by an individual or group to secure a mortgage loan or obtain a larger loan than they would otherwise qualify for. In Canada, mortgage fraud is illegal and can result in severe legal consequences, including fines, imprisonment, and forfeiture of assets.


    Key Highlights

    • Mortgage fraud involves the deliberate misrepresentation, omission, or concealment of information by an individual or group to secure a mortgage loan or obtain a larger loan than they would otherwise qualify for.
    • It’s important to be aware of potential mortgage fraud and both lenders and borrowers must take the appropriate steps to prevent it.
    • Several types of mortgage fraud are common in Canada, including inflating appraisal values, asset rental, foreclosure scams, false identity usage, and equity skimming.

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    What Is Mortgage Fraud?

    Mortgage fraud refers to a deliberate misrepresentation, omission or concealment of information by an individual or group to secure a mortgage loan or obtain a larger loan than they would otherwise qualify for. Mortgage fraud can occur at any stage of the mortgage application process, from initial application to closing.

    In Canada, mortgage fraud is a serious crime that can result in financial losses for lenders, borrowers, and investors, as well as negative effects on the housing market as a whole. Mortgage fraud can take many forms, but some common examples include income fraud, property fraud, foreclosure scams, etc.

    Mortgage fraud is illegal in Canada and can result in severe legal consequences, including fines, imprisonment, and forfeiture of assets. It is important for both lenders and borrowers to be aware of the risks of mortgage fraud and to take appropriate steps to prevent it, such as conducting thorough due diligence, verifying documentation, and reporting suspicious activity to the authorities.

    Why Would Someone Commit Mortgage Fraud?

    One of the most common reasons individuals commit mortgage fraud is to obtain financial gain. This can include obtaining a larger mortgage loan than they would otherwise qualify for, or obtaining a loan with more favourable terms, such as a lower interest rate or a longer repayment period

    Another reason why someone may commit mortgage fraud is to invest in property. This can involve purchasing multiple properties using fraudulent mortgage loans, with the intention of selling them for a profit or renting them out to generate rental income.

    Finally, some individuals may commit mortgage fraud simply out of greed. This can occur when someone sees an opportunity to obtain a large loan or to make a quick profit and is willing to take risks to achieve their goals.

    Types Of Mortgage Fraud

    Several types of mortgage fraud are common in Canada. It’s important to note that all forms of mortgage fraud are illegal and can be punished to the full extent of the law. The following are just a few examples of the types of mortgage fraud that can occur in Canada. It’s important for both lenders and borrowers to be aware of the signs of mortgage fraud and to take steps to prevent it from occurring.

    Inflating Appraisal Values

    Inflating appraisal values is a common form of mortgage fraud in Canada. This occurs when someone manipulates the appraisal report to show that a property is worth more than it actually is. This can be done in various ways, including using comparable sales data that is not accurate, manipulating the data in the appraisal report, or using a fraudulent appraiser. The goal of inflating appraisal values is to secure a larger mortgage loan than the borrower would otherwise qualify for, or to obtain more favourable terms on the loan.

    Asset Rental

    Asset rental is another form of mortgage fraud that involves falsifying information about the borrower’s assets to qualify for a larger mortgage loan or to obtain more favourable loan terms. This can be done by renting assets such as cars, jewelry, or boats, and presenting them as owned assets on the mortgage application. The goal of asset rental is to make the borrower appear more financially stable than they actually are, in order to qualify for a larger loan or to obtain more favorable terms.

    Foreclosure Scams

    Foreclosure scams involve taking advantage of homeowners who are facing foreclosure. The scammer may promise to help the homeowner avoid foreclosure in exchange for payment, but then fail to follow through on their promises. Some common foreclosure scams include leaseback scams, in which the homeowner is promised the ability to stay in the home by selling it to the scammer and then leasing it back, or equity stripping scams, in which the scammer convinces the homeowner to transfer the title of the property to them in exchange for paying off the mortgage, but then fails to follow through on their promises.

    False Identity Usage

    False identity usage involves using a false or stolen identity to apply for a mortgage loan. This can include using fake social insurance numbers, passports or driver’s licenses, or using the identity of a deceased person. The goal of false identity usage is to obtain a mortgage loan under false pretenses and to avoid being caught by the lender or authorities.

    Equity Skimming

    Equity skimming involves obtaining a mortgage loan using a property that the borrower does not actually own or have legal control over, or using a fraudulent property title. The borrower then sells or rents out the property without making mortgage payments, and pockets the profits. This type of fraud can occur in several ways, including using a straw buyer who purchases a property on behalf of another person, often using false information or fraudulent identity. 

    Penalties For Committing Mortgage Fraud

    Those who are convicted of mortgage fraud can face imprisonment for up to 14 years under the Criminal Code of Canada. Additionally, the court may impose a fine, which can range from thousands to millions of dollars, depending on the amount of money involved. Restitution may also be required, which involves returning the money that was obtained fraudulently or compensating the victim for any losses suffered as a result of the fraud. 

    Those who are licensed to work in a profession related to the mortgage industry, such as mortgage brokers or real estate agents, may lose their license if they are convicted of mortgage fraud. Furthermore, those convicted of mortgage fraud may suffer damage to their credit score and reputation, which can make it difficult to obtain credit or employment in the future.

    Other consequences may include deportation and a criminal record, which can affect the ability to travel and work in certain professions. It’s crucial to avoid committing mortgage fraud and report any suspected fraud to the authorities as soon as possible.

    How To Avoid Committing Mortgage Fraud

    Avoiding committing mortgage fraud in Canada is crucial to ensure compliance with the law and to protect oneself from the severe penalties that come with this crime. 

    Here are five helpful tips on what to look out for to avoid committing mortgage fraud in Canada:

    1. Be honest on your mortgage application: One of the most common forms of mortgage fraud is lying on a mortgage application. To avoid committing this type of fraud, be truthful about your income, employment status, and any debts or other financial obligations you have.
    2. Get an independent appraisal: Inflating the value of a property is another common form of mortgage fraud. To avoid this, it’s essential to get an independent appraisal of the property before obtaining a mortgage.
    3. Work with reputable professionals: When obtaining a mortgage, it’s important to work with reputable professionals, such as mortgage brokers, real estate agents, and lawyers. Research their credentials, read reviews, and ask for references to ensure they are trustworthy.
    4. Read and understand all documents: Before signing any documents related to a mortgage, it’s crucial to read and understand them thoroughly. If you don’t understand something, ask questions or seek legal advice.
    5. Report suspected fraud: If you suspect that someone is committing mortgage fraud, report it to the authorities immediately. This could include suspicious activity such as falsified documents, inflated appraisals, or false identities.

    By following these tips, you can avoid committing mortgage fraud in Canada and protect yourself from the severe penalties that come with this crime. It’s essential to be honest, work with reputable professionals, and report any suspicious activity immediately to ensure a fair and transparent mortgage process.

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    How Virtual And AI Tools Are Influencing Mortgage Fraud

    Virtual and AI (Artificial Intelligence) tools are increasingly influencing the mortgage industry, and they are also having an impact on mortgage fraud in Canada. These tools are designed to improve the efficiency and accuracy of mortgage processes, but they are also being used by criminals to commit fraud. 

    One of the ways that virtual and AI tools are being used for fraud is by creating fake identities that can be used to apply for mortgages or other financial products. They can manipulate data, including property values, and create fake documents, such as employment letters, pay stubs, and bank statements, which can be used to support a fraudulent mortgage application. Phishing scams can also be created to obtain sensitive information, such as social insurance numbers, bank account details, and other personal information. Finally, some lenders are using AI tools to automate the loan approval process, which can increase the risk of fraud.

    However, virtual and AI tools can also be used to help detect potential mortgage fraud. Machine learning algorithms, for example, can be used to analyze data patterns and identify any anomalies that could indicate fraudulent activity. AI tools can also be used to automate the process of reviewing loan applications and identifying any inconsistencies in the application or supporting documents. 

    To combat mortgage fraud facilitated by virtual and AI tools, it’s crucial to have robust anti-fraud measures in place. This includes identity verification checks, independent appraisals, and thorough document verification. Lenders, mortgage brokers, and other professionals in the mortgage industry should also be vigilant for any suspicious activity and be prepared to report suspected fraud to the appropriate authorities.

    Final Thoughts

    Mortgage fraud is a serious crime that can have devastating consequences for all parties involved, including lenders, borrowers, and investors. Remember that mortgage fraud can take many forms, including inflating appraisal values, asset rental, foreclosure scams, false identity usage, and equity skimming. 

    To prevent fraud, both lenders and borrowers must conduct thorough due diligence, verify documentation, and report any suspicious activity to the authorities. By avoiding committing mortgage fraud, we can ensure compliance with the law and protect ourselves from the severe penalties that come with this crime.


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