The housing market across Canada has undergone significant changes over the past decade. With homes often listed for over $1M and rental rates soaring, it’s not uncommon to find rents surpassing mortgage payments. As a result, many are struggling to find affordable housing, making them potential targets for fraudsters to commit real estate fraud.
Real estate fraud is a serious issue that can take various forms. It involves any intentional false representation in a real estate transaction. Mortgage fraud is one form. However, there are other frauds that have devastating consequences for the victims.
Mortgage fraud includes builder bailout schemes, which use inflated property values or undisclosed down payment assistance. Another example of mortgage fraud is Air loans that use collusion to take out a loan on a non-existent property. In this scheme, forged documentation is used to support the loan. Identity theft can be used to commit mortgage fraud, as mortgages or loans are taken out using the victim’s credit histories.
Real Estate Fraud in Appraisals
Appraisal fraud occurs when the appraisal of a property is not an arm’s length transaction, meaning that the appraiser and buyer/seller are closely connected. This can result in an increased or decreased valuation. Increased valuations can be used to extend credit using the property as collateral or avoid excessive losses by a company. In comparison, decreased valuations can be used to sell properties below market value and then quickly resell the property at market value to make a profit; this is known as flopping.
Red flags for appraisal fraud include a lack of credentials or questionable credentials. A significantly higher appraisal fee than the industry standard and a lack of supporting documentation are also red flags for fraud. The simplest red flag is the valuation compared to other similar properties in the area. This information is publicly available in most jurisdictions.
Fraudulent Sale/ Fraudulent Lien
In the case of a fraudulent sale scheme, a victim can lose their home. In this scheme, a forged deed makes it appear that a property belongs to the fraudster. If the property is sold, and the legitimate owner is left with nothing. Recently, this type of fraud was. Similarly, the fraudulent second lien scheme uses forged documentation to take out a loan using the non-owned property as collateral. The fraudster receives the money, and the lien is assigned to the homeowner, as reported by CBC Toronto in October 2023.
These are just some of the real estate frauds known to occur. You can protect yourself from these frauds by asking experts for their credentials when working with real estate agents, appraisers and mortgage brokers. It is also good practice to check your credit activity to be aware of the liens on your property. If you are concerned about a mortgage broker, appraiser or real estate agent, speak with the real estate commission in your area. Always report fraud to the police.
Until next time
Kathleen O’Donoghue, CFE
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