Be Aware of Recent Private Lending Fraud

RECA recently warned consumers who are private lenders about recent fraudulent activity. RECA is currently investigating instances where private entities and related businesses have presented fraudulent and/or altered documents to secure mortgages from private lenders. Please be aware of these situations if you work with consumers who wish to become private lenders.

In the cases under investigation, private lenders have been approached by an unlicensed third-party who then connects them to borrowers looking for a private loan. The private lender is presented with altered and/or incomplete Land Title Certificates that list the borrowers incorrectly as the property owners, and no encumbrances or liens on the property title. The unlicensed third-party assures the private lender their mortgage will appear in second position on title to protect them if the borrower defaults on the mortgage.

In fact, RECA has found that there were numerous caveats and liens on the property used for collateral and the borrower, in some cases, was not the owner, leaving the private lender in jeopardy of their loan being unsecured.

PROTECT YOUR CLIENTS
Consumers who lend private funds, with property used as collateral, are always urged to use a licensed mortgage brokerage and licensee to connect them with a borrower.
This unlicensed third party has been known to approach mortgage brokers looking for borrowers needing private loans.

1. Always check your referral sources (Google is your friend). Why did they approach you? Who else have they worked with (talk to them)?
2. Do not accept documents from third parties. Get them from the source (e.g., Land Titles search, borrower and/or private lender)

Dealing in private mortgages is considered a specialized area of mortgage brokering and licensees brokering these types of transactions need to ensure they have the proper skills and training to provide a competent service.

If you have any questions or concerns regarding a private lending situation, please reach out to:
Gary Siegle
gsiegle@reca.ca
Regulatory Compliance Officer, Mortgage