Don’t Become an Unwitting Participant in Mortgage Fraud!

Mortgage fraud occurs when individuals intentionally deceive lenders, borrowers, sellers, and others to obtain mortgage financing. It undermines the integrity of the mortgage industry and could lead to significant financial losses for those involved. As mortgage licensees, it is crucial to recognize and address fraudulent activities promptly to protect both consumers and the industry. 
 
Mortgage licensees play an important role in the mortgage process by collecting and transferring financial, legal, and other confidential information between borrowers and lenders. You have a responsibility to identify mortgage fraud red flags and take appropriate action.  
 
While the Real Estate Act Rules do not explicitly mandate that licensees verify information provided to them, you must not submit information to a third party that you know or ought to have known was false or misleading. Licensees who mislead a lender or other stakeholder during a mortgage deal would be in breach of Rule 42(a), which prohibits making an intentional or recklessly misleading misrepresentation. They may also be in breach of Rule 42(b), which prohibits participation in fraud.  
 
Licensees must always prepare to explain what steps they took to verify the information provided by the client. Failure to take reasonable steps to review documents and recognize mortgage fraud red flags may prove to be a failure to provide competent service, which is a breach of Rule 41(b). Always remember to document the steps taken to verify client information.  
 
Key strategies to combat mortgage fraud: 

• know your client and assess whether their story “makes sense” 
• when possible, meet with your clients in person
• carefully inspect all documents received from your client
• always assess whether the information obtained from your client aligns with your knowledge of that client

During investigations, RECA has identified fraudulent documents such as fake pay stubs, tax documents, gift letters, bank statements, and employment letters. These documents usually contain errors or omissions that, upon comparison, are easily identifiable as false or misleading. Licensees should not accept documents from third parties acting on behalf of clients, as this can increase the risk of receiving false or misleading information. 
 
A client’s credit report is a crucial piece of information obtained from a trusted source. It can be used to verify client information. For example, information in the history section of the credit report could support a client’s employment status or address history. This is just one source of information you can use to verify a client’s client provided information.  
 
Alternatively, use online searches to validate the status of an employer, location of a property, or other key information. Title searchers and public assessments can support claims made about the property itself. Using multiple sources of information can help verify inconsistent or questionable claims.  
 
If you identify inconsistent information or red flags of fraud, search further to validate the claims. Always consult with your broker regarding any inconsistencies you may find, and if appropriate, question your client. If there is clear evidence that supports a fraud attempt, the matter should be promptly reported to RECA, law enforcement, the lender, and mortgage insurers. Each of these organizations have information on their websites on how to report mortgage fraud.  
 
For additional information on recognizing fraud red flags, and your obligations as a mortgage licensee, please review the following Information Bulletins: 
Mortgage Fraud Red Flags 
Prohibition – Fraudulent or Unlawful Activities  
Mortgage Brokerage – Avoiding Misrepresentations 
 
Please also visit the mortgage fraud section.
 
Brokers and broker delegates are encouraged to reach out to Gary Siegle, Regulatory Compliance Advisor, Mortgage at gsiegle@reca.ca with any questions they may have regarding Mortgage Fraud.