5 things professionals can do to detect mortgage fraud

1. Meet clients face to face

In our fast-paced, technology-driven world, an old-fashioned face-to-face sit down between a client and an industry professional is increasingly uncommon. Meeting and getting to know your clients is, of course, fundamental to professionalism and providing competent service, but in terms of mortgage fraud, without a face-to-face, how can you truly confirm identity?

In 2012, RECA investigated the conduct of a mortgage professional in a mortgage fraud case that included falsified documents and identity theft. The fraud occurred partly because the client and the mortgage professional never met face-to-face. A real estate professional served as the go-between between the individual seeking a mortgage and the mortgage professional.

The mortgage professional relied on electronic communications and a trusted business relationship with the real estate industry professional who made the referral. The fake “client” applied for a mortgage through the mortgage professional and disappeared completely before they could ask any questions.

RECA is confident a face-to-face meeting would have helped identify the criminal activity much sooner.

Red Flags:

Note: the existence of one or more of these red flags does not mean any illegal activity occurred. They are a sign that you may need to be more diligent in your services regarding a particular transaction.

• client won’t provide photo ID, when asked
• parties “undisclosed,” “care of listing brokerage,” or “nominee”
• buyer is a numbered company seeking a high ratio mortgage
• buyers’ or sellers’ names are only partially indicated; e.g. last name appears without a first name (“Smith”), or the first name is indicated by only an initial (“R. Smith”)
• meetings take place at public places
• someone acting on a power of attorney represents the buyer or seller
• transaction involves an associate’s relative
• corporate search shows the associate or the associate’s spouse or family member as a director

2. Know the other professionals you deal with

As important as meeting your clients face-to-face is, it’s equally important to know and meet the other professionals involved in your trades or deals.

First off, check their licence status on RECA’s website using the Search for an Industry Professional tool. You can view their entire licensing history from there.

Red Flags:

• industry professional’s lifestyle is not consistent with income received through the brokerage
• industry professional representative section of the contract not filled out
• industry professional tends to use same lawyer on most transactions
• industry professional primarily does transactions only with certain other associates
• industry professional tends to refer clients to the same mortgage broker
• someone other than the real estate associate witnesses the signatures
• industry professional lends down payment to client
• number of listings or sales an industry professional has posted on the local listing database does not correspond to brokerage records
• industry professional holds both real estate and mortgage associate licences

3. Pull Title

Pulling property title should be part of the competent service and duty of care you provide your clients. Not only will it reveal possible issues with the property purchase (such as caveats), it may also reveal possible mortgage fraud by showing a quick succession of sales, multiple mortgages or conflicting information concerning the owner of the title.

Red Flags:

• land title records don’t match seller information
• quick succession of trades on one property

4. Investigate Discrepancies

Ever get that feeling that something doesn’t quite add up? Trust that feeling. If a situation, paperwork or an entire deal seems “off” or certain information doesn’t fit with what you know about a property, an area or an industry, dig a little deeper. Ask for more information, more documents, pull title, talk to other professionals who have dealt with the property.

Red Flags:

• information about buyer’s income doesn’t match industry standards
• buyer purchases property far from place of employment for no reason
• buyer purchases investment property, yet does not own a principal residence
• the deposit cheque(s) is coming from someone other than the buyer
• buyer is purchasing many properties with high ratio mortgages, using different names or variations of their name
• deposit is provided in cash or by money order
• existence of other offers, subject to financing, that collapsed
• property list price or purchase price is unusual for the neighbourhood
• firm transaction with none of the usual conditions; in particular, a transaction requiring high ratio financing, yet is unconditional
• names appear to have been added to or deleted from the contract
• not all parties named on the contract have signed it
• purchase contract indicates both parties signed at the same time
• deposits not held at brokerage; particularly applies when brokerage is not even provided with a photocopy of the deposit cheque

5. Investigate Unusual Arrangements

Not every deal is the same, but sometimes certain aspects of a deal are so unique as to warrant further investigation. Keep asking questions and requesting information until you are satisfied a deal is legitimate.

Red Flags:

• vendor take back and/or other forms of equity arrangements
• sweat equity arrangements as opposed to a reduced price
• chattels are used as deposit or as partial payment
• renovation value included in the sale price
• property has illegal/non-conforming suites
• property is a combination of residential and commercial components that are not reflected in the financing arrangements
• use of “Seller’s Rights Reserved” on listings
• uncommon commission arrangements, unusual adjustment to commissions, flat fees, low fees
• listing associate refers people to an unlicensed person for showings or information
• one lawyer represents both parties to the transaction
• condition allowing buyer to show unit to prospective tenants (most high ratio mortgages require owner occupancy)
• all or many units of building are sold at the same time with coinciding possession dates
• contract indicates unusual language: for example, ”this is a private sale”