Broker Beware!

​March is Fraud Prevention Month, and in recognition, we are reminding those that work in the mortgage industry about the crucial role they play in recognizing and preventing mortgage fraud.
 
Earlier this year, regulatory experts Ryan DeLuca and Adam Feldman joined AMBA members for a virtual session on fraud and the mortgage industry, in which they emphasized the duty mortgage brokers have to their clients, as well as the public at large.
 
“Mortgage brokers are not merely facilitators, moving documents from one party, the borrower, to another party, the lender,” says DeLuca. “Mortgage brokers are required to do their due diligence to protect their clients and the public from harm.”
 
By keeping red flags in mind while working with clients, mortgage brokers can help flag potentially fraudulent activity. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and RECA are both valuable resources for new suspicious activity to watch out for.
 
However, DeLuca recommends when brokers come across a red flag to look at the circumstances as a whole to determine if the red flag is an indication of potential fraud.
 
“You need to use your ‘Spidey’ senses and evaluate the red flag in relation to the rest of the transaction. Does something that is happening make the hairs on the back of your neck or your arms stand up? Does it feel wrong?” says Deluca.

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​According to RECA, there are five types of mortgage fraud that mortgage brokers should be aware of:
 
1. Fraud for Shelter
 
The most common type of mortgage fraud, borrowers falsify information on their application to obtain approval. A February 2023 survey for BNN and RATESDOTCA revealed that 18% of respondents believe it’s okay to distort employment information when applying for a mortgage.
 
2. Fraud for Profit
 
This fraud typically involves several parties, including a real buyer and a fake buyer (known as the “straw” buyer). Oftentimes this scheme will involve falsely raising the property value in order to secure a larger mortgage, with the real buyer stealing the money and leaving the “straw” buyer with a large debt. 
 
3. Title Fraud
 
This type of fraud occurs when a person poses as the legitimate owner of a property and sells the title without the actual owner’s knowledge. DeLuca notes that title fraud is one of the less common schemes in Alberta due to the province’s title and regulatory system. 
 
4. Foreclosure Fraud
 
While this fraud involves a variety of different schemes, the target is a homeowner on the brink of or in foreclosure. The homeowner is promised financial assistance, typically in exchange for transferring the title to the fraudster, wherein they will ask the homeowner to pay “rent” and take the money without making payments on the home, or even sell the home to someone else and take the proceeds, leaving the target with their debt and without a home.
 
5. Seller Financing Fraud
 
A home can be legitimately purchased through seller financing. However, fraud can occur through deceptive or scam agreements. Both the homeowner and the potential purchaser can be victims – the fraud could include the purchaser paying monthly installments to the homeowner without the lending institution’s knowledge of the transaction, or, similar to title fraud, a seller financing agreement could occur without the actual homeowners knowledge. 

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​When it comes to recognizing mortgage fraud, DeLuca encourages brokers to trust their instincts. “You are experts in your field, as mortgage brokers, so you can tell when something feels off, even when the conduct in and of itself may not be indicative of a crime – sometimes it just doesn’t feel right.”

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About Fraud Prevention Month
 
Fraud Prevention Month occurs in March every year. It is a month-long campaign with the aim of assisting consumers and businesses in identifying and reporting fraud. According to the Canadian Anti-Fraud Centre, Canadians lost $531 million to fraud in 2022. Visit their website for information on common scams and other resources.