When I was getting cold feet after signing the purchase agreement for a home a few years ago, I confessed to my family that I was feeling sick about owing that much money.
“That feeling will go away as soon as you put the ‘For Sale’ sign on the lawn” was their reply. Gulp.
For most people, buying a first house or condo is exciting and a big leap into adulthood. But it doesn’t take long for the cold hard reality of mortgage payments, taxes and unexpected repairs to set in.
Mortgage rates have been low for years now — long enough for young buyers to think that rates below 3 per cent are normal, but historically speaking, they’re not. It’s enough to tempt buyers who should probably save a little more and build their credit rating before buying their first home, but the rush to get into the market can leave some buyers at the mercy of unscrupulous or even criminal agents.
There are a number of ways homeowners can become victims of real estate scams:
Fraud for Rate (or Fraud for Shelter)
To qualify a mortgage in Canada, you must have good credit to get the best rates; just because your neighbour got a hot deal doesn’t mean you will get the same best rate.
If you’ve been quoted higher-than-normal rates due to credit issues, you might be a prime target for an unscrupulous agent or broker who is willing to bend — or break — the rules.
“These are real people looking for homes, but they may not qualify for a good discounted rate that most customers are getting,” explains Dong Lee, President of Mortgage Architects, a brokerage firm. He explains that some buyers will borrow money for a down payment or falsify employment information in order to quality through traditional lenders to get discounted rates.
“It’s fraud, but some people just don’t see it that way,” says Lee.
Lee explains that his brokerage may turn a customer down for the lowest rate, but can qualify a prospective buyer for a higher rate which they may not like.
Homeowners who run into trouble paying bills might consider a consolidation loan, which can be a good solution if it’s arranged through a reputable lender. However fraudsters may offer a loan with the agreement that they pay the bills and the homeowner transfers the title to them. When the “lender” fails to live up their end of the bargain, the duped homeowner can be left even further in debt and now facing overdue bills or a re-mortgaged house that they may lose.
If you’re unable to make your mortgage payments, your first call should be to your mortgage lender, says the Financial Consumer Agency of Canada. The government agency suggests that people considering a consolidation loan should use their lawyer if they are considering signing over the title of their property to someone else, and check with their local land registry to ensure that the home is in fact in their name.
Fraud for Profit
Homeowners can become victims of fraud without ever talking to the criminals who are essentially stealing their homes. There are two ways this type of fraud occurs, explains the Canadian Association of Accredited Mortgage Professionals. Some criminals forge documents transferring ownership of the home, and then apply to remortgage the home – leaving the real owner on the hook for the missing funds.
In the second scenario, to regain legal ownership of their own home the owner must prove to their lender that they had nothing to do with a fraudulent scheme where the criminals impersonate them, signed for a mortgage and then took off with the money.
Is illegal activity common?
When asked if he sees a lot of illegal activity in his business, Lee said no. “If real estate fraud will take place, then it’s likely an honest sales agent or mortgage broker will not be involved — that type of criminal activity only happens when each player in the transaction is involved in the scheme,” he explained. “It’s a very sophisticated scheme.”
What to watch for
- If you’re getting a mortgage with a traditional lender, there typically isn’t a fee for it.
- When someone involved in a real estate transaction urges you to provide false information to qualify for a mortgage, walk away. This is illegal.
- Keep your financial information private; be cautious you’re sharing with legitimate institutions.
- Check your credit report regularly, watch for any unusual activity.
- If you still get your bills in the mail, be alert if you stop receiving them, it’s a sign that someone has redirected your mail in an attempt to impersonate you.
- Consider title insurance, which can be protection against real estate fraud or errors. (Speak with a broker for detailed advice).
- Beware of “get rich quick” schemes, where you’re offered a too-high price for your home or deals that are too good to be true.