Detecting Mortgage Fraud – Part 3

Detecting Mortgage Fraud – Part 3

If you missed the previous article – Detecting Mortgage Fraud – Part 2

As a Canadian real estate investor, we will be involved in many deals throughout our careers. It will be just a matter of time before you become aware of  some kind of fraudulent deal. These articles are to make you aware of them so you can run from anything that smells like a fraud or a scam.

Foreclosure rescue scam

A foreclosure rescue scam often begins with a person, “the rescuer”,  who promises to pay off the troubled homeowner’s delinquent mortgage. They allow the homeowner to then stay in the property and rent it with the option to purchase the property back at a time when their financial situation changes.

As part of the “rescue,” the homeowner will be required to give up title to the property to a new buyer who is perhaps an investor coming in to buy this rent to own property, but is  in cahoots with the initial rescuer.

The proceeds of the sale pays off the delinquent mortgage but the new investor also takes out all the equity in the house and is never to be seen again.  The original homeowner is now only a renter in the property they no longer own and are unaware that the investor is not making any payments. When the investor defaults on the mortgage, the original homeowner is ultimately evicted from the property. In the end they have lost both the house and all the equity in it.

Cash back at closing

Another type of  fraud to be aware of is done cash back at closing. A scam artist/seller can ask  much more than the property is worth in order to utilize a cash-back at closing which can be given back to the purchaser.  Most often the  “rebate” (perhaps for repairs) will not be disclosed to the lender. As a result, the borrower gets over-financed for the property, the buyer pockets the difference between the actual purchase price and the amount that the loan is for. This can be split with the scam artist/seller, the realtor, the appraiser, etc. who are all in on the scheme.

Identity fraud

This can happen on both the selling and purchasing end. A “seller” may be a renter who has assumed the owner’s identity and fraudulently sells the property  under the existing owner’s name.  The buyer purchases the property through what seems like a normal purchase. At that point, the real owner  is apt to sustain a substantial loss trying to prove that identity theft has occurred.

In purchasing a fraudulent buyer may have stolen or acquired counterfeit identification and financial documents such as job letters, tax forms, RRSP slips and pay stubs. (There are criminal groups that use  stolen and counterfeit information to compile fraudulent identities and financial profiles and to obtain mortgages illegally.)

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For the next article in the series – Detecting Mortgage Fraud – Part 3

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Navtaj Chandhoke