Can you spot a fraudulent deal?

Mar 24th, 2022 | By FCT

Fraud is on the rise in Canada, especially in Ontario, with high-profile stories of real estate fraud in the millions breaking at the end of 2021 and the start of 2022. Catching and preventing fraud is vital when it comes to protecting yourself and your clients. But what should you watch out for?

Over the years, we’ve identified dozens of factors that can indicate a higher likelihood of fraud. While the presence of one or more flags doesn’t necessarily mean the deal is bad, several flags may signal a fraudulent transaction. Here are just some of the things you should look out for:

Purchase transactions

High ratio mortgages, where the borrower is putting less than 20% down, may be cause for concern. This is often an easier option for fraudsters as they can commit fewer funds to their scheme.

Private agreements of purchase and sale where there’s no realtor on record are a warning sign. Fraudsters try to remove as many participants from their transactions as they can—realtors have guidelines and best practices they follow to prevent fraud, so they pose a potential risk to criminals.

When power of attorney is used to conduct a real estate transaction, ask more questions. Power of attorney is open to a variety of abuses, so these transactions almost always merit another look in order to spot potential donor abuse.

Recent activity on the property’s title is important to look at. This transaction may be a borrower flipping a property honestly or having to change course. But recent activity on the property’s title, especially repeated activity, could be evidence of a shadow flipping scheme or other fraud.

Private lender deals

Rush transactions where you don’t know the client(s) could be a gap for fraudsters to slip through. Fraudsters often create a sense of urgency to push deals through as quickly as possible. They’re hoping you won’t have time to spot inconsistencies in I.D. or other documents, or any of the other fraud flags.

Remote deals come with some risk. Fraudsters are taking full advantage of the new options borrowers have to close their transactions remotely. Clients should raise your suspicion if they:

  • are unwilling to meet in person,
  • are unable to provide government-issued photo identification,
  • send only unclear scans or photocopies of identification,
  • will only communicate via text or email.

A high interest rate private mortgage being registered on a mortgage-free property can be a red flag. If the deal is legitimate, why is the homeowner taking on a substantial high-interest debt after paying off their mortgage? With the changes in lending requirements it could simply be that they don’t qualify for an institutional mortgage, but this is often seen in fraudulent transactions.

A request to direct funds to a third party is by far the biggest flag in any mortgage transaction. If the borrower asks you direct the proceeds to a third party that does not appear to be associated with the transaction, be wary—this is the most common sign of fraud we encounter.

Mortgage applications

Employer addresses that are hard to verify or that show up as a P.O. box could be an indication your borrower is not who they say they are, or that they’re misrepresenting their income.

The purchase of an investment property when the buyers don’t currently own a residence can be suspicious.

If the applicant’s age doesn’t make sense when compared to their credit history and income, dig deeper. Few legitimate mortgage applicants will have established credit histories from a very young age.

Borrower I.D. that shows their current address as the property they’re purchasing is a significant red flag. It could be because the tenants are now purchasing the home, or it could be evidence that the tenant is committing fraud. In any case, you should investigate further.

Significant variations in handwriting could indicate fraud. It may seem like too obvious a thing to check for, but handwriting forgeries can sometimes stand out more than you’d expect once you’re looking for them. A variety of circumstances could affect a person’s handwriting, but obvious variations should prompt a second look for other fraud flags.

Work with a partner you can trust

Your clients trust you to help them navigate the complex real estate process. Likewise, it’s important to find a partner you can trust to help you prevent fraud. Certified Fraud Examiners (CFEs) are specially trained to spot the warning signs. Did you know that FCT is the only title insurer in Canada with CFEs on staff to help our customers and partners spot fraud?

Finding the right partner in fraud prevention is critical. Our history of spotting red flags, as well as stringent underwriting process, have saved legal professionals, lenders and property owners millions of dollars.  We’re here to help your business stay ahead of the criminals looking to defraud it.

Curious about what to watch out for? Learn about more fraud flags for legal and lending professionals.

 

 

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