Can you spot a fraudulent deal?
Mar 24th, 2022 | By FCT
Fraud is on the rise in Canada. Catching and preventing it 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:
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 ID 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.
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 ID 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 fraud prevention experts
Your clients trust you to help them navigate the complex real estate process. Likewise, it’s important to find experts 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?
Our history of spotting red flags, as well as stringent underwriting process, have saved legal professionals, lenders and property owners millions of dollars.
Fraud is on the rise, but we’re here to meet it with you. FCT can help you protect your clients against title fraud, no matter how long they’ve owned their home. Order them an existing homeowner’s policy online, or simply direct them to the sign-up page and get them coverage for life.
Insurance by FCT Insurance Company Ltd. Services by First Canadian Title Company Limited. The services company does not provide insurance products. This material is intended to provide general information only. For specific coverage and exclusions, refer to the applicable policy. Copies are available upon request. Some products/services may vary by province. Prices and products/services offered are subject to change without notice.
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