3 Common Types of Mortgage Fraud in Toronto

By May 1, 2023 October 13th, 2023 No Comments

Mortgage fraud isn’t rare in the greater Toronto area – almost half of the residents believe mortgage fraud is common.

mortgage fraud canada statistic

Source: Ratesddoca

The mortgage fraud rate is increasing at a rapid pace, and more and more people are getting scammed. In fact, in the second quarter of 2022, mortgage fraud was 30% higher than before the pandemic.

…and every fifth person in Canada has no problem committing such a crime.

20 percent of canadians not opposed to mortgage fraudScammers are everywhere, and it’s tough to stay safe and avoid fines or prison time. In this post, you’ll learn everything about mortgage fraud and how to prevent it and stay safe from our private investigators in Toronto, who have first-hand experience.

What Is Mortgage Fraud?

Mortgage fraud is a misrepresentation of information to obtain mortgage financing that would not have been granted if the truth had been known.

There are several things mortgage fraud can include:

  • Not disclosing other mortgages or debts
  • Misstating your work position or your income
  • Misrepresenting the amount of your down payment
  • Omitting information to inflate the value of the property

In essence, you fake the information to get more money you’d otherwise won’t be able to get. You may think that it’s not common, yet…

That’s right, almost half of Canadians think mortgage fraud is common – and they aren’t wrong!

Why is Mortgage Fraud Being Committed in Toronto?

It’s very difficult to resist the promise of “easy money in real estate.” In fact, nearly 20% of Canadians are not opposed to mortgage fraud. 

We hope you aren’t one of them because it can have fatal consequences – ending with jail time.

The reason behind this is that an average household spends 62.7% of its income on the costs of home ownership. However, in some cities like Toronto, those numbers climbed to a shocking 85.2% of income. That led to money problems and desperation which led to committing mortgage fraud.

(borrowing money to be able to retain a household.)

canada home affordability statisticSource: Cbc

The person taking a loan doesn’t always have to be an offender – they can just as easily be a victim.

This is because industry professionals commit fraud for profit by misrepresenting clients’ financial information, therefore maximizing their profits on the transaction – since realtors usually charge around a 5 – 6% fee. Such mortgage fraud can be committed by any professional involved in the loan transaction, from the real estate agent to the mortgage banker and beyond.

mortgage broker fraud accusations

3 Common Mortgage Fraud Schemes in Toronto

Mortgage fraud can happen in many forms. It’s essential you learn about these, so you can better prepare for them and minimize your risk of getting scammed.

Here are the most common types of mortgage fraud.

1. Straw Buying

Straw buying or equity skimming is a type of mortgage fraud where investors may use a straw buyer – someone who purchases property on behalf of another person. 

The investors obtain a mortgage loan in the straw buyer’s name by using.

  • False income documents
  • False credit reports

The investor does not make any mortgage payments, though. Instead, they rent the property until the event of a foreclosure (failing to pay for the mortgage), typically several months later, therefore profiting from the rental income.

2. Air Loans

An air loan is a loan obtained on a nonexistent property or for a nonexistent borrower. The person committing this crime usually creates a fake borrower with all the required information.

The air loan scam puts cash into the hands of the perpetrators, and no property is ever bought or sold.

3. Appraisal Fraud

Appraisal fraud often involves a real estate agent, builder, appraiser, and loan officer working together to maximize a purchase price and loan amount to increase their commissions.

The appraisers will often undervalue a property to ensure that a fellow investor can purchase it.

illegal property flipping schemeSource: Appraisal Scoop

Some forms of predatory lending activities, foreclosure rescue, and mortgage reduction scams depend heavily on the aforementioned mortgage fraud practices. Predatory lending typically involves falsifying lenders’ income figures to inaccurately reflect their ability to assume additional debt.

What Is The Penalty For Mortgage Fraud?

Mortgage fraud is a serious crime punished by significant penalties. Because mortgage fraud can involve different crimes at either the provincial or federal level, the potential penalties associated with the crime differ widely.

Mortgage fraud is typically charged as a felony offence, but misdemeanour crimes are possible in cases where only a small amount of money is involved – typically less than $1,000.

Here are the different types of penalties for mortgage fraud.

  • Fines. Fines for mortgage fraud are often high, especially when professional fraud is involved. A conviction for a single count of federal mortgage fraud can result in a fine up to $1M.
  • Restitution. Restitution is designed to compensate the injured party for your wrongdoing, while the government imposes a fine as a penalty.
  • Probation. Probation sentences for mortgage fraud typically last at least one year, but longer terms are common.
  • Prison. Prison penalties for mortgage fraud can be significant. A conviction for federal mortgage fraud charges can result in a prison sentence of 10 years.

The penalty all depends on the amount of money you borrowed, involvement intent (whether it was intentional), and how many times it happened.

How to Protect Yourself?

Of course, the easiest way to prevent getting any of these penalties is to not get involved in mortgage fraud – something that 20% of Toronto residents would have no problem committing.

(never deliberately misrepresent information when applying for a mortgage.)

However, it is not always your fault, and you might not be the one committing the crime. If that’s the case, here are a few tips for staying safe.

  1. Don’t add your name to another person’s mortgage unless you plan to make payments on it – even if it’s a family member or a close friend
  2. Don’t sign papers until you understand them – seek legal help when necessary
  3. Always know who you are doing business with – deal with licensed or accredited mortgage and real estate professionals

We also highly recommend getting independent advice from a private investigator – to be sure that the real estate agent and other professionals are legit.

You can get help from our private investigators in the Toronto area and prevent any fraud with ease.

How To Prevent Mortgage Fraud & Stay Safe

Mortgage fraud is very common, especially in the Toronto area, where the price of a household is extremely high. In fact, Canada’s mortgage fraud rate in the second quarter of 2022 was nearly 30% higher than it was before the pandemic. There are a lot of different forms of mortgage fraud. The important thing is to be aware of them and do everything you can to prevent it – or you risk huge fines or even prison.

If you’re looking to stay safe, we have you covered! 

You can get help from our private investigators in the greater Toronto area and prevent any fraud. We will check the real estate agent and every party involved in the mortgage process. That way, you’ll only work with accredited professionals and stay safe. Get help from our experts now.

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