Uncovering the Rise of Mortgage Fraud in Canada: Illegal Tricks Used by Buyers to Qualify with Banks

2023-10-09 19:48:30

With home prices high, buyers are resorting to sometimes illegal tricks to qualify with banks.

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According to an Equifax survey, the mortgage fraud rate has doubled over the past year in Quebec, going from 7% to 14%. Nationwide, mortgage fraud is up 18.8%, according to the credit reporting company.

The frauds listed by Equifax are primarily cases where a potential buyer lies regarding their income and assets, or presents conflicting information regarding their assets or income, when trying to qualify at the bank to purchase a home. If Equifax uses the term “fraud”, it is rarely an offense that leads to a legal consequence.

“We, the banks, are not judges. Even when we catch someone in the act, for example if we realize that a T4 is false or falsified, we will often decide not to grant the loan, but we will not call the police. The file will be burned, that’s all. And this borrower is going to have a lot of difficulty finding a lender elsewhere,” says Martin, who works in a large bank and who wishes to remain anonymous.

Hard to cheat the banks

Some brokers we spoke to were willing to describe the most popular type of fraud. “Let’s say I have a client who wants to buy a house for $400,000 and the bank prequalifies him for only $350,000. Often, the client will turn around and borrow the missing $50,000 from a private lender to make up the difference and show the bank that they have the necessary assets and income,” she says.

Only catch: the money borrowed must be in your bank account for at least 90 days, under Canadian money laundering laws. “Some will wait 90 days to then go see another bank, but they will end up getting pinched,” says Stéphane Bruyère, mortgage broker at Mortgage Architects. “Here in Canada, lenders ask a lot of questions. If you just found $50,000, the bank will wonder where it came from. And if it’s a gift from the family, the bank will require an official letter,” he explains.

Serious fraud

Marie is a mortgage broker and she’s seeing a lot of things these days. “I dealt with a house owner who wanted to evict the tenant, who had been renting for 15 years, in order to be able to sell his house and collect the capital gain. As the buyers did not have enough money for the down payment, he himself advanced $60,000 to the buyers, so that they would qualify and be able to buy his house.

If lying regarding one’s income can go unpunished within the meaning of the law, the fact remains that real fraud is taking place at the moment, underlines Stéphane Bruyère. “There are elderly people who are remortgaged without their knowledge. That’s real fraud to me. People in Toronto last year, for example, moved to Florida. And when they came back home, there were other people in the house,” he said.

The people at home were not the ones at fault, he emphasizes. They only thought they were buying a house. “When people leave, sometimes they have their identity stolen. The criminals then make a transaction and sell their house. This happens a lot in Canada, especially in Vancouver because house prices are so high. The higher the prices, the more it attracts fraud of the worst kind,” he says.

What is mortgage fraud according to Equifax?

Falsified financial fraud remains the biggest obstacle in mortgage applications, according to Equifax.

Scams typically involve falsifying employment or income information, or lying regarding financial information, in order to increase one’s chances of qualifying for a mortgage loan.

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