The venom of real estate fraud

BY JAY BRIJPAUL

You can be an innocent victim in real estate fraud.  According to the Canadian Anti-Fraud Centre, approximately forty-five thousand people in Canada became fraud victims in 2019. Olga, a victim of real estate fraud, said “Before you knew it, the bite was painful, and the venom paralyzed you financially.” Fraud may lead to loss of property, damaged credit and unexpected debts. Real estate fraud can be divided into three categories: fraud for shelter, fraud for profit, and title fraud.

Buyden, a first-time buyer, wanted to buy a home for $700,000. The lender told him not to exceed $600,000. Buyden’s realtor introduced him to a mortgage broker, Mr. Fake, who guaranteed the mortgage. Mr. Fake switched some numbers. An income of $68,000 for Buyden became $86,000. This is an example of fraud for shelter. In many instances the job letter, pay stubs, T4 slips and credit reports are tampered with. Buyden’s realtor and the mortgage broker earned a commission and Buyden got the home. It was a win-win some may say, but in the end Buyden was bitten.

Lenders qualify someone based on a gross debt ratio (GDS) of 32% and a total debt service (TDS) of 42% of their income. The GDS ratio is the amount of income allowed to pay mortgage and property tax, and the TDS ratio is the percentage of their income used to pay for mortgage, property tax and all other debts. The ratios are established to ensure that buyers can carry their financial burden without strain. When a buyer inflates his income, he has to carry a heavier financial burden. After living in the home for six months, Buyden defaulted on his mortgage. The lender discovered what happened and Buyden, along with the realtor and mortgage broker, were charged with fraud.

Mortgage fraud can happen in many other ways. For example, artificially increasing the sale price and then claiming the difference as a deposit given to the seller. In this case, the buyer does not have a down payment or tries to increase their down payment to 20% in order to avoid paying the lender’s mortgage insurance. Another example is to manipulate the deposit. Here the original offer is made with a large deposit. Once the lender approves, an amendment is made to decrease the deposit and the amendment is not given to the lender. Fraud for shelter hurts everyone because lenders pass on their losses to consumers.

Fraud for profit occurs when borrowers defraud the lender. Slick Rick bought a home for five hundred thousand and flipped it within a few months to a straw buyer for eight hundred and fifty thousand dollars. A straw buyer is someone who, for a few thousand dollars, offers to buy a property on behalf of the accomplice. Usually all their documents such as a job letter, pay stubs, credit report etc. are fabricated. In this example, Slick Rick received eight hundred and fifty thousand dollars. He paid the straw buyer and pocketed the difference. Within a few months, the mortgage was in default and the lender suffered a nasty financial blow. This type of fraud usually involves a realtor, a mortgage broker, an appraiser and a lawyer who all share the profit. If you are ever approached by someone who offers an incentive so that they can use your name to buy a property, be careful. You can become the next straw buyer.

Title fraud is when someone steals your identity and uses it to sell or remortgage your property without your permission. The fraudster targets those who are mortgage free.  This information is available from the land registry which is available to everyone. Once the fraudster steals the homeowner’s identity, they can sell the property to an unsuspecting buyer or an accomplice or remortgage the property and run away with the loot. Identity theft is when the fraudster attempt to trick someone to provide their personal details. With the rise of online shopping and social media, hackers are having a field day with identity theft. I recall an incident recently while updating my navigator. I could not download the maps. A pop-up assistant asked for my phone number and within five minutes I received a call from someone posing as a trouble shooter who needed permission to access my computer. I declined.

Fraudsters pose as legitimate companies and gain access to our computers. They are looking for personal information such as your name, date of birth, SIN, address, driver’s license, account numbers and pins and passwords. With this information, they can open accounts, transfer funds, make purchases obtain loans and transfer titles.

We must be careful what we are throwing away in our recycle bins and garbage. Bank statements and utility bills are treasure troves for fraudsters. Monitor your credit very often and avoid having multiple credit cards. Change your password often. Be careful when visiting unsafe sites. It is best to use one computer strictly for your financing and another one to surf the net. I recommend having title insurance on your property. Also, if you are mortgage free then have a line of credit registered on the home. Fraudsters will look for easy targets. Once the crime is committed, it is difficult to correct the mistake.

Many of us leave the doors wide open for fraudsters. We must be vigilant. Invest in a shredder and destroy unwanted papers. Visit safe sites and delete unwanted emails. Update your computer with virus protection and turn it off after use. Be careful with online shopping and take out title insurance.