Mortgage Fraud Awareness & Prevention

Mortgage fraud is a crime. If you are approached about a scheme to make quick, easy money in real estate or asked to use your name for credit purposes, or asked to create or alter certain documents in a real estate or mortgage transaction—be suspicious. If you suspect you may be getting involved in a fraudulent transaction, report your suspicions to the Real Estate Council of Alberta.

Do you know the signs of mortgage fraud? Do you know how to make sure you don’t become involved in a fraudulent transaction? The Real Estate Council of Alberta has prepared a list of mortgage fraud red flags for consumers to help them protect themselves.

Red flags may indicate there’s a fraudulent transaction taking place; they don’t guarantee a fraud but should raise suspicion. Watch out if:

  • someone offers you money to use your name and credit information to obtain a mortgage
  • you are encouraged to  include false information on a loan application
  • you are asked to leave signature lines or other important areas on a loan application blank
  • the loan amount on the mortgage is significantly higher than the value of the property
  • the mortgage has been refinanced several times and in each instance, the amount of the mortgage has increased
  • a seller or investment adviser discourages you from seeing or inspecting the property you are buying

If it sounds too good to be true, it probably is. Mortgage fraud is not a get-rich-quick scheme—it’s illegal. Getting involved in mortgage fraud can damage your credit rating, your finances, and your current and future employment prospects.

Types of Mortgage Fraud

Mortgage fraud isn’t a single situation with a single type of transaction. Mortgage fraud occurs in a variety of ways—for a variety of purposes.

Foreclosure Fraud: This type of fraud often targets vulnerable, individuals with low or no income whose homes are in foreclosure, or who are at risk of defaulting on their mortgage. It happens when:

  • a mortgage fraudster approaches a home owner, who is in financial trouble, with a debt-consolidation scheme that typically involves the owner paying upfront fees and transferring the home’s title to the fraudster
  • the home owner receives cash from the fraudster to address immediate bills and remains in the home paying “rent” or “consolidated debt payments” to the fraudster
  • the fraudster pockets all of the owner’s payments and ignores bills and taxes, which leads to debt-collection procedures against the owner
  • the fraudster may re-mortgage or sell the property to an accomplice, which leaves the owner without the property title, homeless and still in debt

Fraud For Profit: Fraud for profit typically involves a number of individuals who work together to artificially inflate the price of a home or get mortgage funds for non-existent homes.

  • a straw buyer is a person who makes a purchase on behalf of another person.
  • the straw buyer may, for some of the profit, lend his or her identity and good credit to the fraud. If you give your identity or use your credit rating in this way, you are the straw buyer
  • the real buyer, who is using the straw buyer’s identity and credit, promises to make all the payments and pay the straw buyer for the use of his or her credit rating—but the real
  • buyer doesn’t make the payments

It’s not unusual in fraud for profit for the fraudsters to pocket the cash, stop making the payments, and the straw buyer is left with the property and no means of paying the mortgage, which is often an artificially inflated amount. Straw buyers can be held legally responsible for the mortgage debt.

Fraud for Housing: It is mortgage fraud if you provide false or misleading information on a mortgage application so that you’ll qualify for a mortgage you wouldn’t otherwise qualify for. It’s also fraudulent if you say you’re going to be living in the property, in order to get the mortgage loan, but you have no intention of living in the home.

Fraud for Title: This is what happens when someone steals your identity, and uses fake documents and identification to “steal” or change the title on a home you own. The mortgage fraudster uses these documents to apply for and take out a mortgage on the home you own. The bank lends the money to the fraudster based on the stolen or fake documents, the fraudster takes the money, and then you’re left with the debt because the mortgage was in your name.

Seller Financing Fraud: When a sale involves seller financing (also called a vendor take-back mortgage), a seller may own their property outright (i.e. there is no mortgage). The seller agrees to sell the property to a buyer in exchange for a buyer’s monthly payments, including interest—as opposed to the full purchase price upfront. The seller registers a mortgage on the property to secure their interest in the property, much like a traditional lender would. “Rent to own” agreements may also be viewed as seller financing. Rental payments are made to a seller and over time the buyer may own the property. These agreements may also be registered on title. Seller financing fraud happens when a buyer is led to believe they have entered into a legitimate real estate purchase contract with a seller when they have not.

How to Avoid Seller Financing Fraud



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Are there different types of mortgage fraud?

Yes, there are a few different kinds of mortgage fraud. The main types to be aware of are fraud for housing, fraud for title, fraud for profit, and foreclosure fraud. For details on the different kinds of fraud, see Mortgage Fraud Awareness and Prevention.

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What is fraud for housing?

Fraud for housing is providing misleading or false information on a loan application (usually by misrepresenting income or other debts) to qualify for a mortgage loan you would not otherwise get and/ or representing on the loan application you are going to live in the home, when in fact, you have no intention to live in the home.

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What is fraud for profit?

Fraud for profit is fraud where the motive is financial gain. This usually includes a number of individuals working together to inflate the price of a home or get loans for non-existent homes. Organized crime is often the mastermind of these fraud schemes. Industry insiders are normally involved, and the fraud is more complex. Check out an example of a typical Straw Buyer mortgage fraud for profit.

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How can I protect myself from mortgage fraud?

  • review RECA’s Mortgage Fraud: Protect Yourself poster
  • watch out for people who make you an offer that seems too good to be true
  • read any contracts you sign very closely - when in doubt, have your lawyer review documents and contracts if something doesn’t seem right to you
  • check your land title every so often to ensure there is nothing suspicious showing up on title (second mortgage, etc.)
  • check your credit through Equifax or Transunion every couple of years to make sure you haven’t been the victim of identity theft

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Some mortgage fraud is more serious than others, right?

Unfortunately, this isn't true. Fraud is fraud. Just because it was for housing rather than for profit does not make it any less serious. The fact is, it’s a fraudulent action. Law enforcement bodies and other regulators take fraud seriously.

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What should I do if I suspect a suspicious real estate or mortgage transaction?

Your best bet is to speak to a lawyer about your suspicions.

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Can individuals who are involved in mortgage fraud be punished by law?

Yes. Fraud is a Criminal Code of Canada offence.

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Where can I go to learn more about how to protect myself from mortgage fraud?

The Real Estate Council of Alberta is one resource for consumers about mortgage fraud prevention and awareness, but there are others:

  • Service Alberta
  • CMHC
  • The Law Society of Alberta
  • Mortgage Professionals Canada

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What is a “straw buyer”?

“Straw buyers” are phony loan applicants. A fraudster usually offers a straw buyer payment in exchange for the use of their name and credit information. Straw buyers may say they did not know their name would be used on a mortgage application, but saying you didn’t know your information would be used to commit mortgage fraud is not a legitimate excuse under the law. Straw buyers may also be used to sign documents containing false information. Learn more about straw buyers.

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Am I only at risk for mortgage fraud if I have bad credit?

No. Mortgage fraud can affect anybody; good or bad credit, employed or unemployed. Some mortgage scam artists try to recruit buyers with good credit who might be attracted to quick, high return investment opportunities.

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Can I be compensated if I become the victim or mortgage fraud?

RECA administers the Real Estate Assurance Fund in Alberta (also known as the Consumer Protection Fund). The Fund compensates consumers who suffer a financial loss as a result of fraud, breach of trust, or a failure to disburse or account for money held in trust by an industry member with respect to a trade in real estate or deal in mortgages. The protection does not extend to clients of unlicensed professionals.

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How do I find out if the person I am dealing with is a licensed real estate or mortgage brokerage professional?

All professionals who are licensed to trade in real estate or deal in mortgages in Alberta can be found through a quick online search at www.reca.ca. Go to our Find a Professional tool and type in the name of an individual or a company.