Mortgage Fraud Red Flags

Purpose:  To help industry professionals evaluate whether mortgage fraud is taking place.  

This bulletin applies to all industry professionals

Red flags indicate the possibility of a concern
The following red flags are sometimes found in fraudulent transactions. While these don’t guarantee fraud is taking place, they should raise suspicion, particularly if more than two or three are present.

Red Flags
Red flags associated with the true identity of the parties to the trade:

• client won’t provide photo ID, when asked
• transaction involves an associate’s relative
• existence of other offers, subject to financing, that collapsed
• parties "undisclosed," "care of listing brokerage," or "nominee"
• land title records don’t match seller information
• buyer is a numbered company seeking a high ratio mortgage
• corporate search shows the associate or the associate's spouse or family member as a director
• buyers or sellers are not personally or professionally related. For example, “R. Smith and Michael Jones”
• buyers' or sellers' names are only partially indicated; e.g. last name appears without a first name ("Smith"), or the first name is indicated by only an initial ("R. Smith")
• information about buyer's income doesn't match industry standards
• buyer purchases property far from place of employment for no reason
• buyer purchases investment property, yet does not own a principal residence
• buyer is purchasing many properties with high ratio mortgages, using different names or variations of their name
• parties have no formal office; communication is by cell phone, email and fax; meetings take place at public places
• the deposit cheque(s) is coming from someone other than the buyer
• deposit is provided in cash or by money order
• someone acting on a power of attorney represents the buyer or seller

Red flags associated with property value:

• no CMA or appraisal available, or if available, does not seem applicable
• vendor take back and/or other forms of equity arrangements
• sweat equity arrangements as opposed to a reduced price
• vendor take back or sweat equity arrangements not referenced in the purchase contract
• chattels are used as deposit or as partial payment
• renovation value included in the sale price
• property has illegal/non-conforming suites
• property is a combination of residential and commercial components that are not reflected in the financing arrangements
• commercial property has residential type financing or loan-to-values ratios
• listed property is owned by a corporation but has a mortgage in excess of 80% of property value
• purchase price is same as, or higher than, list price
• property list price or purchase price is unusual for the neighbourhood
• parties to the trade provided the appraisals

Red flags indicating unusual transactions:

Red flags associated with industry professional behaviour:

Red flags associated with brokerage operations:

• broker has no fraud prevention or detection policies
• broker does not review transactions
• conveyancing staff not trained to recognize suspicious transactions
• advertisements are not approved prior to publication and/or are not reviewed by broker
• brokerage does not check background of prospective industry professionals


Related information
Legislation
Real Estate Act Rules – sections 41(a), s.42(a)(b)

Information bulletins
Mortgage Fraud Red Flags – Mortgage Brokerage Professionals
Mortgage Fraud Red Flags – Real Estate Appraisal Professionals
Mortgage Fraud Red Flags – Real Estate Professionals


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