Given the high real estate prices, buyers sometimes resort to illegal tricks to qualify with the banks.
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Quebec’s mortgage fraud rate has doubled in the past year, rising from 7% to 14%, according to an Equifax survey. Nationwide, mortgage fraud is up 18.8%, according to the credit reporting agency.
The scams listed by Equifax primarily involve cases in which a potential buyer lies about their income and assets or provides conflicting information about their assets or income when attempting to apply to the bank to purchase a home to qualify. When Equifax uses the term “fraud,” it is rarely a crime that results in a legal consequence.
“We, the banks, are not judges. Even if we catch someone in the act, for example if we discover that a T4 is false or forged, we often decide not to grant the loan but do not call the police. The file is burned, that’s all. And that borrower will have great difficulty finding a lender elsewhere,” said Martin, who works at a large bank and wished to remain anonymous.
It’s hard to defraud the banks
Some brokers we spoke to were willing to describe the most popular type of scam. “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. “Many times, the client will 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.
The only catch is that the money you borrow must be in your bank account for at least 90 days, according to Canadian money laundering laws. “Some will wait 90 days to then go to another bank, but in the end they will be knocked out,” 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 is a gift from the family, the bank requires an official letter,” he explains.
Serious fraud
Marie is a mortgage broker and is experiencing a lot of things these days. “I was dealing with a homeowner who wanted to evict the tenant who had been renting for 15 years so he could sell his house and collect the capital gains. Because the buyers didn’t have enough money for the down payment, he advanced a $60,000 advance to the buyers himself so they could qualify and buy his house.
Even if lying about income can go unpunished under the law, it is currently real fraud, emphasizes Stéphane Bruyère. “There are older people who are being granted debt restructuring without their knowledge. For me this is real fraud. For example, people in Toronto moved to Florida last year. And when they got home, there were other people in the house,” he said.
The people at home are not to blame, he emphasizes. They just thought they were buying a house. “When people leave, sometimes their identity is stolen. The criminals then make a transaction and sell their house. This happens a lot in Canada, especially in Vancouver, because real estate prices are so high. “The higher the prices, the more it attracts fraudsters of the worst kind,” he says.
According to Equifax, what is mortgage fraud?
According to Equifax, fake financial fraud remains the biggest obstacle to mortgage applications.
Scams typically involve falsifying employment or income information or lying about financial information to increase your chances of getting a mortgage loan.