All About Mortgage Fraudm

Mortgage fraud is a criminal offense. There are many types of mortgage fraud. It’s estimated that mortgage fraud represents more than $300 million in unscrupulous transactions annually. Here are some examples of mortgage fraud:

Identity Fraud. This type of mortgage fraud happens when an individual steals the identity of another person to obtain a mortgage loan. The person whose identity is stolen can be someone close to the person committing the fraud, or a total stranger. Once the mortgage is approved based on the identity and documents of the victim, the fraudster who obtains the mortgage disappears without making any payments on the mortgage. This type of fraud is discovered only after the fact and only when the victim is pursued by the lender for defaulting on mortgage payments.

Falsification of Loan Documents. This fraud happens when the application papers submitted for a mortgage loan are falsified. Sometimes, lenders can also get involved in falsifying loan documents.

Occupancy Fraud. This is a case where a borrower applies for a mortgage to purchase a property which he or she claims will be his principal residence. Normally banks charge lower interest rates and can approve larger mortgage amounts for owner-lived properties. Investment properties typically get charged a higher mortgage rate.

Failure to Disclose Liabilities Fraud. Before lenders approve a mortgage loan, they usually look at a borrower’s debt-to-income ratio. If they think that a mortgage would constitute a major hardship in terms of a borrower’s capacity to pay, the mortgage loan may not be approved. To circumvent this, fraudulent borrowers fail to disclose all of their debts, making their financial situation look healthier and more in line with the lender’s criteria.

Income Fraud. Income fraud is a core reason for the “mortgage meltdown” in the United States, where people misrepresented their income. Some industry experts called these cases the “liar loans” because borrowers deliberately lied about their income just to get approved. They would support it with falsified tax returns or employment slips, which showed their income to be higher in order to qualify.

If you believe you’ve been a victim of mortgage fraud, contact he police immediately and find out what recourse is available to you. Banks and notaries/lawyers have their own ways of checking for real estate fraud (false titles, undisclosed liens on the property, etc), but you can get that extra layer of protection by double-checking any information that’s presented to you.

If you’re thinking of a piece of property and you’re not sure about title to that property, you may want to consider title insurance. Many Canadian companies offer title insurance protection, one of which is First Canadian Title, possibly the largest in the industry. Title insurance will protect you against a fraudulent transfer of title.

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ABOUT THE AUTHOR:

Zack Ashan -- a.k.a. "The Mortgage Guru" -- is a licensed Mortgage Broker based in the Greater Toronto Area. Zack's personal mission is to help as many people as possible WIN the mortgage game, by providing them with clear, honest and valuable advice. Learn more about Zack and pick up his groundbreaking book "The Insider's Guide to WINNING the Mortgage Game" at http://www.mortgage-guru.ca.