Mortgage Fraud - How to Protect Yourself When Buying or Refinancing a Home

Mortgage Fraud: How to Protect Yourself when Buying or Refinancing a Home

The promise of a quick profit in real estate can be hard to resist, but consumers who misrepresent information when buying or refinancing a home could end up being responsible for any shortfall when the property is sold. If the misrepresentation is intentional, they could also be held criminally responsible as accomplices to mortgage fraud.

The most common form of mortgage fraud, called “straw buying”, occurs when someone with good credit is convinced to put their name on a mortgage application for a home that someone else will be buying, usually in return for the promise of a quick profit. To protect your name, your credit, and your family, Canada Mortgage and Housing Corporation (CMHC) offers the following tips on how to avoid becoming part of a mortgage fraud scheme:

Never Sign on Behalf of Someone Else

Never add your name to a mortgage unless you plan to actually buy the property. Even if you weren’t aware of the other party’s intentions, you could be held responsible for the mortgage even after the property is sold.

Always Know who you are Doing Business with

If you are buying or selling a home, use only licensed real estate agents and other industry professionals. And never sign anything until you know exactly what you are signing.

Know the Sales History & Get a Property Inspector

Determine the sales history of any property you are thinking about buying and consider having it inspected and appraised. Ask for a copy of the land title search, and find out if anyone else has a financial interest in the home. If a deposit is required, ensure funds are held “in trust” by the seller’s realty company or lawyer.

Get Independent Legal Advice

Seek professional advice from your own lawyer and ask her about title insurance and other ways to protect your investment.

Hold onto your Personal Information Until you Know More

Avoid identity theft by never giving out your personal information until you know who you are dealing with and how they plan to use your information.Ensure you review your mail, bank statements, and other financial statements regularly so that you can catch any inconsistencies. Shred all paper containing your personal information before you throw it away, and inspect your credit report on a regular basis by contacting Equifax Canada or TransUnion Canada.

Be Wary of Con Artists & “Get Rich Quick” Offers

Most importantly, be suspicious of people who approach you with offers that sound too good to be true. They probably are.

Finally, the CMHC recommends:

“If you suspect that you or someone you know has been the victim of real estate fraud, contact your local police department immediately.”

Editor’s Note: Originally published March 10, 2012, this post was updated and revised March 5, 2015.