Straw Buyers and Mortgage Fraud

Last week a mortgage fraud scheme was uncovered by the police, allegedly worth $12 million and involved 22 homes right across Calgary and eight banks.

The scheme allegedly involved convincing younger, most likely first time buyers to obtain mortgage in their name in exchange for $3000 to $5000. These people were told that in 6 months, the mortgages would be taken over by the masterminds of the scheme and that they could walk away from the loan. Instead, the alleged fraudsters disappeared with the mortgage funds, and left the paying of the mortgage to the “straw buyers”.

“Straw buyer” is a term that lenders use to describe applicants who are obtaining a mortgage on someone else’s behalf, having no real intention to carry the mortgage themselves. Potentially, straw buyers can be accused of fraud themselves even if naively participating in this kind of a scheme. Many lenders now actually include the question “ Are you obtaining this mortgage on behalf of a third party” right on the mortgage commitment so answering “no” when the answer is actually “yes” would be considered fraud.

So how do you make sure you don’t accidentally don’t end up a “straw buyer”? Here’s a few things to keep in mind:

1) No matter what anyone tells you, there is no instance where it is acceptable to obtain a mortgage in your name, on behalf of someone else. There is no legal investment scheme that any bank in Canada is “OK” with in this regard. Period. Even if Mom and Dad wants to buy a house for say, their University child to live in, this purchase would be considered a “second home” and comes with it’s own special rules. For instance, the child must be able to live their rent free, ensuring that Mom and Dad, the actual applicants, are responsible for the mortgage. Rentals and revenue properties also have their own rules and requirements and are carefully scrutinized by the lenders for fraud.

2) Be transparent with your mortgage broker or banker – the average person is not always fully aware of mortgage rules and regulations and that’s ok because these professionals should be. If you disclose all of the details about what you are planning to your mortgage broker, they can advise you whether it fits within the existing rules, thereby protecting you from inadvertently participating in fraud.

3) Obtaining a mortgage is serious business and comes with a very real responsibility. When signing mortgage documents, you are promising to uphold your end of the loan agreement which is to pay the loan as agreed. If the mortgage is not paid as agreed, the lender will begin foreclosure proceedings, which means you lose your home and your credit will be severely damaged as most foreclosures lead to bankruptcy. No comment has yet been made on what may happen to the straw buyers that participated in the Calgary scheme but chances are the lenders will have little sympathy for them.

If you need any further information about mortgage fraud and how to avoid it, please contact one of our Mortgage Brokers.


As the company’s first employee, Jennifer has been a Licensed Mortgage Associate since 2004, but her current role is not focused on mortgages. She is the resident blog writer and…

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