Real estate fraud has left many devastated in their financial positions. In recent years, the real estate market has been on the rise in Canada. Specifically in Ontario, this leaves real estate owners at risk if they can’t identify potential fraud signs. As a real estate law firm, we must protect our clients from fraudsters looking to take advantage of their financial investments. Whether it’s purchasing residential or commercial properties, we’re here to examine the different types of fraud in real estate transactions. We’ll provide you with insights to identify when it’s happening to you and 5 tips to avoid fraud in real estate.
How does Fraud Impact the Real Estate Industry?
Fraud is the deliberative misrepresentation and deception of individuals or systems. The banking, financial, and housing sectors have seen a trend in deliberate misrepresentations by purchasers and real estate professionals to secure funds for real estate transactions. It’s important to highlight the recent trends of the real estate industry as it has been heightened in recent years by soaring prices, stagnant incomes, and fierce competition between real estate agents, mortgage brokers, lenders, and purchasers, leading to an increase in the variants of frauds that impact the real estate industry.
Any individual within the real estate industry can be deliberately or unintentionally involved in fraud, whether it’s the purchaser, vendor, real estate agent, mortgage broker, real estate lawyer, lenders, or insurers. It’s essential to identify common red flags that indicate fraud is occurring.
Types of Real Estate Fraud
There can be more than one type of fraud that might be present during the transaction. This blog doesn’t identify all kinds of frauds; however, we’ll highlight the most common types of frauds, including i) fraud for profit and ii) fraud for shelter. Simply put, fraud for profit occurs to make a fraudulent profit, while fraud for shelter occurs to obtain a mortgage to secure a home.
Fraud for Profit Scenarios
Flip transactions – Abby and Ben are friends working with Carl, a mortgage officer at a local bank. Abby purchases a property and resells (flips) it to Ben before closing. Ben works with Carl to defraud the bank, and they find a lawyer who is duped into carrying out the transaction.
Identity Fraud – Abby is a fraudster that targets Ben, a retired Canadian who spends most of their time travelling outside of Canada. Abby steals Ben’s identity and applies for mortgage financing on Ben’s home with forged documentation and financial information. The bank or the lender approves the funding, and Abby finds a lawyer who carries out the transaction.
Power of Attorney – Abby and Ben are married. Abby is the titled spouse on the matrimonial property, and Ben is the non-titled spouse. They’ve been separated from their marriage. Abby, the titled spouse, sells the matrimonial home by using the forged documentation acting as Ben’s power of attorney. Abby uses the document to sell the matrimonial property without Ben’s consent.
Fraud for Shelter Scenario
In this example, John hopes to purchase an expensive home that is out of his budget. John as a borrower seeks the assistance of Stacy, a mortgage agent who helps him misrepresents or withhold relevant details about his employment, income, debt, and credit or the property value to get his mortgage loan approved. Although John intends to repay the loan as a borrower, his goals are constrained by the hefty mortgage payments that John can’t afford. John misses three payments, the bank files for the power of sale, and John loses his home.
5 Tips for Real Estate Professionals
Being aware of the red flags, conducting proper due diligence, and making inquiries can help real estate professionals identify when fraudsters are deceiving them. The following tips can help you from becoming duped or bamboozled:
- Compliance – Comply with the applicable rules, regulations, procedures, and routines mandated by your professional body. Following the correct routine can help you identify when a real estate transaction may be occurring.
- Familiarity – Familiarize yourself with the different types of methods used by fraudsters.
- Pressure – Avoid pressures by clients who demand you to complete transactions that don’t follow a standard routine.
- Greed – Avoid retaining clients who offer you “additional fees” to complete their transactions without proper due diligence.
- Due Diligence – Implement procedures within your work practices and create internal mechanisms in handling all types of real estate transactions.
There’s a chance that you may encounter fraudulent activities at some point in your personal life or in your career. Fraudsters are sophisticated and know how to take advantage of different types of professionals and people. Becoming aware of the red flags and the types of frauds that occur can help you avoid being a target.
About TR Law Firm
If you need any real estate legal consultation, TR Law Firm helps clients prepare all documents and complete necessary steps to ensure a smooth real estate experience. Please contact us to set a virtual chat with our experienced lawyers or feel free to call us at (905) 463-2088 or email at info@pmlawyers.ca.
