What is mortgage fraud?

Mortgage fraud is any scheme designed to obtain a mortgage under false pretenses. It can be as simple as falsifying information in a loan application, or more sophisticated involving one or several individuals attempting to defraud a financial institution or innocent parties of money through a mortgage loan.


Not only is the dollar value of these fraudulent activities on the rise, but also the fraudsters themselves are becoming increasingly sophisticated and well organized. Impersonation often occurs when an individual applies directly to a lender, or through a mortgage broker or specialist, for a loan secured by real property where title is held either jointly by husband and wife, or by one of the spouses alone, and the loan application is submitted by one spouse or co-borrower.


In some instances the borrower may arrange to have an impostor appear as the co-borrower/ consenting spouse in order to have the mortgage executed. Often these impostors are business associates, organized criminals to whom the borrower owes money or an individual with whom the borrower is involved in a clandestine relationship.


Frequently, these impostors are able to provide some sort of identification that the borrower has managed to obtain from the unsuspecting spouse/co-borrower. Often, in cases of impersonation, lenders and brokers are instructed not to contact the borrower at home, so the risk to the borrowers of the innocent spouse learning of the mortgage before it has been funded are minimized.


The mortgage is signed by the borrower or the impostor, the funds are advanced and it may be several months before the innocent spouse or person becomes aware of the mortgage to which they did not consent or agree.


A far more sophisticated type of mortgage fraud involves identity theft. The fraudster targets an individual who owns real property of significant value, either free and clear of mortgages or with minimal secured debt. Unfortunately, the significant amount of information made readily available by the Internet and the advent of electronic record keeping by registry offices make the process of finding these individuals relatively easy.
The fraudster uses the identity of the intended victim, which purposefully matches that of a lender's ideal client, to apply for a mortgage. Using the victim's credit worthiness and land security to make the transaction enticing to the lender or broker, the fraudster receives loan approval easily.


There are many ways of preventing mortgage fraud. The first is to protect yourself from identity theft. You can also conduct a property search at your provincial land registry office to ensure that the title to your home is in your name.


We recommend clients to purchase Title Insurance to protect your home. Title Insurance can provide valuable protection against losses incurred by lenders as a result of fraud. Such insurance typically covers the following items.

• The cost of defending one's right of ownership, which can cost tens of thousands of dollars;
• The stress and uncertainty surrounding the a resolution of title-related problems;
• The time spent waiting for resolution from the Land Titles Assurance Fund; and
• The loss associated with a fraudulent mortgage that is entitled to remain registered against the true home owner's interest.

Despite this coverage, however, fraud ultimately costs every party to the transaction money whether by way of increased interest costs or administrative fees. As those who are prepared to engage in fraudulent activities become more bold and sophisticated and are linked more often to rings of organized criminals, it is incumbent on the lending community to do everything in its power to address this challenge.