Real Estate Fraud: What It Is and How to Avoid Becoming a Victim

With real estate often being the most significant investment for Canadians, understanding how to protect oneself from real estate fraud is crucial.

Real estate fraud in Ontario involves various schemes designed to deceive property owners, buyers, or lenders, leading to severe financial losses and legal battles. Fraudsters exploit loopholes in:

Identity verification
Title registration, or
Mortgage lending to manipulate property transactions.

The consequences can be devastating, often leaving victims without their homes or facing fraudulent debts.

This post aims to educate readers on the nature of real estate fraud in Toronto and provide actionable steps to avoid becoming a victim. For detailed legal support and advice on real estate law Ontario or fraud prevention, consult a professional real estate lawyer in Ontario.

Types of Real Estate Fraud in Canada

Real estate fraud in Canada comes in several forms, each with distinct risks and implications. Understanding these types is crucial for homeowners, buyers, and professionals involved in property transactions.

1. Title Fraud

Title fraud occurs when fraudsters impersonate the property owner using forged identification. They either sell the property or secure a new mortgage, pocketing the money. Vacant properties, mortgage-free homes, and vulnerable individuals are the most common targets.

Losses from title fraud have exceeded an estimated $100 million over the past three years. Legal professionals play a critical role in identifying red flags and preventing these crimes during real estate transactions. Identity verification remains a vital component in combating this form of fraud, as advancements in technology have made fake IDs and identity theft increasingly convincing.

2. Mortgage Fraud

Mortgage fraud involves providing false information to obtain mortgage financing that would otherwise be denied. This could include misstating employment details, inflating income, misrepresenting the down payment source, or adding “straw buyers” to the mortgage application.

Some fraudsters may even falsify documents to inflate the property value. Borrowers who engage in this activity can face severe legal consequences and remain liable for any financial losses resulting from the fraud.

3. Foreclosure Fraud

Foreclosure fraud typically preys on homeowners struggling with mortgage payments. Fraudsters promise financial help or loans in exchange for property rights, often leading to the homeowner unknowingly transferring the title.

The fraudster then retains any payments made and sells or refinances the house for their gain.

4. Value Fraud

Value fraud occurs when fraudsters inflate the property’s value to deceive lenders into granting a larger mortgage than what the property is worth. This often involves using false appraisals or falsified documents to secure more financing. This type of fraud not only results in financial losses for lenders but also affects the integrity of the real estate market.

Red Flags in Real Estate Transactions

Identifying red flags during real estate transactions can protect buyers and sellers from fraud. Here are key warning signs to watch for:

Unusual Payment Methods: Insistence on cash payments, or unusual forms of payment, is a red flag. Legitimate transactions usually involve banks or certified funds.
Rushed Transactions: Fraudsters often create a sense of urgency. If there is pressure to close quickly or skip standard checks, proceed with caution. Always take time to review all documents thoroughly.
Unclear Ownership History: Inconsistent or missing ownership records can indicate title fraud. Verify ownership history with the land registry office to ensure no false claims exist on the property.
Property Value Discrepancies: If the property’s asking price seems too good to be true, it might be. Cross-reference the property’s value with local market prices to confirm its legitimacy.
Pressure to Skip Due Diligence: Be wary if someone urges you to skip appraisals, inspections, or legal reviews. These checks are crucial in identifying potential issues and fraud.
Identity Verification Issues: Refusal to provide identification or offer suspicious identification is a strong red flag. Always verify the identities of all parties involved in the transaction.
Unusual Contract Terms: Contracts with complex, unclear, or overly complicated terms can hide fraudulent intentions. Review all terms carefully and consult a legal professional for advice.
Third-Party Involvement: Be cautious if third-party involvement in the transaction seems unnecessary or is not clearly explained. Fraudsters sometimes introduce “straw buyers” or other intermediaries to facilitate scams.
Undisclosed Liens or Debts: Any reluctance to disclose outstanding liens or debts on the property signals potential issues. Obtain a title search to uncover undisclosed financial claims.

Read Also: What is Alternative Dispute Resolution?

The Role of Due Diligence in Preventing Property or Real Estate Fraud

Due diligence serves as the first line of defense against real estate fraud that may result in financial loss. It involves thorough verification and checks during every stage of a transaction to detect potential red flags and assist clients in safeguarding their investments.

This process also ensures that no one fraudulently attempts to steal someone’s property or commit other fraudulent activities related to mortgage and real estate.

Verification of Identification

Lenders and mortgage brokers should meet with borrowers in person and request two forms of original identification, one being a government-issued photo ID. This step is crucial, as most real estate fraud starts with identity theft.

Professionals must comply with strict guidelines to ensure identification documents are valid and the right to deal with the property is genuine. Examine these documents for any irregularities, as fraudsters may transfer titles or discharge mortgages without the owner’s knowledge.

If anything appears suspicious, do not proceed with the transaction. Using credit reporting agencies and employer references helps validate the borrower’s information and may find inconsistencies.

Confirm Ownership

Before completing a purchase and sale or mortgage transaction, it is vital to verify that the registered owner is genuinely selling or mortgaging the property. Conduct on-site visits or arrange for an appraisal to confirm the value of the property.

Fraudsters often use fake documents or impersonate the real owners to misappropriate properties, especially if they are vacant or mortgage-free. Your lawyer can assist with inquiries regarding the property title to ensure the market value matches the purchase price.

Lawyer Involvement

Lawyers play a critical role in real estate transactions. They must follow best practices and exercise caution when dealing with transfers of title or mortgages. Consult your real estate lawyer in Toronto to ensure all documents are authentic and comply with ethical obligations.

Reviewing documents and confirming their authenticity with the proper authorities is crucial to avoid falling prey to fraudulent schemes. A lawyer can also assist clients by advising on their right to deal with a property jointly or on behalf of a corporation.

Checking for Red Flags

Always be on the lookout for signs such as rushed transactions, pressure to skip certain verification steps, or inconsistencies in documentation. Fraudsters may use unusual payment methods or request the consent of the mortgagee to bypass standard procedures.

Additionally, undisclosed liens can indicate potential title fraud and foreclosure fraud. Real estate professionals, including lawyers and brokers, need to work together to ensure every transaction has checks and balances to protect yourself from mortgage fraud and other fraudulent activities.

Steps to Protect Yourself from Real Estate Fraud

Real estate fraud that may result in financial loss can be devastating, but taking proactive steps can minimize risks. Here’s how to protect yourself from mortgage and real estate fraud:

Verify All Parties

Always deal with licensed or accredited professionals. Check the credentials of real estate agents, mortgage brokers, and lawyers involved in the transaction. Trust only reputable individuals and avoid unsolicited offers of “easy money” in real estate.

Check Identification

Lenders and brokers should meet with borrowers in person and verify their identity using government-issued photo IDs. Keep a copy of the documents and check for inconsistencies. Confirm the registered owner is actually selling or mortgaging the property, which includes performing an on-site visit or appraisal. This verification protects against someone fraudulently claiming the right to deal with the property.

Review Documents Thoroughly

Never sign documents without reading and understanding them. Seek independent legal advice if anything seems unclear. Consult your lawyer to check for outstanding liens, financial interests, or any claims on the property.

Lawyers can assist in ensuring that the property title is clear and all transactions adhere to the profession’s ethical obligations.

Title Insurance

Consider purchasing title insurance. This protects you from losses arising from title fraud, errors in public records, or undisclosed liens.

Perform Due Diligence

Check the property’s sales history with the local land titles office. Conduct inspections and appraisals through accredited professionals to ensure the property’s details are accurate and reflect its market value. Engaging experts can help ensure the purchase price aligns with the value of the property.

Secure Personal Information

Be cautious about sharing personal information, especially banking or credit details. Review bank and financial statements regularly for inconsistencies. Avoid responding to unsolicited requests for sensitive information through phone calls, emails, or other communication channels.

What to Do If You’re a Victim of Real Estate Fraud

Real estate fraud can feel overwhelming. But taking the right steps can protect your rights and increase your chances of recovery.

Here’s what you should do:

Stay Calm and Gather Evidence

Don’t rush into any decisions.
Gather every document related to the transaction: contracts, receipts, emails, and any other communication.
Take notes on any verbal agreements and interactions.

Notify Authorities

Report the fraud to your local police. File a detailed report with all supporting documents.
Contact the FBI if the fraud involves interstate dealings or a large sum of money.
Report the incident to the Canadian Anti-Fraud Centre and the Financial Consumer Agency of Canada.

Reach Out to Legal Professionals

Consult with a real estate attorney in Ontario. They can guide you on the best legal actions.
Consider filing a civil lawsuit to recover losses or seek other compensation.

Alert Financial Institutions

Contact your bank or mortgage lender immediately.
Freeze any accounts involved in the fraudulent transaction to prevent further losses.
If you transferred money, ask your bank about the possibility of reversing the transaction.

Protect Your Personal Information

Change your passwords for email and financial accounts.
Monitor your credit report for any unusual activity.
Consider placing a fraud alert or freeze on your credit to prevent new accounts from being opened.

Educate Yourself

Learn about common real estate scams to avoid becoming a victim again.
Stay informed about your rights and the laws that protect real estate buyers.

Quick Action When You Become a Victim of Real Estate Fraud

Gather all evidence.
Report the fraud to the police and federal agencies.
Contact a real estate attorney.
Contact the Land Titles Office.
Notify your insurance provider
Alert your bank and financial institutions.
File complaints with real estate regulators.
Secure your personal information.

Conclusion

Real estate fraud poses a serious threat to homeowners and buyers in Canada. Being vigilant and informed during real estate transactions is crucial to protecting your assets. Simple steps like verifying identities, reviewing documents, and recognizing red flags can help prevent fraud.

If you suspect fraud or need legal assistance, consulting professionals is essential. Cowan & Carter Law Firm offers expert legal guidance in real estate and civil law services. Our expertise can help you navigate complex legal issues and protect your property rights effectively. Contact us today to discuss your issue.

DISCLAIMER: Please note this article is not legal advice. You should always consult a lawyer for legal advice regarding your particular situation. The article is not necessarily a complete and/or accurate explanation of the law – it is an article of a general nature.

Published on October 18, 2024