With Fraud Prevention Month approaching, what are the tell-tale signs?
Fraud Prevention Month is fast approaching – and without doubt one of the hottest topics in the Canadian mortgage and real estate industries throughout 2023 has been a rise in efforts to defraud homeowners and lenders, often through impersonating a titleholder.
The numbers are striking: on average, at least one attempt at title fraud has taken place every four days in Canada this year, according to title insurance giant FCT, while a high-profile recent case has seen Toronto police call for help in identifying two individuals who allegedly sold a home using falsified identification.
For mortgage brokers and agents, what are some of the best ways that clients can avoid falling foul of title fraudsters? Unsurprisingly, FCT legal counsel John Tracy (pictured top) said there’s no better approach than having a title insurance policy in place, something that can protect both the buyer and the individual whose property has been fraudulently placed on the market and sold.
“From the point of the view of the person whose property has been stolen – yeah, you’ll probably get the property back, depending on what province you live in, but there are legal fees and costs associated with that,” he told Canadian Mortgage Professional.
Taking the necessary precautions
Another obvious but important approach should be carrying out the necessary measures for identity protection – the “standard” but essential steps, Tracy said.
“Keep a lock on your mailbox, or have your mail put through the door as opposed to in a box,” he advised. “And be careful online. Don’t give away your ID because it doesn’t take a lot for a sophisticated person to create the ID of someone and talk. So I guess there’s prevention and then protection.”
While an individual’s chances of being impacted by title fraud remain low, Tracy said having a title insurance policy in place can provide peace of mind – and also emphasized the assistance title insurers can provide while a deal is currently closing.
“We’ve seen enough of these frauds. We know some of the red flags, so that way we can give assistance to lawyers when they’re acting on a purchase or mortgage and [if] they get a policy from FCT, we’ll underwrite the deal for fraud and if we pick up any red flags, we’ll dig deeper,” he said.
Is mortgage fraud on the rise?
In October, an Equifax Canada report said mortgage and credit card fraud could see a spike as a result of growing financial pressures across the country.
While the rate of mortgage fraud fell by 13.3% in 2022’s second quarter compared with the same time the previous year, it was still up significantly – 29.5% – over pre-pandemic levels.
The credit reporting agency said that misrepresentation of financial data is rife in mortgage fraud cases. Fully 92% of fraud cases in the mortgage space include deliberately falsified financial data, according to Equifax, including fabricated bank statements and income and job information.
Carl Davies, Equifax Canada’s head of fraud and identity, said that with higher interest rates making it more difficult to qualify for a mortgage in many cases, some individuals may be compelled to misrepresent or misstate their financial information.
“There was a huge increase in fraud rates in 2021 with record high mortgage applications coupled with the race to qualify for high loan amounts,” he said. “It’s a slippery slope because homebuyers who are misrepresenting their finances are likely taking on debt they cannot handle, and they are breaking the law by committing mortgage fraud.”
On the best ways for mortgage professionals and their clients to spot and prevent fraud, Davies highlighted the importance of recognizing that criminals normally follow the same behaviours.
“A combination of technology and subject matter expertise is needed to identify and respond to this type of fraud risk,” he said. “Collaboration among all stakeholders is key so we can work together and stay one step ahead of fraudsters.”
Where title fraud is concerned, Tracy said technology is hugely important to fraudsters in facilitating the creation of fake IDs, and also said that AVMs – automated value models – can help criminals avoid detection.
“Having said that, [for] a lot of these frauds, appraisers showed up at the property, took pictures, gave a valuation,” he said, “and that can only be pulled off because there were accomplices posing as tenants.”
What are you keeping top of mind about fraud prevention in the mortgage market and industry ahead of Fraud Prevention Month? Let us know your thoughts in the comments section below.
