Real Estate Developers Found Guilty in Fraud Scheme

It is always sad to hear news concerning colleagues in the real estate and financial industry being active participants or perpetrators in fraud schemes that contribute to negative impacts on the industry as a whole. In mortgage transactions especially, there are often many parties to the transaction:

·        Real estate agents, brokers and/or developers

• Mortgage agents and brokers
• Appraisers
• Property inspectors and more…

These are all professionals apart from you, the lender, who participate throughout the process – and bad conduct on the part of one could result in a massive financial loss to all. Part of the issue is education because sometimes professionals make adjustments to deals to make them more favourable – not because they are intending to commit fraud but because they are trying to sell you on their deal and they may see filling small shortfalls as innocent or in the grey.

Then, there are instances of blatant fraud schemes that create concern for all. Take, for example, this recent article from Mortgage Broker News which discusses the recent conviction of two real estate developers whose property fraud scheme saw investors lose an average of $50,000 to $100,000 each: http://www.mortgagebrokernews.ca/news/real-estate-developers-found-guilty-in-fraud-scheme-188687.aspx.

This scheme appears to have been fraud by title. A recent Vancouver Sun article indicated that these real estate developers promised security on loans by investors when it turned out that they never owned the property they pledged as security to begin with.

In total, millions of dollars were stolen and the real estate developers were ordered to pay hundreds of thousands of dollars in fines in addition to repaying the fraudulent money owed.

Fines are great, but they don’t really satisfy when these individuals have nothing. You can’t enforce on nothing so even if someone commits fraud against you and you receive an award from the court or government it doesn’t mean that you will ever see that lost money. Many instances of mortgage and title fraud are not even thoroughly investigated by police even if it is fraud involving money and property.

The best way to prevent fraud is to identify it before you fund a deal. In the above mentioned instance, preventing said fraud could have been as simple as investors or the brokers who represented them taking the 5 minute step of verifying who was on title to the property.

Shoulda, woulda, coulda, right? When these things happen the only thing the industry can do is learn from them and improve.

For more about the tools that make identifying fraud that much easier, please call Purview For Lenders today at 1.855.787.8439.

Spotting Identify Theft Combats Fraudulent Mortgages

Identity theft - a crime often attributed to title fraud - is something that Canadian lenders continue to struggle with. While stats on Identity theft in Canada are scant, this infographic includes some startling statistics with respect to our counterparts south of the border that are worth sharing with your team.

Why is this important? Educating your team about the cost and importance of identity theft is step one towards creating awareness to prevent fraudulent property transfers and mortgages. Your underwriters are your front line and the ambassadors that you rely on to protect your interests. Grasping the reality of the challenges that identity theft presents to the entire financial industry impassions many to want to work harder to combat it.

Here are some tips that you can deploy to identify potential identity theft:

·        Check all documents against one another.

·        Independently verify who is on title to the property and the transaction history on the property.

·        Conduct a skype interview to see the person face-to-face and compare against their identification.

·        Look for discrepancies or flags being reported on the credit report.

Identity theft can cause a ton of problems when it comes to lending, but a few simple steps can significantly reduce your risk and help you identify many fraudulent behaviours.

For more about preventing identity theft, or the tools to help you verify information, please contact Purview For Lenders today by calling 1.855.787.8439.

Stopping Valuation Fraud and the Human Element

In the spirit of fraud prevention, this month we draw attention to fraud awareness. The only way to prevent mortgage fraud is to first become aware that it is occurring. There are many different types of mortgage fraud, some that involve the borrower/buyer and some that involve the representation of the property itself.

A very common type of mortgage fraud that involves a property is property valuation fraud. This relates to the misrepresentation of a property’s value that bodes to the root of your security.

Because appraisals are delivered as a report prepared by an individual, after the appraisal is completed it may pass through the hands of the client and mortgage agent or broker. After an appraisal has been completed, in many instances the appraiser will send the appraisal to the broker and in turn to you.

Also, let’s remember that appraisers not only depend on lenders and being on a lender’s list to get business, they also depend on mortgage brokers and agents to select them from the list. So, while their customer may be you, the lender, not keeping mortgage agents and brokers happy means that they may not be selected on your behalf. This can create an environment where even an appraiser can look for ways to beef up a property’s value by a few thousand to save a broker or agent’s deal.

Anytime a human is involved in anything – even if they are an accredited professional – there is a potential for fraud.

This is why if you are going to order an appraisal, coupling it with an automated valuation model (AVM) is the most prudent way that you can avoid valuation fraud.

Also, make sure to ask for the original appraisal to be delivered directly to you by the appraiser – this way any discrepancies can be attributed directly to the appraiser.

Closely review all of the data in the appraisal and pay attention for fields that are blank or that may even appear to have been whited out.

Validate the sales comparables used in the appraisal yourself. This simple step can quickly identify alterations that may have been made to sales comparables. Also, validate the subject property characteristics against what is being generated in the AVM.

Since an automated valuation model is not human, thereby without the emotion or motivation to see your deal happen, an AVM should always be your first line of defense against property valuation fraud.

For more about the benefits of adding an AVM when attempting to avoid or identify property valuation fraud, please contact Purview For Lenders today by calling 1.855.787.8439. 

Everything You Need to Know About Straw Buyers and Straw Mortgages

Fraud! If you lend money on mortgages that is a very scary word. With a client who simply can’t make their mortgage payment and defaults, at least you have some remedies to pursue your money. However, when a fraud takes place, depending on the type of fraud, your borrower may not be real at all.

In the spirit of Fraud Awareness Month we dedicate this blog to fraud involving straw mortgages. Knowing how to identify one is your first step to gaining the awareness needed to prevent this type of fraud.

A straw buyer is someone who is making a purchase on behalf of another person. This generally occurs because the person who wanted to buy the home could not qualify for the financing even with a co-signer. Is it illegal to take out a mortgage for someone else, no? Straw buyers are sometimes used to hide crime and a straw buyer may be paid on behalf of a criminal and paid to take out the mortgage because the purpose of the purchase may be to launder money or purchase goods for someone who cannot legally make the purchase on their own.

Straw buyers are often used by criminals in large purchase transactions. The real buyer will always promise to make the payments – but what happens if they don’t?

One Calgary man found out the hard way. As reported by the CBC, he is amongst hundreds of other Albertans being sued by the Bank of Montreal in an alleged mortgage fraud scheme. The mortgage fraud amounted to a total of almost $30 million according to the CBC article and many of the straw buyers were new immigrants to Canada who were compensated up to $8000 per deal to allow their name to be used in the alleged fraud transactions http://www.cbc.ca/news/canada/calgary/straw-buyer-seduced-into-mortgage-scheme-1.952763.

Sussing out a straw borrower means asking more questions and strengthening the nature of your interviews. The first step: ask on application submission if the client is purchasing the home for themselves – and ask the same question a couple of times different ways.

Remember that a straw borrower will be the one who ends up holding the bag for the mortgage - and reminding someone of this can sometimes have a major impact. A declaration is a great way to freak out a straw borrower. Have the borrower sign a mortgage declaration that includes declaring that the purchase is for them and that includes the consequences associated to mortgage fraud/straw mortgages.

Knowing what to look for can significantly reduce the chances of getting stuck with a straw buyer - as can a few simple unassuming questions.

For more about the danger of straw buyers and straw mortgages, as well as a few tools to help avoid them, please contact Purview For Lenders today at 1.855.787.8439.