Buying a home can take years of careful planning and
saving. When the time comes to apply for a mortgage, you should be confident and knowledgeable about your current and future finances, and
understand the risks of getting a mortgage. Interest rate increases and changes to borrowing rules can alter what you can realistically afford, and this can be a tough reality. However, it’s important to still be honest about your financial situation. Knowingly misrepresenting facts on an application, whether with or without the knowledge of your homebuying team, is mortgage fraud. And the consequences may be severe.
Providing accurate information on your mortgage application and using a
licensed mortgage agent or broker can help you avoid being involved in mortgage fraud. But there are some red flags that should alert you that something isn’t right and it’s your responsibility to be aware.
1. Fabricating paperwork
To qualify for a mortgage, you need to provide your mortgage agent or broker, or your lender with documents that verify your employment, your assets and your debts. No matter how small, incorrect information, omissions of information and fabrication of documents are all considered fraud, whether it’s you or your broker/ lender, real estate agent or lawyer that completes the paperwork.
Fraudulent paperwork includes:
- Creating, altering or falsifying paystubs, letters of employment and other documents;
- Giving misleading or inflated information about your income or length of service in your job;
- Misrepresenting your job status: full/part-time, hourly/salaried, commission-based or self-employed;
- Backdating letters of employment;
- Not disclosing all existing debts;
- Misrepresenting or omitting details of the property in order to inflate the property value; and
- Lying about the purpose of the property (e.g. listing it as your primary residence when it’s intended for rental purposes).
Make sure you complete your mortgage application accurately and always fully read any documents over before signing. If there is inaccurate information reflected on a document,
do not sign. If you are unsure, you can seek independent legal advice.
If you’re self-employed, a seasonal or a contract worker without regular pay stubs, provide your Notices of Assessment from the Canada Revenue Agency (CRA). Please note, falsifying a Notice of Assessment is a criminal offence so don’t be tempted to falsify documents.
2. A mortgage that’s too good to be true
If anyone offers you services, or monetary kickbacks, to help you get a mortgage with a specific lender or to save money on your mortgage – even after you were declined elsewhere – be careful. Sometimes deals like this come at the last minute and with interest rates or fees and charges that cost more than any potential savings, leaving you locked into the conditions if you sign. Always
shop around for a mortgage and get a second opinion if you hear an offer that seems too good to be true.
3. Lack of communication
Your home buying team should respond to your emails or calls within a reasonable amount of time.
Typically, you should have everything in place at least two weeks before your closing date. This includes making sure all the lender conditions from the letter of commitment have been cleared by the lender at that time, otherwise expect delays in closing. The lender will advise the broker when they have checked your income, source of downpayment etc., and the broker should confirm with you that no additional documentation, such as a home appraisal, is required.
When you sign a mortgage contract, your agent or broker should continue to liaise between you and the lender, and perhaps between your lawyers and those of the seller. If you don’t hear from them, you should be concerned. If you do not hear from your agent or broker before the closing date, contact the principal broker at the mortgage brokerage and inform them of what’s happening.
4. Lack of disclosures
Licensed mortgage brokerages are required by law to provide you with certain information so that you can make informed decisions. Your mortgage broker or agent must provide written disclosures on behalf of the brokerage about:
- any fees they are charging and estimates of customary and reasonable fees that may be charged by other mortgage professionals, the rate and the term of the mortgage being offered for your consideration;
- the role of the mortgage brokerage and for whom they are acting (the borrower, the lender, or both);
- the relationship of the brokerage with each lender they recommend;
- the material
risks of getting the mortgage;
- any potential conflicts of interest they have in relation to the mortgage;
- whether the mortgage brokerage, broker or agent receives any fees, remuneration or incentives from other individuals or businesses, or whether they pay these to other individuals or business in connection with the mortgage. Brokers also have to disclose who receives or provides these benefits, and how they are calculated;
- whether any fees or other types of remuneration will be received by the mortgage brokerage for referring a borrower, lender or investor to another person or business, and a description of the relationship with the other person or business;
- details of the total cost of borrowing for the term of the mortgage including all fees, at least two business days before you make a mortgage payment, or enter into the mortgage agreement.
Disclosures must not contain misrepresentations, false, or misleading statements. They must be clear, logical and understandable by you, the consumer. If you are not provided with these disclosures up front, there may be fraudulent activity going on without your knowledge. If your mortgage agent or broker cannot or does not provide you with these written disclosures, you should report it to the mortgage brokerage.
To get a better idea of what to expect when working with a mortgage broker/agent, read
Using a Mortgage Broker When You Buy Your Home.
5. No lender commitment letter with conditions
Once a lender agrees in principal to advance the loan, your mortgage broker or agent will discuss their offer with you. You must receive an official Mortgage Approval or “Letter of Commitment” that is stamped by the lender, not the broker, within a reasonable time after you have applied for the mortgage. The letter will likely have conditions you must meet before getting the loan, such as providing proof of fire insurance or homeowners insurance, specific deadlines for your home appraisal or additional documentation.
If your mortgage brokerage offers private lending they have to follow the same rules as any other lender, and provide additional disclosure to you such as conflict of interest. Make sure your lender is legitimate by doing some online research to confirm they exist and they can lend you money. If you do not receive the Letter of Commitment with all conditions and terms clearly outlined then you do not have a mortgage.
6. Cash fees
Mortgages are NOT a cash business. Any mortgage broker or lender fees and payments are not to be paid in cash to any person directly. These fees are based on written agreements that you sign and accept at the time you accept the lender’s commitment. The fee is collected by your lawyer “in trust”, who then pays the mortgage brokerage or lender. With the exception of appraisal fees that you will pay directly (but not in cash) to the appraisal company on receipt of an invoice, every other fee or payment will go through your lawyer.
7. Upfront payments
You should not be making any up-front payments to your mortgage agent or broker on mortgages under $400,000. However, over this amount mortgage brokers can ask for an up-front fee as a retainer to start working, especially in cases of large mortgages. This fee should not be cash and must be paid directly to the mortgage brokerage, not to the mortgage agent or broker.
8. Verbal mortgage applications
Mortgages are also NOT a verbal, shake-hands-on-it transaction. The information you provide to a mortgage agent, broker or lender and they provide to you should be in writing. If you agree to a verbal deal with your mortgage agent or broker and don’t receive a signed pre-approval or letter of commitment in writing from the lender, ask the mortgage broker to give you the copy of the document issued by the lender. Do not feel confident you have funding until you receive an official document.
Always ask for and keep copies so you have proof of what you promised and what was promised to you, and if they aren’t immediately forthcoming contact the brokerage.
9. Not receiving documents
Make sure you are presented with your own copy, on the spot, of any document you are given to sign. If not, refuse to sign.
10. Pressure to sign a contract and waiving the ‘cooling off period’
A mortgage agent or broker should not pressure you into a mortgage that doesn’t fit your needs. They should work with you to find a product that meets your requirements and that you can afford.
Before you sign the mortgage contract, your mortgage brokerage must give you a mandatory 48-hour cooling off period – time for you to think it over – regardless of who the lender is. You may also chose to waive the 48-hour cooling off period with your mortgage brokerage should you choose, such as in cases of rush closing where funds are required within two weeks.
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If you misrepresent information on your mortgage application, or allow someone else to falsify documents in your name, you are committing mortgage fraud and the consequences can be severe.
If the mortgage fraud is identified before your closing date the lender could cancel the loan (leaving you with no funds to buy the property), in which case the seller could sue you and/or you could lose your deposit. And you could be left without a roof over your head if you’ve already given up your rental, or sold your previous home.
If the mortgage fraud is found after the sale closes and you have moved into the home of your dreams, the least of your worries is the damage to your credit score, which would make it more difficult to get approved for a mortgage in the future. More significantly, the lender has the right to “call in” the mortgage, making the full amount immediately payable. If you are not able to pay the full amount you risk losing the house as a result of power of sale or foreclosure. Additionally, you may face criminal charges.
And if your current employer learns that you falsified their information, you could be suspended, fired or sued.
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- Read through any document before signing it, ask questions, and ask for a copy of all documents signed on the spot. Do not leave their office without receiving signed copies.
- Ensure you have your own independent legal representation review the mortgage transaction separate and apart from the lender. If the lawyer represents both the lender and the borrower it could be a conflict of interest. Ask your lawyer to review your documents to ensure you understand the details.
- Mortgage brokers and agents in Ontario must be licensed by FSCO to carry out mortgage activities for a licensed mortgage brokerage. Make sure your mortgage agent, broker or brokerage is
licensed by FSCO.
- Check if a mortgage agent, broker or brokerage has any
enforcement actions taken against them. Enforcement actions, like having a license suspension, or the imposition of a fine (Administrative Monetary Penalty), may indicate issues in regards to compliance with legislation that was remediated through these sanctions. If a mortgage agent, broker or brokerage has had an enforcement action taken against them, you should ask what it was for and how they fixed it.
- Help others be able to identify potential mortgage fraud by warning them of the red flags in this article.
Learn how to report possible mortgage fraud.
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