Financial institutions warn against mortgage fraud on homes without lien
By a Staff Reporter
Title fraud is on the rise in Canada and there are cases of this across the country. Many don’t know about it, and newcomers, as well, need to be aware. According to industry reports this kind of fraud is more common in larger cities, but is expected to show up more often in Atlantic Canada.
The title of a property is the ownership which is registered by a lawyer or notary in the province’s Land Registration Office. But what a lawyer or lender cannot do is protect homeowners from the possibility that they may later become a victim of real estate title fraud after purchase of the property.
This means that after a homeowner saves and buys a home and starts to build equity, a fraudster can use the equity that has been built in the home in ways that include remortgaging a paid-off home.
Sources at Investors Group—a major financial institution, say this type of fraud occurs when a criminal forges the homeowner’s signature in order to take out a mortgage or loan secured against his home without his knowledge. It can be extremely costly to restore title, as well as damaging to the homeowner’s credit.
“Often victims don’t know the fraud has occurred until payments have been missed,” says Tim Brown a consultant with Investors Group Financial Services Inc.
He says one such instance was a case in Ontario where a home owner was renting their home to an individual who happened to have the same name. “The renter went into a financial institution and secured a new mortgage on the property which was no responsibility of the home owner to pay.
But can this not be challenged in court?
“Of course, you can,” says Brown. “But the home owner who has been duped, is responsible for loan payments and legal fees during the process.”
Whether or not there is a lien against a home is public information, and this is one of the first things fraudsters look for. A home without a lien against it is therefore a much greater target.
“One way to protect the home is to have a home equity line of credit registered against the property, even if it is not needed,” says Kathleen Caught, a mortgage specialist who is also with Investors Group Financial Services.
“No one wants to manipulate a credit line on a client. But it serves as protection against fraud, while it also provides those emergency boost of funds,” she says.
Another way to protect the title of the home is title insurance. Many financial institutions recommend First Canadian Title (FCT), which provides coverage against mortgage fraud and a variety of other risks. That could include the lack of permits on renovations by the previous owner, or encroachment issues.
According to FCT, for properties valued between $200,000 and $500,000, the one-time premium is roughly $250 to $350 for policies that cover the owner and the lender. The premiums vary by province and property type.
But title insurance can also be obtained through a lawyer who may use FCT or a different company.
Caught says that a home equity line of credit from Investors Group Financial Services comes with title insurance for the lender.
There are several forms of mortgage fraud today. The one that is most common is when a con artist convinces someone with good credit to act as a “straw buyer.”
A straw buyer is someone who agrees to put their name on a mortgage application for a home that someone else will be buying. In return, straw buyers may be offered cash or promised high returns when the property is sold.
If protecting the family from this type of fraud is a concern, or the home is free and clear of any liens, it is recommended that the homeowner speaks to a financial advisor or mortgage provider to find out more about this potential risk.