What is Mortgage Fraud?
One party deceives another by misrepresenting information, facts, and figures. By manipulating real estate purchase contracts, background information in the mortgage application, and incorrect statements regarding the borrower’s principal residence.
What are Straw Mortgages or Straw Buying?
A Straw Buyer is a person who, typically in return for a cash payment, signs papers to buy a house and obtain a mortgage. The Straw Buyer in fact has no intention of moving into the house or making the mortgage payments. In many cases, straw buying is an illegal activity. Basically, you will be committing mortgage fraud without even knowing it.
Who is a Straw Buyer?
According to Criminal Intelligence Service Canada (CISC), a Straw Buyer is “an individual who pretends to be a legitimate buyer for a property but in reality, is in collusion with another criminally inclined individual to further a mortgage scam.”
Who are preyed on to be Straw Buyers?
This list is not exhaustive and to name some are as follows:
- New immigrants as they are not familiar with the real estate market.
- Distressed property owners.
- Elderly persons.
How does this scheme start?
The mastermind approaches vulnerable individuals and persuades these individuals to take part in a residential home purchase, telling them it would offer them a number of benefits.
The individual would be given payment for lending their name and credit to act as the buyer of the property. Receiving any financial benefit for their participation in any mortgage transaction such as this could lead to mortgage fraud. The mastermind would further assure these individuals that they will make the mortgage payments each month and these individuals would not have to worry. Once the transaction is complete, and after a year or so they would remove the individuals’ name from the mortgage and it would be purchased back from the individual.
What the syndicate or mastermind does is obtain a loan amount on the mortgage which is significantly higher than the value of the actual property. Most of the time, the individual whose name is on the mortgage has not seen the property or made any mortgage payment. The mastermind usually has no intention of repaying the mortgage or keeping title to the property. Most of the time the mortgage would go into default and the individual would be on the hook for the mortgage payment.
In a recent case law, Scotia Mortgage Corporation v Meshkati, 2019 ABQB 267, the individuals were removed from the mortgage before the mortgage went into default but were held responsible for the damages arising from the mortgage fraud.
We strongly advise reading the mortgage documents before signing, failure to read does not remove you from the obligations stated in the contract. If you are unsure of the terms of the contract, obtain independent legal advise. This way you would not be scammed into a mortgage fraud.