Owning property for many people is a dream come true. If you have a landed property in Canada or you are planning to have one, then this is probably one of your concerns. Many people are willing to do anything just for financial gain including deceiving people to get property. If you are seeking ways to avoid real estate fraud and ultimately avoid scammers, then this post is for you. In this article, we would be showing you how you can avoid real estate fraud in Canada among other relevant information.
What is Real Estate Fraud?
Although the Canadian government and law enforcement agencies are taking steps to combat real estate fraud, it is a serious issue in Canada, with various fraud cases occurring across the country. Real estate fraud is a type of fraudulent activity that involves deceiving people, companies or organizations involved in real estate transactions, such as buyers, sellers, dealers, lenders, and investors, for financial gain. Real estate fraud comes in different forms and is done by individuals or organized groups. The different types of this fraud would be discussed further in this article.
However, it is expedient for people involved in real estate transactions to be vigilant and to take steps to protect themselves from fraud, such as conducting thorough research, due diligence and working with trusted professionals.
What are the Types of Real Estate Fraud?
As earlier noted, there are different types of real estate fraud and they would be discussed below:
1. Foreclosure Fraud
Usually, foreclosure fraud happens when lenders seize and sell a property due to a borrower’s default on their mortgage payments. Thus, it occurs when a person is having problems paying for a mortgage. Foreclosure fraud can take various forms, but it generally involves fraudulent activities committed by persons or entities involved in the foreclosure process, such as lenders, lawyers, and mortgage brokers. Scammers may try to deceive you so that you can transfer your property title in exchange for getting a loan. Then, they would keep the payments you make and have the title to your home. They may choose to resell or even refinance your house.
Foreclosure fraud may also happen when the lenders falsify information related to your mortgage, such as your payment history or the amount owed, to justify a foreclosure action. Another form is when a lender or someone else takes advantage of a borrower’s financial distress to provide a debt settlement agreement for instance to them that is fraudulently designed to scam the borrower. It may also involve illegal practices by lawyers or other professionals involved in the foreclosure process. For instance, charging excessive fees or using fraudulent documents to support a foreclosure action. Noteworthy, foreclosure fraud is a serious crime in Canada and can cause financial losses for homeowners who are already trying to make ends meet.
2. Title Fraud
Title fraud also known as property title fraud occurs when a fraudster assumes the identity of a property owner and then transfers ownership of the property to themselves or another party without the owner’s knowledge or consent. In Canada, title fraud is relatively common and it involves forging documents or impersonating homeowners to create a fake title transfer document. The scammer will then register this fake document with the land registry office, properly transferring ownership of the property to themselves or another party without the real owner’s knowledge. They may then take out a mortgage on the property or resell it to a buyer who may buy such property in good faith.
The true owner of the property may not realize all these transactions until they receive a foreclosure notice or even a demand for payment on a mortgage they did not take out themselves. Title fraud is usually a devastating experience for property owners, as it can result in the loss of their property and a great financial burden. Title fraud often begins with identity theft, which may happen if someone steals your personal information.
3. Mortgage Fraud
This occurs when a scammer provides dishonest information on a mortgage application in order to obtain a loan. This usually consists of misrepresenting income or assets, not disclosing debts, or offering fake employment or tax records. In other words, this type of real estate fraud happens when an individual or group provides false information on a mortgage application in order to obtain a mortgage loan that they would not otherwise qualify for or to obtain a loan with better benefits. Thus, it may be seen as a shortcut to obtaining a mortgage loan. The types of mortgage fraud include:
- Income Fraud: Income fraud occurs when a borrower provides false details about their income on a mortgage application, either by inflating their income or by providing fake employment or income documents.
- Appraisal fraud: Also known as inflated appraisals, it occurs when a property is overvalued or undervalued on the appraisal in order to manipulate the final purchase price and obtain a larger mortgage loan.
- Property flipping fraud: This occurs when a property is purchased, often below the actual market price, and then quickly resold for profit at an inflated price without any notable improvements or renovations being made.
- Equity skimming: This occurs when an individual obtains a mortgage loan on a property and then fails to make payments, effectively “skimming” the equity from the property and allowing them to profit off the rental income.
- Straw buyer fraud: This involves using a third party, known as a “straw buyer,” to get a mortgage loan on behalf of the actual borrower, usually to hide the true identity of the borrower or to obtain a mortgage with better benefits.
Mortgage fraud is illegal in Canada and can cause serious consequences for those involved, including fines and imprisonment.
4. Investment Fraud
Investment fraud in real estate can have devastating consequences for investors, who may lose all or a significant portion of their investment. It is a crime that involves the misrepresentation or omission of material information in order to mislead or deceive others to invest in a false real estate scheme that is not what it is represented to be. Investment fraud in real estate can take several forms, including:
- Ponzi schemes: These are fraudulent investment schemes in which returns are paid to earlier investors using the capital from new investors, rather than from the profits of the underlying investments. Ponzi schemes always fail and often involve the sale of real estate investments that are promised to yield high returns but may not actually exist. Usually, these scammers run out of money and fail to pay the investors.
- Unsuitable investments: These are investments that the investor should not make, either because they do not have the financial resources to support them or because they do not align with their investment goals or risk tolerance.
- Misleading advertising: Advertising real estate investments using false or deceptive information, such as exaggerating possible returns or downplaying risks, falls under this category.
- Fraudulent investment schemes: These are schemes where high returns on investments are promised to investors, but the returns are not dependent on the performance of the real investment or the investment does not exist.
5. Rental Scams
These scams involve fraudsters posing as landlords and advertising rental properties that do not exist in reality. These fake landlords or property managers may request payment upfront for deposits or rent and then disappear with the money without a trace. Prospective tenants who pay money for a property that does not exist or isn’t accessible for rent may lose money as a result of rental scams. Most times, rental scams often involve the use of online platforms to advertise the fake rental properties. Some forms of rental scams include:
- Unavailable property: In this scheme, the fraudster will falsely promote a rental home as being available for rent. They might assert that the house is already leased out while still requesting a deposit to hold the house for the potential tenant.
- Fake rental listings: The fraudster will fabricate a rental advertisement using real property information and images, but will alter the contact details so that potential tenants will get in touch with the fraudster rather than the legitimate landlord or property owner.
- Subletting scams: In this scheme, the fraudster sublets a rental home that they are also letting out, but instead of paying the original landlord, they keep the rent and security deposits received from the subtenants.
- Identity theft: In this scam, the fraudster will ask potential tenants for personal information and documentation under the pretence that it is required for a credit check or background check, but will later use that information fraudulently.
Who are the Main Targets of Real Estate Fraud?
Basically, anyone buying or selling a home can get defrauded. Thus, real estate fraud can target various individuals and groups involved in real estate transactions. Some of the main targets of real estate fraud are:
- Home buyers: Real estate scams target home buyers. Fraudsters block wire transfers meant for down payments, develop fraudulent or deceptive listings, and trick would-be homeowners into paying deposits on “invisible” listings. Fraudulent sellers or real estate agents who misrepresent the property, its value, or the terms of the sale can target home buyers.
- Real Estate Investors: Various schemes, including Ponzi schemes and false real estate business opportunities, can target real estate investors. Scammers may attempt to convince victims to invest in fake real estate projects or other dubious investment possibilities. They offer low-risk, high returns, but typically fake investments.
- Lenders: Fraudulent loan applications and other scams involving false or deceptive information can be used to target lenders.
- Real estate agents: Identity thieves and con artists who use fake listings or rental properties may target real estate brokers.
- Government agencies: Scams that use false or misleading information in real estate-related filings or data, as well as fraudulent claims for housing-related benefits, can target government organizations.
How to Avoid Real Estate Fraud in Canada
It’s important for all parties involved in real estate transactions to be aware of the various types of fraud that can occur in such transactions and to take steps to protect themselves against these risks. Although real estate fraud can be difficult to detect, here are some tips to help you spot and avoid potential scams and fraudulent activities in Canada:
1. Do your research
Before making any real estate transactions, research the property and the people involved in the transaction such as the seller or agent if applicable. Look up public records and verify the credentials of the real estate agent. Just do a general background check and be sure to ask people questions.
2. Work with a reliable real estate agent
Do not choose a real estate agent or broker casually. Choose someone who is licensed and has a good reputation for making legit deals. Always, verify their credentials with the appropriate regulatory body and check online and offline reviews. One way to spot a real estate scammer is the use of poor grammar or spelling in emails and texts. Small details like this are a pointer to the fact that the “deal” isn’t professional or the scammer is located in another country and doesn’t speak good English.
3. Do not succumb to any pressure
Watch out closely for high-pressure tactics and be careful of anyone who is pressuring you to make a quick decision or sign a contract without giving you time to review it. Never sign a contract in haste as this can cost you in the long run. Scammers usually request money upfront to cover fees or taxes, or to secure a loan or investment opportunity. Don’t fall for their schemes!
4. Verify all information
Verify everything you are told, including the price of the property, the seller’s identity, and any fees or other costs related to the deal. Before signing any contracts or papers, thoroughly go over them. Make sure you are aware of all the conditions, including any fees or costs. To find any potential problems with the property, if at all feasible, hire a qualified home inspector. This can assist you in avoiding purchasing a home with concealed issues that might be expensive to fix.
5. Be cautious of wire transfers
Wire transfers are popular in real estate fraud, so be cautious of any requests for wire transfers, particularly if they come from an unverified source. Also, if an offer appears too good to be true, it possibly is. Be cautious of any deal that promises unusually high returns or guarantees. Sometimes, freebies can cost us a lot in the end. If you are being requested to make payments through CashApp, Venmo, Zelle or other suspicious payment methods you can be sure that it is a fraudulent deal as scammers love these platforms because payments are treated like cash and can’t be reversed easily.
6. Get a lawyer
In most cases, you can’t handle real estate transactions on your own. This is why it is advisable to hire a real estate lawyer or any other professional to help you navigate the transaction and to review all contracts and documents.
Real estate fraud is a common problem that affects property owners in Canada. This article has just shown you ways you can detect these scams and how you can avoid them among other useful information. If you suspect real estate fraud, report it to the appropriate authorities, such as the local law enforcement or the Canadian Anti-Fraud Centre.