When it comes to maintaining your home, sometimes unexpected events occur, such as job loss or illness, where the bills start piling up, and you can no longer meet the minimum payments. In this case, you might be able to refinance your home and pay them off.

The advantage of refinancing your home is to decrease your monthly fees. However, you should play it safe because, in the process of trying to refinance your home, you might get scammed with mortgage fraud.

Mortgage fraud works in two ways, and both are unlawful. First, mortgage fraud occurs when an individual purposefully gives false information on a mortgage application. This could be lying and forging official documents about income, other debts, and employment.

On the other end, mortgage fraud can take the form of a con artist representing themselves as a real estate agent to defraud someone with good credit into placing their information on the mortgage application. The gain for them is for that person to buy their house and leave the victim out in the cold. In return, the mortgage fraud con artist agrees to pay a fee but disengages once they get approved.

Since mortgage fraudsters are always evolving with their schemes, for the purpose of this article, we are going to highlight 4 common mortgage fraud schemes that you should spot so you don’t become a victim.

1. Straw buyer scam

A straw buyer is when a person agrees to purchase a home and add-ons like cars and boats. The victim is then promised by the scammer that they will make future payments, or once the house is purchased by the straw buyer, it’s suddenly flipped at high prices after the value of the house has inflated.

2. Appraisal fraud

Next to the straw buyer scam, appraisal fraud is on the rise. This scam occurs when an appraiser, which is usually when the buyer or seller deliberately inflates or deflates the value of the house, so it dives drastically from market value. The overestimated value is then taken and passed to a homeowner to get refinancing or a home equity loan.

Appraisal fraud doesn’t come from one person. It usually comes from a group that includes a real estate agent, builder, appraiser, and loan officer conning buyers to maximize a purchase price and loan amount in order to boost their monetary gain.

3. Air loans

The term “air loan” sounds exactly like what it says: it’s a loan on air. The loan doesn’t exist. Similar to appraisal fraudsters, the group will usually consist of a real estate agent, builders, appraisers, and loan officers working together by creating a fake borrower to obtain a title and property insurance binder.

Moreover, this group will go to great lengths to prove that they are legitimate by setting up phone numbers and mailing addresses to make it look like they are a verified company. The air loan is especially concerning as once victims pay the amount to the fraudsters, they disappear, and the buyer is out of money and hasn’t purchased a legitimate property.

If you suspect you are the target of an air loan or mortgage fraud, report the activity to your local police department. We encourage you to report it as there could be more victims of mortgage fraud in other provinces. You can also contact the Canadian Anti-Fraud Centre.

4. Illegal home flipping

With the popularity of home flipping TV shows, mortgage fraudsters are starting to flip houses with cash-out purchases illegally. It starts when the scam artist poses as a buyer and bids a significantly higher offer than the seller is asking for. The offer usually includes a stipulation that the leftover amount will be paid out to the buyer. For example, the seller lists the home for $250,000. The buyer/scammer offers $299,000. At closing, the stipulation states the seller will get the asking price of $250,000, and the additional $49,000 will be given to the buyer. Commonly, illegal flipping is used in the form of early payment defaults and at foreclosure.

Northwood Mortgage

At Northwood Mortgage, we have an expert staff of mortgage agents specializing in mortgage refinancing and renewing services in Toronto, Mississauga, Scarborough, and the GTA. We take the time to assess your mortgage situation and cater to our renewing services to accommodate all clients.

If you would like more information on mortgage refinancing and renewing in Toronto and the GTA, we invite you to book a FREE consultation with one of our Northwood Mortgage agents by calling 416-969-8130 ext. 111, toll-free at 888-492-3690, or contact us here. Once we receive your request, one of our mortgage agents will contact you within 2-3 business days to arrange a consultation.