FORECLOSURE FRAUD

For most Canadians, owning a home is a lifelong ambition. Unfortunately, opportunistic companies have emerged as a relatively new and dangerous threat to homeowners who have fallen behind on their mortgage payments and may be facing foreclosure. Real-estate scams have become commonplace for desperate homeowners, and the COVID-19 pandemic may exacerbate the situation.

Most banks allow mortgage payments to be deferred or skipped for up to six months. During this time, however, the accrued interest will be added to the principal amount owed, increasing the total cost of borrowing.

Foreclosure fraud is a little more complex than title fraud but just as harmful. This kind of fraud happens when homeowners who are unable to make mortgage payments are tricked by fraudsters into transferring their titles in exchange for a loan. Usually, these loans have unrealistically attractive terms to entice desperate people. Unfortunately, the perpetrators commonly end up withholding payments once the title is signed over, and can then resell or remortgage the property with impunity. As we get closer to the end of mortgage deferral or grace periods, it’s conceivable that businesses and individuals who are still in financial difficulty may fall prey to these too-good-to-be-true scams.

According to the Financial Consumer Agency of Canada, “Foreclosure fraud usually happens when you are having problems making your mortgage payments. You may be tricked into transferring your property title to somebody to get a loan that will help you make your payments. Their goal is to persuade the victim to sign a first, second, or even third mortgage, as well as a builders' legal hypothec (which ensures that the property owner cannot sell without paying debts to builders and renovators) or lien, allowing the fraudster's name to appear on the title. After then, all the fraudster has to do to foreclose on the mortgage is cause a loan default under the guise of the victim's failure to comply with some ambiguous phrase. If the victim is unable to repay the lender, they will be forced to sell the property.

From a real estate statistic perspective

According to the Canadian Anti-Fraud Centre, there were 40,612 victims of fraud in Canada, with $106.4 million lost. Almost 3 out of 4 Canadians were targeted in scams or attacks, based on research conducted by Chartered Professional Accountants of Canada. Extortion, Identity, and Personal Information fraud were the top three types of fraud reported in 2020. These are troubling statistics in light of the potential uptick in financially vulnerable Canadians we may see soon.

How can we protect ourselves?

• keep your mortgage information in a safe place and shred old documents rather than throwing them in the trash

• contact your mortgage lender first if you are having difficulty making your mortgage payments

• consult your lawyer before giving another person a right to deal with your home or other assets

• research any company or individual who offers you a loan

• do a land title search with your provincial or territorial land registry office, which will show the name of the property owner and any mortgages or liens registered on the title