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Key takeaways:
It’s often the largest purchase that anyone will ever make, your home. It’s an exciting time that you spend years saving up for. What will be the perfect home for you and your family? Unfortunately, there are scammers out there trying to take advantage of this excitement with real estate fraud.
In general, real estate fraud is any scam related to the purchase or sale of real estate. For most people, the real estate in question is your home, which makes the prospect of falling for the scam — and any potential emotional, financial or legal fallout from it — feel that much more vulnerable.
Real estate transactions are complex enough on their own without worrying about being taken advantage of. So, it's important to know how to recognize and prevent real estate fraud in order to navigate the market safely.
Real estate fraud includes schemes connected to the buying, selling or financing of a property — impacting both buyers and sellers. Usually, real estate fraud begins with identity theft, where a scammer gains access to your personal information and pretends to be you. After stealing your identity, they may be able to mortgage or even sell your home without you ever knowing.
“For the victims, the financial loss can represent a significant loss – since it can mean, in the worst-case scenario, losing their home,” warns the Financial Consumer Agency of Canada.1
Yes, it may be hard to believe, but in the most extreme cases of real estate fraud, some victims discover that they no longer own their own homes. Even if that's not the ultimate outcome, being the victim of a real estate scam may still result in a lot of stress, financial losses and potential legal battles.
There are four common schemes that you should be aware of:
1. Title fraud
When you purchase a home, you get the title that says you are the legal owner of that property. In the case of title fraud, the fraudster assumes your identity and steals the title for themselves. At that point, they can take out a new mortgage or even sell your home—collecting the money and disappearing — all without your knowledge.
To make matters worse, you may not find out any fraud has been committed until you're contacted about missed payments on a mortgage you never knew you had, or when new homeowners turn up and reveal that they own your home.
2. Foreclosure fraud
Another way a scammer can gain access to your home's title is through foreclosure fraud. In this case, the fraudster specifically targets homeowners experiencing financial difficulties or facing foreclosure. For example, let's say you're behind on your mortgage payments – someone posing as a "foreclosure prevention auditor" (or another legitimate expert like a broker or lawyer) will offer you a loan to cover your debts — all you need to do is transfer your title to them as collateral.
Like with title fraud, once the transfer is complete, the scammer can turn around and refinance or sell your home, leaving you with even more debt and potentially without a home.
3. Mortgage fraud
Mortgage fraud can happen when you’re applying for mortgage loans. The scam is done by the person posing as a broker who convinces you to provide false information on your application — or helps you falsify your application themselves — in order to secure better financing. Mortgage fraud also includes using your good credit to get a mortgage for someone with worse credit (known as “straw buying”).
4. Reverse mortgage fraud
There is another type of mortgage fraud that principally targets seniors: reverse mortgage scams. A reverse mortgage (also known as an equity release) is a specific type of loan for homeowners that allows you to convert a portion of your home equity — up to 55% of its value — into money while maintaining ownership of the property.2
While reverse mortgages are a legitimate way to access additional funds, you need to be aware of any red flags that it might be a fraud. Beware of scammers who encourage you to take out a reverse mortgage to invest in a "get rich quick" opportunity. As with the other types of scams, fraudsters may steal your identity in order to take out a reverse mortgage in your name. Plus, scammers posing as legitimate lenders may charge hidden or excessive fees, pocket payments meant to pay off your first mortgage or encourage you to take out multiple reverse mortgage loans (called "loan flipping").
Protecting yourself from real estate fraud begins with protecting yourself from identity theft. To help protect your identity, be careful about what information you share, where you share it and with whom — especially sensitive or personal information.
According to the Canadian Anti-Fraud Centre, you should beware of anyone soliciting your full name, address, birthdate, Social Insurance Number (SIN), or your credit card or banking information.3 Any documents that contain this information should be shredded before you throw them away. Regularly check your credit report and other financial statements to make sure there’s no unusual activity.
When it comes to real estate transactions, it's important to remember: If it seems too good to be true, it probably is. There are common red flags that could signal fraud is at play; below, find our “do's” and “don'ts” to help avoid becoming the victim of a scam.
Do: Get title insurance. Title insurance is a specific insurance policy that helps protect property owners from losses related to title fraud. As the Financial Consumer Agency of Canada explains, there is title insurance for homeowners (that protects the homeowner from losses as long as they own the home) and lenders (that protects the lender until the mortgage has been paid off).4
Don't: Pay in cash. When it comes to real estate transactions, cash is not king. Any and all payments should be made through official channels and should always come with a signed receipt or appropriate documentation. Make sure to verify that you’re sending money to the right person or company through a secure platform before you send it!
Do: Work with a licensed agent or broker. Whether you're buying a property or applying for a mortgage, it's essential to know who you're doing business with and it's even more important to know they’re credible. Avoid working with unlicensed or unaccredited real estate agents or brokerage companies. You can confirm a real estate agent's license yourself through the Canadian Real Estate Association.
Don't: Take “easy money.” The prospect of foreclosure would make anyone worried, but always contact your mortgage lender first if you are at risk of falling behind on your mortgage payments. Avoid anyone who offers you a "quick and easy" loan and when in doubt, consult a lawyer before agreeing to anything.
Do: Your due diligence. Don’t cut corners when it comes to real estate. As a potential buyer, take your time to verify the listing is legit by conducting a land title search to confirm the property owners and any mortgages or liens on it. You can do a land title search electronically or through your local land registry office. Scammers might try to rush you through the process so that you don't read the contracts and documents thoroughly before signing them. Don’t sign anything you don't understand. Again, when in doubt, ask your lawyer for advice.
Remember: You're in charge and can take as much time as you need.
If you’re the victim of real estate fraud, follow these steps to report it:
- Record all information about the fraud. Gather everything you know about the who, what, when and where of the fraud. Note the name(s) of the scammer(s), their contact information, the dates the fraud occurred, and any other information that might be useful. Keep copies of all communication you have with the fraudster, as well as any relevant documents or receipts.
- Report the fraud to your financial institutions. Scotiabank's fraud department is available 24 hours a day, 7 days a week at 1-866-625-0561. You also need to contact Canada's two main credit bureaus — Equifax and TransUnion — so they can put a fraud alert on your account.
- Report the fraud to the Canadian Anti-Fraud Centre. The CAFC is jointly managed by the Royal Canadian Mounted Police, the Competition Bureau Canada and the Ontario Provincial Police. You can report fraud by calling 1-888-495-8501 or via the fraud reporting system.
- Report the fraud to your provincial or territorial land registry office. To find the right contact information, look on your provincial government website or contact the Canadian Anti-Fraud Centre to help you find the right office in your region.
- Report the fraud to the police. Real estate scams have grown more complex and sophisticated, so remember- if you fall for one of these elaborate scams, you aren’t alone. It’s important to report the incidence as soon as possible.
