A few week's ago one of my long term Clients reaced out to me and asked me for some advice for a friend of his. It was one day before his friends closing, saying their bank had declined their mortgage at the last minute. He then explained that their previous mortgage agent had created fraudulent documents to qualify them with a minimum down payment.
Now, they are facing a default on their closing, losing a $35,000 deposit, a potential lawsuit from the seller, and—worst of all—their credit has been flagged for fraud forever.
Today, we're going to talk about mortgage fraud: why it's happening, its impact on the real estate market, and why committing fraud to buy a home is never worth the cost.
TS
by Tony Slavin
Types of Mortgage Fraud
Fraud for Shelter
The most common type—buyers lie about their income to qualify for a mortgage.
Fraud for Profit
More organized crime groups manipulate loans, use straw buyers, or create fake properties to obtain mortgages fraudulently.
Fake Job Letters
Falsified employment documents to inflate income.
Altered Bank Statements
Photoshopped bank records to show higher deposits.
Straw Buyers
Someone else takes out a mortgage on behalf of the real buyer, often seen with foreign buyers.
Property Flipping Fraud
Fake appraisals artificially inflate home prices, affecting honest buyers and mortgage professionals.
The Scope of the Problem
$1B+
Financial Impact
Mortgage fraud is estimated to be a billion-dollar problem in Canada.
52%
Increase in Fraud
Reports indicate a 52% increase in mortgage fraud attempts.
15%
High-Risk Applications
Fraudulent income documents found in 10-15% of high-risk mortgage applications.
The consequences of this widespread fraud are severe and affect the entire housing market.
Consequences of Mortgage Fraud
1
Mortgage Denial
Your loan can be revoked even after approval.
2
Financial Blacklisting
You'll struggle to obtain credit cards, car loans, or any future mortgages.
3
Civil Lawsuits & Fines
Banks can sue for damages, and fines can reach $100,000 or more.
4
Criminal Charges
Fraud over $5,000 is a criminal offense under Section 380 of the Criminal Code of Canada.
5
Bankruptcy & Foreclosure
Fraudulent mortgages often lead to financial ruin.
6
Deportation Risk
Many immigrants involved in mortgage fraud end up leaving Canada due to financial ineligibility.
What Happens to Fraud Agents?
Realtors
Face No Consequences: If they were unaware, they walk away without penalties.
Bank Mortgage Advisors
May lose their jobs and face internal audits.
Independent Mortgage Agents
Lose their licenses, face lawsuits, and can be fined up to $500,000.
Mortgage Brokers/Brokerages
Some have been fined over $1 million.
Long-Term Consequences
1
1
Perpetual Dishonesty
Even if you get away with mortgage fraud initially, you'll be lying for life.
2
2
Document Consistency
Every future loan application must match the false documents you originally submitted.
3
3
Impossible Transition
Making it nearly impossible to transition back to honest financing.
4
4
Audit Risk
If a bank audits your file, you risk losing your home, foreclosure, and a lifetime credit ban.
Banks tighten mortgage rules, making it harder for honest buyers to qualify.
3
Price Inflation
Fraudulent buyers outbid honest buyers, inflating home prices.
These factors create a cycle that perpetuates the problem, making it increasingly difficult for honest homebuyers to enter the market while rewarding those who commit fraud.
How the Industry Is Fighting Back
1
AI-Based Fraud Detection
Banks now use machine learning to detect fake documents.
2
Stricter Regulations & Penalties
Higher fines for fraudulent brokers.
3
Employment Verification
Payroll providers like ADP now verify job letters.
4
Credit Report Monitoring
Employers are now reported on credit records to flag false employment claims.
5
CRA Tax Return Verification
Lenders will soon be able to verify income directly with the CRA.
6
Blacklist of Fake Employers
Banks now track companies frequently linked to fake job letters.
The Real Cost of Mortgage Fraud
Personal Devastation
Families can lose their homes and life savings when fraud is discovered.
Legal Consequences
Criminal charges under Section 380 of the Criminal Code of Canada can result in jail time.
Financial Blacklisting
A lifetime of being unable to secure legitimate financing for homes, cars, or other major purchases.
Final Thoughts
1
Market Integrity
Mortgage fraud is destroying the integrity of the real estate market.
2
First-Time Homebuyer Protection
If you are a first-time homebuyer, protect yourself from fraudsters by understanding the process.
3
Honesty is Best
Honesty is always the best approach.
The short-term gain of qualifying for a mortgage through fraudulent means is never worth the potential lifetime of consequences that follow.
The Case Study: A Cautionary Tale
1
2
3
1
Initial Fraud
Mortgage agent created fraudulent documents to qualify clients with minimum down payment.
2
Last-Minute Denial
Bank declined their mortgage one day before closing after discovering the fraud.
3
Severe Consequences
Default on closing, $35,000 deposit loss, potential lawsuit, and permanent credit fraud flag.
This real-life example from one of my long-term clients shows how quickly the dream of homeownership can turn into a financial nightmare when fraud is involved.
Professional Mortgage Advice
Honest Guidance
If you're looking for professional mortgage advice and want to ensure everything is done correctly, reach out to me.