As interest rates grow, it’s becoming more challenging for buyers to qualify for a mortgage, but that isn’t stopping some real estate salespeople from closing a transaction. A recent undercover investigations have revealed certain networks of real estate agents, mortgage brokers, and bank staff that facilitate mortgage fraud for a fee.
They are seen on hidden camera promising to link purchasers with forged paperwork displaying fictitious jobs, income, and tax filings in order for buyers to receive loans they would not otherwise qualify for.
It’s a lucrative industry. According to real estate brokers, the teams charge 1% of the loan amount for the forged mortgage application. This is over and above any additional commissions collected after the sale is closed.
A real estate agent would normally earn $16,000 to $32,000 in commission on the sale of a $640,479 property, which is the average sale price in Canada, while a mortgage agent may earn up to $2,550 in compensation from a lender.
While some customers deliberately seek out and engage in this scam, it is also believed that certain realtors are preying on naïve purchasers. Newcomers are especially vulnerable since they may not completely comprehend the home-buying process. Because their work and credit history in Canada is likely to be limited, new Canadians are less likely to qualify for a mortgage at one of Canada’s main banks right away.
These acts, according to legal and financial experts, are unlawful under Ontario’s Real Estate and Business Brokers Act and the Mortgage Brokerages, Lenders, and Administrators Act. Submitting a forged mortgage application is likewise a crime under Canada’s Criminal Code.
Ramifications for consumers and the market
According to Dan Eisner, CEO of True North Mortgage, this crime has carries serious implications for all Canadians.
“As interest rates increase and house prices fall, these purchasers are more likely to fail on their payments, putting additional downward pressure on the housing market through panic sales,” he explained.
True North Mortgage has spotted and halted several fraudulent applications, as well as counterfeit tax and employment papers such as T4s and letters of employment referencing phoney firm names and phone numbers, where a genuine person would answer and a legitimate website exists.
These purchasers are at more danger as property values continue to fall, according to Eisner.
“If individuals acquire mortgages unlawfully and believe their backup plan is to sell the property if they can’t pay it, that backup plan is no longer viable. It also pulls honest individuals out of the market as they compete for different types of housing.”
The Real Estate Council of Ontario (RECO) refused to speak with Marketplace on camera regarding the investigation’s conclusions.
RECO’s registrar, Joseph Richer, stated in a statement, “Agents should expect to be punished if they participate in mortgage fraud.”
Falsifying mortgage information or helping in the falsification of information can result in fines of up to $50,000, up to two years in jail, or the suspension or revocation of the agent’s licence.
RECO claims that in the last five years, it has reprimanded seven real estate agents or brokers and charged many others under the Provincial Offences Act.
“Real estate agents who breach the law and betray the confidence of Ontario clients should be kicked out of the profession,” Tim Hudak, president of the Ontario Real Estate Association, stated Friday in a news statement in response to Marketplace’s investigation.
“The Real Estate Council of Ontario (RECO) need new powers to investigate illegal behaviour, assess harsher penalties, and suspend or withdraw licences for flagrant rule violators.”
According to Carl Davies, Equifax Canada’s head of fraud and identity, mortgage fraud is on the rise. Every month, the credit agency flags between 15,000 and 24,000 questionable mortgage applications for lenders.
“Sixty-seven percent of the applications that we uncover or that our members flag as fraudulent are actually due to that type of deception,” he added. “By far the most significant signal of fraud or risk of fraud we find in that arena today.”
Marketplace employees posed as homebuyers and conducted a sting operation
Two Marketplace workers went undercover with concealed cameras as newcomers to Canada wanting to buy their first house in order to discover where mortgage fraud frequently begins.
The two went to 10 homes that were being sold by brokers or real estate agents and where earlier investigation suggested fraud may be occurring.
The undercover buyers from Marketplace informed each agent that they had enough cash to put down 20% but were unclear if they qualified for a mortgage because one of them had an unreported cash income. They would be ineligible for a mortgage at Canada’s major banks based only on this reason.
All of the agents knew the couple would not be approved for the mortgage required to buy the house, but six out of ten of them offered to help enable mortgage fraud by linking the couple to brokers who would submit the application on their behalf with falsified paperwork.
One real estate agent displayed paperwork he was working on for other customers and stated, “Income is not an issue.” “We use this to generate their revenue. We can create the income even if you are a housewife or make no money at all. Credit is the one thing we cannot manufacture.”
Another agent said, “You know, by books, you will not qualify,” and went on to explain how his connections may be useful. “They will gather some evidence that you people are earning more, and they will grant your wishes. But since that is untrue, they are unable to publicly state it.”
A third person said, “They’ll manufacture a T4, they’ll make it look like she’s on the payroll, they’ll take any company’s payroll and put their name on it, correct.”
HomeLife Miracle Realty Ltd., which operates five brokerages around the Greater Toronto Area and one in Cambridge, Ontario, employs three of the six real estate brokers who were discovered attempting to support mortgage fraud. Additionally, Marketplace has spoken with a number of purchasers who claim that brokers affiliated with their brokerage pressured them to file fake mortgage applications or did so without their knowledge.
When contacted for response, the agents caught on hidden cameras either didn’t answer or admitted to Marketplace that they don’t deal in mortgages directly and instead recommend consumers to reputable brokers.
The broker of record for HomeLife Miracle Realty Ltd., Ajay Shah, stated that he does not support the conduct that Marketplace allegedly caught on camera. He added that the three agents who were profiled represent just a small portion of the company’s sales and the 3,000 agents who work under his supervision.
Shah stated that he would take action if given proof of misconduct but eventually decided against taking part in an on-camera interview and not seeing the video.
“Of course, the most I can do is dismiss them since I lack the power to revoke their [agents’] licences. something only RECO is capable of, “added Shah.
Industry needs better regulation, an expert claims
According to Jennifer Fiddian-Green, a forensic accountant, these data show that tighter regulation of the real estate sector is necessary. She stated that “we need the regulatory organisations to monitor more, go in and perform practise inspections, and all of that.”
“In order for us to react, our front-line personnel must be vigilant and quick.”
Sanjeet Mand, a mortgage broker, concurs that a lack of enforcement is enabling this crime to thrive in the real estate and mortgage sectors. It’s sneaky, in my opinion, he remarked. “I believe we need to remove these individuals from this enterprise.”
Mand claimed that because certain real estate agents told him they only work with brokers ready to give phoney paperwork and false applications, he lost out on referrals.
“Every time you speak with someone, you immediately ask, “Oh, can you create me documents?” It damages our reputation.”
Producers of Marketplace also cold-called 25 mortgage brokers or agents in five hot real estate markets across the nation, including the Greater Vancouver Area, Calgary, Edmonton, the Greater Toronto Area, and Montreal, to see how frequently mortgage agents would fabricate documents without a referral from a real estate agent. One in five mortgage agents claimed they would assist with a phoney mortgage application, contrary to the majority who stated they would not.
One mortgage agent claimed, “My team will ask for $3,000 and I charge 1% of the mortgage amount, so I can assist with the scam.
The Financial Services Regulatory Authority (FSRA) in Ontario is in charge of punishing mortgage brokers. The Mortgage Brokerages, Lenders and Administrators Act, which forbids agents from supporting dishonesty, fraud, crime, or illegal behaviour, is said to have been broken by the brokers in this case.
“A mortgage broker or agent shall not act, do, or omit to act, in circumstances where he or she ought to know that by acting, doing, or omitting to act, he or she is being used by a borrower, lender, investor, or any other person to facilitate dishonesty, fraud, crime, or illegal conduct,” the Financial Services and Real Estate Association (FSRA) stated in a statement.
Mortgage fraud pushed through at Canada’s big banks
Additionally, the investigation by Marketplace revealed that employees at Canada’s largest banks are pushing through phoney mortgage applications accompanied by bogus tax and job records.
One real estate salesperson responded to a query regarding the source of the bogus mortgage by saying, “You will receive the bank rate, you will get everything from the bank.
“Right, I guess there are three or four of my own guys. They haven’t done this before, and neither have they done it three times. With the banks, they are involved. For even the underwriters, they come up with some options.”
Banks, according to Fiddian-Green, need to remove their blinders and be more careful during the verification process.
“Let’s examine those documents and perform some due diligence to confirm their validity. Finding out that there are issues may be done quickly by looking at a job, the employer, making a phone call, and using Google.”
True North Mortgage’s Eisner claims that although many other lenders don’t, his organisation calls each job listed on the applications.
They probably take a look at their portfolio and decide that maybe part of it is phoney, but they’re OK with that.
‘There’s no one to turn to’
Although the perpetrators of this crime seldom suffer the repercussions, potential purchasers sometimes do.
Chris and Bibi Harding, who moved to the United States from Guyana in 2021, were astonished to learn that a Scotiabank employee had falsely applied for a mortgage in their name.
Bibi recalled the day she walked into the branch to present her social security number and discovered that phoney job information was linked to her and her husband’s accounts, saying, “All our information had been updated.”
The branch teller wrote up their job histories for them, and it stated that Chris is an operations manager for a hardwood flooring business. According to the same profile, Bibi is employed for a tax firm.
Both are untrue. Chris hasn’t had a job since moving to the GTA and manages firms in his native Canada. Bibi’s sole prior employment was in an elementary school.
The Hardings now suspect their real estate agent directed the Scotiabank home financing consultant they employed for their mortgage application to submit fraudulent job information.
She said that the [real estate agent] had given her my contact information, and she would be able to get the loan for us via Scotia, according to Chris.
The Scotiabank staffer asked for $5,000 to create the mortgage application’s profile. The Hardings claim they sent the money because they thought it was a proper charge.
The Hardings protested to Scotiabank after learning about the theft, but soon after they got a letter telling them to shut their accounts right away.
“You come to Canada expecting for a better [life], but everyone is simply taking advantage of you, I was thinking at this point. There is no one you can approach who can genuinely speak for you and assert that this is not how things are done in this place.”
Marketplace was informed by Scotiabank that it takes allegations of fraud seriously and that it has subsequently given the Hardings $5,000 back and restored their accounts. Additionally, it states that the Scotiabank staffer who handled their mortgage application has left the company.
According to Fiddian-Green, the banks must take part in the fight against mortgage fraud as well.
We must improve our ability to collaborate in order to be very particular and stop this sort of behaviour. We must also share, share, share so that others can see what is occurring and learn how to recognise it early.
