RCMP expects surge in mortgage scams

An RCMP investigator is warning banks and brokers to be on the lookout for fraudsters trying to make a quick buck before new mortgage rules take effect in April.

Fraudsters trying to make a buck before rules change in April

RCMP Sgt. Glen Demmon expects to see a spike in 'fudged' mortgage applications before new mortgage rules take effect in April.
An RCMP investigator is warning banks and brokers to be on the lookout for fraudsters trying to make a quick buck before new mortgage rules take effect in April.

People thinking about taking out fraudulent mortgages might act now to beat the stricter rules coming in on April 19, said Sgt. Glen Demmon, with the RCMP's commercial crime section in Calgary.

"You'll get a rush of it. So if they were thinking about it, now they've only got X number of days to probably get that application through," he said.

Demmon expects to see a spike in mortgage applications from people who "fudge" information to get a mortgage they wouldn't otherwise qualify for or pretend that a revenue or recreation property will be their primary residence.

Another type of mortgage fraud involves mortgaging a property with the intent of using it for a crime, such as a marijuana grow operation, Demmon said.

Canadians should also be on the lookout for "straw buyer" scams, in which scammers use another individual's name and personal information to take out a mortgage on a property they later flip.

"I've got to caution people that if you're approached for your personal information for something other than your use, even if you're being promised that it's not going to affect you, be aware that it could eventually affect you. And be aware that you're being involved in some criminal activity," Demmon said.

Waitress caught in straw buyer scam

Jane, a Calgary waitress who requested that her last name not be used, found herself entangled in a straw buyer scam.

It started three years ago with a phone call from a friend who vowed that Jane and her husband could make some quick money through a real estate investor he knew.

In exchange for $10,000, they "lent" their identity to the investor, who used it to get a mortgage. At the time, Jane said, she thought she was helping a family buy a home.

The couple signed the mortgage documents in the investor's lawyer's office and were promised their names would be cleared from the title in three months. Now, they are on the hook for about $200,000.

"Three years later, we got served by the bank, being sued because the people that bought the house defaulted on their mortgage," Jane said. "That will destroy us financially. I feel like I have been held hostage for the last year."

A straw buyer scam usually requires lawyers to untangle its layers and could lead to criminal charges against the person who gave up their personal information, Demmon said.

Usually, the mortgage taken out is worth more than the property itself and when real estate is booming, the scammer — or an organized group of scammers — can flip the property and make some cash.

"The pitfall of that is when times go bad, when they can't flip the property if that's what they were intending to do, the [straw buyer] is left holding the bag when the bank comes looking for their mortgage payment," Demmon said. 

Often, the scammer has vanished. A court has to decide who is the lawful owner of the property. Regardless of who is deemed to be the owner, the straw buyer could still be on the hook for the difference in the current value of the property and the size of the mortgage.

New rules introduced this week

The federal government introduced new mortgage rules this week that have three components:

  • All borrowers will be required to meet the standards for a five-year fixed-rate mortgage, even if they choose a variable mortgage with a lower rate or a shorter term.
  • The maximum Canadians can withdraw when refinancing their mortgages will be lowered to 90 per cent of the value of their home, from 95 per cent.
  • A minimum down payment of 20 per cent of the property value will be required to qualify for Canada Mortgage and Housing Corporation insurance for non-owner-occupied properties purchased as an investment.