Mortgage fraud and illegal brokerage
Sometimes a real estate or mortgage broker can be faced with an illegal brokerage situation as part of his brokerage transactions. In such situations, there are particularly activities relating to mortgage fraud, putting public protection at increased risk. Here are a few examples of illegal and fraudulent practices, brought to the attention of the Organization’s investigators in the course of their investigations.
Illegal mortgage brokerage
The illegal practice of mortgage brokerage is often manifested as follows:
- The future borrower is solicited by companies to offer him financing or mortgage refinancing services at so-called advantageous rates.
- Solicitation is made through classified ads posted on Internet, in periodicals, magazines, etc. or by using door to door method or by telephone.
- They are often companies legally constituted and registered in the Enterprise Register (CIDREQ).
- Victims of such phoney brokers are often people who have difficulty obtaining loans secured by hypothec through financial institutions.
- Then, the phoney broker collects the borrower’s personal information, makes him sign a mandate, informing him that he will take care of everything.
- The fees charged by these companies range from a few hundred to several thousand dollars.
To maximize public protection, it is important for the real estate broker to be vigilant during brokerage transactions. Indeed, when a broker is involved in a transaction in which a person or a company seems to engage in brokerage acts without a licence, it is appropriate to report this kind of practice in order to protect the public from these phoney brokers. Any person who witnessed an illegal brokerage act may contact the OACIQ Info Center at 450 462-9800 or 1 800 440-7170 or make a request for assistance. Where appropriate, the case will be forwarded to the illegal practice section of the Legal Affairs Department for investigation.
Here are some statistics relating to the illegal practice of real estate and mortgage broker’s activities. At the OACIQ, the illegal practice section has more than 400 active cases. Out of these 400 cases, over 150 are awaiting trial and others are under investigation. About 70% of investigation requests concern the loan secured by immovable hypothec.
Mortgage fraud cases
In some cases, these applications for loans secured by immovable hypothec can be used as an excuse to commit fraud. Here are a few examples of fraudulent situations.
1. False documents
In this kind of fraud, and in order to ensure that the loan secured by immovable hypothec will be obtained, the phoney broker will use false documents such as an employment record, which he will forge himself and attach to the loan application. This scheme will often be carried out without the knowledge of the borrower. The latter will then obtain his loan secured by immovable hypothec.
Other schemes are conducted with the knowledge of the borrower who is asked to act as a nominee. Normally a nominee is an individual who acts as a representative of another individual as if he is acting on his own behalf. However, in fraud cases, the nominee is the individual who lends his name and financial situation so that the phoney broker, i.e. the defrauder, can commit fraud and collect a significant amount of money.
Here’s an example of fraud committed through a nominee. An application for a loan secured by immovable hypothec of which the amount is inflated will be presented on behalf of the nominee with false documents. Although the loan and the mortgage deeds indicate that the borrower is the nominee, it’s the phoney broker who will receive the loan’s money. The phoney broker will then inform the nominee that he will deal with the mortgage loan payments of the latter. For his role, the nominee may receive a certain amount of money from the phoney broker. The latter will make some payments and then stop paying and will pocket the mortgage loan’s surplus. In some cases, the immovable can even be resold without the knowledge of the nominee who will remain responsible to the lender because it’s his name that appears on the documents as debtor.
3. The real estate “flipping”
Some firms specialize in real estate “flipping”. What is this fraudulent scheme? In fact, it enables people who have not got the necessary funds to buy an immovable to do so without having the means. Thus, the enterprise asks its client to visit houses that interest him and that are for sale by the owner. When an immovable is chosen, the company buys the immovable at a good price to resell it quickly to its client at an inflated price, most often within few minutes and even before legally owning the immovable. Moreover, the enterprise takes care of obtaining the mortgage loan for its client. As a result, it will claim fees for obtaining the loan secured by immovable hypothec in addition to benefiting from the profits of the sale of the immovable.