5 Ways To Avoid Real Estate Fraud

With cases of real estate fraud on the rise in Ontario, homebuyers and sellers need to be as vigilant as possible.

By Brennan Doherty | 5 minute read

Real estate fraud is becoming increasingly common in Canada, but there are steps homebuyers and sellers can take to protect themselves.

The most valuable asset held by most Greater Toronto Area homeowners is whatever property they’re living in right now, whether it is a compact downtown condo, Bridle Path mansion, or budget-friendly North York townhouse. 

Unfortunately, real estate scammers know this too. Over the past few years, regulators have logged dozens of cases of mortgage and title fraud across Ontario and B.C. In six cases, suspects allegedly pretended to be the homeowners of the very properties they were stealing, in order to facilitate fraudulent sales. 

These types of scams were once rare in Canada, but are becoming increasingly common. “With financial stakes being typically high, real estate in Ontario can, unfortunately, be prone to many kinds of illegal activities,” writes Joseph Richer, registrar of the Real Estate Council of Ontario (RECO), in a public post on RECO’s website last March.

But Richer points out that the most common type of fraud is by buyers, not sellers. Mortgage fraud, or the act of lying to a financial institution to secure a mortgage, is becoming increasingly prevalent in Ontario “due to the higher interest rates and stress tests,” Richer adds, “which have made it increasingly challenging to get approved for mortgages.” 

Being caught in a fraudulent real estate sale can be devastating for homebuyers, defrauded homeowners, and the REALTORS® involved in the transaction. Even if a homeowner has title insurance and receives compensation for a fraudulent transaction, courts can take years to sort out the consequences of title fraud. And the act of lying on a mortgage application, or falling victim to a mortgage scam can carry significant consequences. 

Fortunately, there are a few straightforward steps homebuyers and real estate agents can do to ensure every sale is on the straight and narrow: 

1. Safeguard every document you sign 

The documents you need to sell or buy a home often contain very sensitive financial information that is a treasure trove for real estate fraudsters. Anything from your Social Insurance Number to your taxable income can be found in the myriad of documents needed to close a sale. 

Never show these financial documents to anyone who doesn’t need to see them. If a real estate fraudster gets a hold of an incomplete mortgage application, or even simply a blank application with your signature on it, they can easily apply for a mortgage in your name. 

Also, as Richer suggests, keep a copy of any documents that require your signature. That way you can prove if any documents in your name have been altered by a REALTOR®, prospective buyer, or any other third party. 

2. Understand everything you sign 

Fraudsters often count on a homeowner’s lack of understanding of a real estate transaction to get them to sign documents. It may be tempting to skim through pages of legalese and sign at the bottom, but don’t do it. If there’s anything amiss, you may be on the hook. 

If the documents don’t look right, or you’re at all concerned about the identity of a prospective buyer or seller, give a professional a call. For finance law situations, a real estate lawyer is probably the best bet, but a good REALTOR® or mortgage broker can also confirm whether your gut feeling is a real problem or not.

3. Know your buyer or seller  

In the finance world, the concept of KYC — know your customer — is the bedrock of all lending principles. It isn’t enough to take someone trying to open a bank account at their word. Lenders must also check them out to make sure they aren’t trying to launder money, use their account to engage in criminal activity, commit tax fraud, or do anything else untoward. 

The same applies to anyone buying or selling a home. Ask for identification, especially if the buyer or seller is unable (or unwilling) to meet with you. Once you get the name of the customer, run their name through social media or Google. 

Whenever possible, try and ensure the ID documents you’re presented with are valid. That may not always be possible, but there are a few things you can do. In Ontario, homebuyers or sellers can check the status of a person’s driver’s license to see whether it is valid. They can also search land property records to ensure that the owner of a property is, in fact, on the official deed.

4. Never partner up to apply for mortgages or sell homes  

Richer says some types of transactions are so often used by fraudsters that they are instant red flags, no matter how genuine the person appears to be. One of them is asking to apply for a mortgage on someone else’s behalf in exchange for cash compensation. Another is a deal to share profits from reselling a home. 

Both of these situations can be innocuous, but when done by someone you aren’t related to or don’t know well, they can end very badly. “Choosing to pursue such options will likely result in you being left with significant debts to repay and perhaps even criminal charges or lawsuits after the fraudster has run away with the mortgage funds,” Richer explains.

5. If you think you’re being scammed, seek help immediately  

Successfully prosecuting real estate fraud can be a long, tricky process, but it isn’t impossible. RECO, the regulator, says anyone who suspects they’ve been defrauded should give them a call at 1-800-245-6910. They also suggest fraud victims reach out to both the Toronto Police Service’s non-emergency line at 416-808-2222 and the Canadian Anti-Fraud Centre at 1-888-495-8501. 

According to the Canadian Anti-Fraud Centre’s website, fraud victims should keep any relevant documents, receipts, or copies of emails and text messages. They should also change all passwords if they’re a victim of identity fraud, and report the fraud to both Equifax and TransUnion, Canada’s two credit bureaus. The financial institution involved should also be kept in the loop. 

Talking about fraud can be uncomfortable, but the Canadian Anti-Fraud Centre’s website says fraud victims should tell their family, friends, neighbours, and co-workers about their experiences. As its website says, “You may prevent someone else from becoming a victim.”