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Hamilton Spectator

Tempted to stretch the truth on a mortgage application to qualify for that home? Here's how it could haunt you for life

Mortgage fraud can take different forms — from impersonating a homeowner to faking your income to buy your dream home — and experts say lenders have become increasingly aware it's a problem. A recent Equifax report found that mortgage fraud, or providing false information on a mortgage application, decreased in 2024. However, steadily decreasing interest rates could attract more first-time homebuyers to the market, potentially leading to 'increased fraudulent activity in mortgage credit applications,' the report said. Additionally, more than a million homeowners are facing mortgage renewal this year at interest rates higher than when their term began, meaning they could have a harder time qualifying — and some experts say they could be tempted to stretch the truth. According to the Canadian Mortgage and Housing Corp . (CMHC), mortgage fraud includes misstating your work position or the amount of time you've had a job, saying you're a full-time employee if you're not, not disclosing other mortgages or debts, and other misrepresentations of your financial situation. The Equifax report noted falsified financial documents, such as bank statements and down payment information, are detected in more than 90 per cent of mortgage fraud cases. 'These are people who are paying others to create entirely false income documents that are totally fraudulent,' explains mortgage broker Ron Butler. Other cases could include applicants having someone lie on their behalf about where they're employed or how many hours a week they typically work, Butler says. A prospective homebuyer or a homeowner might engage in mortgage fraud because they're struggling to qualify for a home or because they want a cheaper mortgage. Experts say they're most likely getting bad advice from bad-acting professionals who would falsify documents for them because they have something to gain, like a commission on a sale or a fee for helping them to commit fraud. Butler says there's been 'ongoing recognition' among banks in recent years that fraud is a problem, and they've improved their detection techniques as a result. Buyers should know that whether or not a lender detects fraud, there can be serious consequences. 'The person who the banks are protecting by making you qualify at a certain rate is you,' says Leah Zlatkin, licensed mortgage broker and expert. Protect yourself by identifying bad actors Zlatkin says people should look out for 'predatory players' who may target first-time homebuyers. People looking to buy — rather than renew — are those most likely to come across 'conspirators,' Butler says, as 'there's a whole industry set up' to entice them. Crooked professionals won't outright suggest mortgage fraud; instead, Butler says, they'll probably make it sound like it's not a big deal to fake financials and say 'everyone does it' or 'you couldn't buy a house unless you did this.' Butler says some realtors may encourage homebuyers to falsify their financial documents because they, in particular, have a 'huge vested interest' in getting clients to qualify and purchase a property that would yield tens of thousands of dollars in commission. If they're showing a house that's out of a client's budget, the realtor might say something like, 'You can afford this house; we'll just put a little salt and pepper on the mortgage,' or, 'I'll look after that for you,' Butler adds. At that point, the professional would be creating fake documents for the application. Experts say bank representatives, bank employees or, less often, mortgage brokers, have also been known to facilitate the fraud. Zlatkin says it might sound like someone suggesting you 'bump your salary' or document a second job when you don't have one. 'You should never be changing any document that you're providing to a mortgage professional, whether it be in the branch or in a mortgage broker environment,' Zlatkin says. Phrases like 'creative financing,' 'easy mortgages' and 'no qualification necessary' are red flags, she says, adding everyone has to qualify for a mortgage. The professionals engaging in fraud might ask for some sort of payment on the side, such as cash, a transferred 'fee' or a gift card, according to Zlatkin. 'That wouldn't be happening in a normal mortgage circumstance,' Zlatkin says, adding any legitimate fees would be disclosed in the paperwork. Mortgage brokers are far less likely to engage in fraud because they're 'heavily scrutinized' and regulated by the Financial Services Regulatory Authority of Ontario, she says. Any documents they work on would be reviewed by the lender and a designated compliance officer, so there are 'three sets of eyes on paperwork when you're a mortgage broker.' And while it's most often legitimate professionals in legitimate establishments facilitating fraud, Zlatkin says it's sometimes done by a fraudster posing as a mortgage broker or other professional. She recommends homebuyers ensure the agent they're working with is a real broker and has a physical licence. Faking your documents on a mortgage application could have serious consequences — whether or not a lender picks up on fraud. 'If you are biting off more than you can chew, affordability can become a real problem for you,' Zlatkin says. And in the event that you can't pay the mortgage, you could go into default and lose your home, she adds. 'When you lose the home, you're going to be paying fees to the lender, who you didn't pay for months and months and months. They get extra fees for every time you default on your payments,' Zlatkin explains. 'Then by the time the fees are taken care of, by the time the sheriff kicks you out of the house, by the time there's all these consequences, the reality is that the equity in your home, even if you put down a healthy down payment, the equity in your home is deteriorated, because the lender has to make themselves right,' she says. That could also impact your credit, which could make it difficult to qualify for a credit card or another mortgage, Zlatkin adds. If a lender does detect fraud, they could cancel the mortgage at the last minute, preventing the buyer from being able to close the deal, explains real estate lawyer John Zinati. 'This buyer now can't complete the purchase,' Zinati says. 'This buyer might get sued by the seller. This buyer might lose their deposit. This buyer could be in a whole lot of trouble on the transaction — aside from what kind of marks will be flagged against them for fraud or possible fraud on a mortgage.' Legally, if a buyer doesn't close on a deal, the seller could keep their deposit as stated in the contract, Zinati explains. Additionally, if the seller goes on to sell the property for less than the price in the original deal, they can sue for the difference, he adds. A bank can also cancel a mortgage even if it was already approved and the purchase was finalized. 'The bank can send a letter that says, 'You have 30 days to pay us back, or we're gonna put your house up for sale,' ' Butler says. Additionally, the fraud could create problems for the homebuyer in the future, for things as simple as opening a chequing account or taking out a credit card, Butler adds. Depending on how 'absolutely incredibly obvious the fraud was,' the bank could alert other banks about the person, too.