Knowingly misrepresenting facts on an application, whether with or without the knowledge of your home buying team, is mortgage fraud. And the consequences may be severe. Providing accurate information on your mortgage application and using a licensed mortgage agent or broker can help you avoid being involved in mortgage fraud. But there are some red flags that should alert you that something isn’t right and it’s your responsibility to be aware.
To qualify for a mortgage, you need to provide your mortgage agent or broker, or your lender with documents verifying your employment, assets and debts. No matter how small, incorrect information, omissions of information and fabrication of documents are all considered fraud, whether it’s you or your broker/ lender, real estate salesperson or lawyer that completes the paperwork.
Fraudulent paperwork includes:
Creating, altering or falsifying pay stubs, letters of employment and other documents
Giving misleading or inflated information about your income or length of service in your job
Misrepresenting your job status (full/part-time, hourly/salaried, commission-based or self-employed)
Backdating letters of employment
Not disclosing all existing debts
Misrepresenting or omitting details of the property in order to inflate the value of a property
Lying about the purpose of the property (e.g., listing it as your primary residence when it’s intended for rental purposes)
Make sure you complete your mortgage application accurately and always fully read any documents over before signing. If there is inaccurate information reflected on a document, do not sign. If you are unsure, you can seek independent legal advice.
If you’re self-employed, a seasonal or a contract worker without regular pay stubs, provide your Notices of Assessment from the Canada Revenue Agency (CRA). Please note, falsifying a Notice of Assessment is a criminal offence.
Be careful if anyone offers you services or monetary kickbacks to help you get a mortgage with a specific lender or save money on your mortgage, even after you were declined elsewhere. Sometimes deals like this come at the last minute and with interest rates or fees and charges that cost more than any potential savings, leaving you locked into the conditions if you sign. Always shop around for a mortgage and get a second opinion if you hear an offer that seems too good to be true.
Your mortgage brokerage should respond to your emails or calls within a reasonable amount of time. Typically, you should have everything in place at least two weeks before your closing date. This includes making sure all the lender conditions from the commitment letter have been cleared by the lender at that time, otherwise expect delays in closing.
The lender will advise the broker when they have checked your income, source of down payment etc., and the broker should confirm that no additional documentation, such as a home appraisal, is required.
When you sign a mortgage contract, your agent or broker should continue to connect with you and the lender and perhaps between your lawyers and those of the seller. If you do not hear from your agent or broker before the closing date, contact the principal broker at the mortgage brokerage and inform them of what’s happening.
Licensed mortgage brokerages are required by law to provide you with certain information so that you can make informed decisions. Your mortgage broker or agent must provide written information on behalf of the brokerage about:
Any fees or estimates of fees to be charged
The role of the mortgage brokerage and who they are acting for (the borrower, the lender, or both)
The relationship of the brokerage with each lender they recommend
The material risks of getting the mortgage (both generally, and specific to the mortgage type you are signing for)
Any potential conflicts of interest they have in relation to the mortgage
Whether the mortgage brokerage, broker or agent receives any fees, payment or incentives from other individuals or businesses, and explain who receives those benefits and how they are calculated
Whether they pay fees or provide payment or other incentives to other individuals or businesses in connection with the mortgage, and explain who receives those benefits and how they are calculated
Whether the mortgage brokerage will receive any fees or other types of payment for referring a borrower, lender or investor to another person or business, and a description of the relationship with the other person or business
Details of the total cost of borrowing for the term of the mortgage, including all fees
This written information must be given to you at least two business days before you enter into a mortgage agreement (e.g., a commitment letter) or sign a mortgage instrument (the legal registration completed by the lawyer), whichever is earlier. You can choose to reduce or waive this time, but you don’t have to.
This written information provided must not contain misrepresentations, false, or misleading statements. They must be clear, logical and understandable by you, the consumer. If you are not provided with this written information, there may be fraudulent activity going on without your knowledge. If your mortgage agent or broker cannot or does not provide you with written information you should report it to the mortgage brokerage.
Once a lender agrees to advance the loan, your mortgage broker or agent will discuss their offer with you. You must receive an official Mortgage Approval or “Letter of Commitment” that is stamped/signed by the lender, not the broker, within a reasonable time after you have applied for the mortgage. The letter will likely have conditions you must meet before getting the loan, such as providing proof of fire insurance or homeowners insurance, specific deadlines for your home appraisal or additional documentation.
If your mortgage brokerage offers private lending, they have to follow the same rules as any other lender and provide the same written information to you. When getting a private mortgage, pay additional attention to the written information about who the brokerage/broker/agent are acting for (you, the lender, or both), relationships between the brokerage/broker/agent with the lender, and written information about actual or potential conflicts of interest. If you do not receive the signed Letter of Commitment with all conditions and terms clearly outlined, then you do not have a mortgage.
Mortgages are not a cash business. Mortgage brokers or lender fees and payments are not paid in cash to any person directly. These fees are based on written agreements that you sign and accept at the time you apply for a mortgage, or more commonly, when you accept the lender’s commitment. The fee is collected by your lawyer “in trust,” who then pays the mortgage brokerage or lender. With the exception of appraisal fees that you will likely pay directly (but not in cash) to the appraisal company on receipt of an invoice, every other fee or payment will go through your lawyer. A brokerage can accept a payment for services they’ve already provided to you (assuming you agreed to this in writing), but these fees must be paid to the brokerage and never directly to an agent or broker.
You should not make any up-front payments (e.g., deposits/retainers) to your mortgage brokerage on mortgages under $400,000. However, over this amount, mortgage brokerages can ask for an up-front fee. Look carefully at the description of any upfront payments, and whether they are for work/services/expenses that are still to be done (in the future), or for work/services/expenses that have already been done. Fees for services that have not yet been performed or expenses not yet paid must be placed in a brokerage’s trust account. Fees for services already provided, or expenses already paid on your behalf do not. Also look carefully at the conditions, if any, on whether the deposit is refundable.
Mortgages are also not a verbal, “shake-on-it” transaction. The information you provide to a mortgage agent, broker or lender and what they provide back to you must be in writing. If you agree to a verbal deal with your mortgage agent or broker and don’t receive a signed pre-approval or letter of commitment in writing, ask the mortgage broker to give you a copy of the document issued by the lender. Do not feel confident you have funding secured until you receive an official document, and have met all of the conditions.
Always ask for and keep copies, so you have proof of what you promised and what was promised to you, and if they aren’t immediately forthcoming, contact the brokerage.
Make sure you are presented with your own copy, on the spot, of any document you are given to sign. If not, refuse to sign.
A mortgage agent or broker should not pressure you into a mortgage that doesn’t fit your needs. They should work with you to find a product that meets your requirements and that you can afford.
Before you sign a mortgage agreement (e.g., the commitment letter), or the mortgage instrument (i.e., the official document registered by your lawyer), your mortgage brokerage must give you 2 business days as a waiting period—time for you to think it over—regardless of who the lender is. You may choose to reduce or waive the 2 business days waiting period, but you don’t have to. If you are being asked (or feel pressured) to waive this waiting period, ask why. Your mortgage broker/agent should be able to explain. For example, if you need your mortgage to close within the next 10 days, it might make sense to reduce or waive the waiting period if you understand and agree with all of the terms and conditions. If your broker/agent cannot, or will not, give you a reasonable explanation for asking you or making you reduce or waive the waiting period, contact the principal broker of the mortgage brokerage.
Read through any document before signing it, ask questions, and ask for a copy of all documents signed on the spot. Do not leave the broker/agent’s office without receiving signed copies, or without an electronic copy.
Ensure you have your own independent legal representation reviewing the mortgage transaction, separate and apart from the lender’s lawyer. If the lawyer represents both the lender and you, the borrower, it could be a conflict of interest. Ask your lawyer to review your documents to ensure you understand the details.
Mortgage brokers and agents in Ontario must be licensed by FSRA to carry out mortgage activities for a licensed mortgage brokerage. Make sure your mortgage agent, broker or brokerage is licensed by FSRA by checking the online database.
Check if a mortgage agent, broker or brokerage has any enforcement actions taken against them. Enforcement actions, like having a license suspension, or being given a fine (Administrative Monetary Penalty), may indicate issues complying with the legislation that was remediated through these sanctions. If a mortgage agent, broker or brokerage has had an enforcement action taken against them, you should ask what it was for and how they fixed it.
Help others be able to identify potential mortgage fraud by warning them of the red flags in this article.
If you misrepresent information on your mortgage application or allow someone else to falsify documents in your name, you are committing mortgage fraud and the consequences can be severe. Mortgage fraud is a criminal offence and can result in prosecution.
If the mortgage fraud is identified before your closing date, the lender could cancel the loan (leaving you with no funds to buy the property), in which case the seller could sue you and/or you could lose your deposit. And you could be left without a roof over your head if you’ve already given up your rental or sold your previous home.
If the mortgage fraud is found after the sale closes and you have moved into the home, the damage to your credit score due to missed payments is the least of your worries. Not only is it more difficult to get approved for a mortgage in the future, but the lender also has the right to “call-in” the mortgage, making the full amount immediately payable. If you are not able to pay the full amount, you risk losing the house as a result of a power of sale or foreclosure.
And if your current employer learns that you falsified their information, you could be suspended, fired or sued.
