It's been years since you finished paying off your mortgage, so the letter in the mail from a bank saying you're in default and now owe money comes as a shock.
Not only did you not take out another mortgage on your property, you've never even dealt with that bank before. Yet the documents you're presented with say otherwise.
At this point, you realize you may have been the victim of fraud.
The chances of that scenario playing out may seem far-fetched, but experts say title and mortgage fraud are fast growing in Canada and homeowners should take steps to protect their properties — and their identities.
Title fraud refers to when the ownership or title of a property is fraudulently changed or documents are forged to allow a fraudster to illegally sell or refinance the property.
The issue gained prominence last year amid two Toronto police investigations in which homes were allegedly listed for sale without the owners' knowledge, including one where the home was sold.
While those were "extreme" cases, more common is mortgage fraud, where fraudsters obtain a mortgage from a lender under false pretenses, said Daniel La Gamba, a real estate lawyer and partner at LD Law LLP.
La Gamba said a typical case of such fraud involves the perpetrator stealing the identity of a legitimate homeowner — using a fake ID, job letter, credit report or references — to obtain a mortgage through a bank.
If the bank is convinced of the person's identity, it will advance them the funds for the mortgage, only to find the false owner hasn't made any payments on it months later.
"Even with all the safeguards in place ... fraudsters are getting quite sophisticated in their ability to replicate ID, steal identity," said La Gamba.
"Sometimes, we're really left with only our gut feeling. If something doesn't smell right, then we start digging and asking a few more questions."
When the true owner receives the bank's letter demanding that payment, setting off alarms they've been defrauded, it can be a "stressful and very costly burden" of proving they've been the victim of fraud and shouldn't be required to pay that mortgage, La Gamba said.
He said the most cost-effective defence for the homeowner is if they already have title insurance — the premium for which typically costs around $900 for a $1 million property, and which covers the entire period of ownership.
"If you have title insurance, they basically step into your shoes and take whatever steps are required to rectify the matter," he said.
"If you don't have title insurance, that's when you're on your own ... and it will be a very costly and time-intensive endeavour."
Newcomers, seniors most vulnerable
Title insurance companyFCT estimates at least one attempted title or mortgage fraud takes place every four business days. In the past two to three years, the company has refused to insure $539 million worth of mortgages and transfers "on the basis that they were too suspicious for us," said John Tracy, senior legal counsel at FCT Canada.
He said the reason the real estate sector is such a growing area of focus for fraudsters is simple: "The payoff is huge."
"Compared to getting a credit card in my name — you might get $10,000 worth of stereo stuff or gift cards. But if you can steal my ID and mortgage my house, the payoff is a magnitude of times bigger."
Experts say the most common targets of title or mortgage fraud attempts include newcomers to Canada, who are particularly vulnerable if they face language barriers, as well as seniors.
"Generally speaking, fraudsters really like to target homes that are mortgage-free," said La Gamba.
"The elderly tend to be targeted quite frequently in this scenario. They've had the home for 20, 30-plus years, their mortgages are paid off in full."
Daniela DeTommaso, president at FCT Canada, said the company began tracking attempts at title fraud in 2010, seeing a 70 per cent increase in the first 10 years. She said that rate likely accelerated during the pandemic as reliance on remote technology and digital verifications increased.
"Technology is a fabulous thing, but it's also created the ability for fraudsters to duplicate identity in a way that, to even a trained eye, is almost impossible to catch," she said.
"For $5,000, you can buy a printer that can pretty much replicate a piece of identification."
DeTommaso said FCT monitors "a moving target" of potential red flags. The organization employs a certified fraud examiner and teams of underwriters "whose sole job it is to really look for some of these red flags," she said.
"As good as our underwriters are, there are schemes that are always one step ahead, so we are now partnering with a company where we're leveraging digital identity verification that actually goes beyond a physical review of a document," she said.
Ontario brokers required to monitor for red flags
Last fall, the Financial Services Regulatory Authority of Ontario released guidance aimed at combating mortgage fraud, which set out requirements for brokers "to conduct business in a manner that does not facilitate dishonesty, fraud or any other illegal conduct."
The guidance included obligations such as monitoring for increased warning signs of potential fraud. It also recommended the use of multi-factor authentication as the best practice for identity verification.
"From our perspective, what a broker needs to be able to demonstrate is that they have taken reasonable steps to identify fraud and that would include ... to verify the identity of a client, verify the client actually has the authority to mortgage a property," said Antoinette Leung, FSRA's head of financial institutions and mortgage brokerage conduct.
"Anyone who notices these red flags should be following up and looking into them."
She said red flags could include a person's name linked to the title of a property looking slightly different from what's listed on their ID or utility bill. The guidance also highlighted employment letters, which should be cross-referenced to ensure the mortgage applicant's employer does actually exist and that they work there.
FSRA, which has authority to regulate and sanction licensed mortgage brokerages, brokers, agents and administrators, warns it may take enforcement action if it receives credible information about potential fraud or failure to comply with the law and its regulations.
"If you're facilitating fraud, and there is no way for you to see evidence that suggests otherwise, then (brokers) will have to step away from that transaction," Leung said.
This report by The Canadian Press was first published March 17, 2024.
Sammy Hudes, The Canadian Press
