March is Fraud Prevention Month in Canada and the Chartered Professional Accountants of Canada (CPA) just released a survey that shows some of the ways Canadians try to protect themselves against fraud. Many (72 per cent) said that they shred their banking and credit card statements. Almost as many (68 per cent) said that they were “very uncomfortable” giving out personal or financial information on the phone. More than half (60 per cent) said that they always make sure online shopping sites are encrypted.
The real estate market, where large sums of money regularly change hands between buyers, sellers, lawyers, realtors, and banks, provides fertile ground for fraud. Besides title fraud there are home equity scams, appraisal fraud, illegal property flipping, and a whole range of other criminal activities that target home owners and buyers as well as banks and insurance companies.
Let’s see about the two most common real estate frauds:
Mortgage fraud is a type of real estate fraud that most often hurts the institutions lending money to individuals purchasing property. The most common type of mortgage fraud is when fraudsters acquire property and then artificially increase the property’s value through a series of sales and resales between themselves and an accomplice. A mortgage is then secured on the property based on the artificially inflated price.
Protect your personal information from identity thieves:
• Do not give out personal information on the phone, through mail or over the Internet unless you have initiated the contact or know with whom you’re dealing.
• If it sounds too good to be true, it probably is — before you reveal any personal information, find out how it will be used and if it will be shared.
• Pay attention to your billing cycles. Follow up with creditors if your bills don’t arrive on time.
• Guard your mail. Deposit outgoing mail in post office collection boxes or at your local post office. Promptly remove mail from your mailbox after delivery. Ensure mail is forwarded or re-routed if you move or change your mailing address.
• Minimize the identification information and number of cards you carry.
• Keep items with personal information in a safe place. An identity thief will pick through your garbage or recycling bins. Be sure to tear or shred receipts, copies of credit applications, insurance forms, physician statements and credit offers you get in the mail.
• Give your Social Insurance Number (SIN) only when absolutely necessary. Ask to use other types of identification when possible.
• Don’t carry your SIN card; leave it in a secure place.
• Check your credit report regularly to ensure there are no discrepancies
• Reviewing your credit report can help you find out if someone has opened unauthorized financial accounts in your name. There are two credit reporting agencies in Canada: Equifax Canada and TransUnion Canada. You can request free copies of your credit report from credit reporting agencies by mail. Online versions of reports are also available for a small fee.
• You can also conduct a property search at your province land registry office to ensure that the title to your home is in your name.
Valuation fraud, and is defined as the misrepresentation of an appraisal report made by a party involved in mortgage financing who has a “vested financial interest” in the amount being loaned for a real estate transaction. A legitimate appraisal report is prepared by a professional appraiser, then altered by “shrewd fraudsters” to mislead an unsuspecting lender into offering a larger loan.
• Look for signs of data alteration such as: typed in data (value conclusions in the Direct Comparison Approach, Cost Approach or Income Approach, adjustments of comparable sales), blank fields or fields where information appears to have been “whited-out”.
• Thoroughly read the appraisal report to understand the data, the analysis and the comparable properties relied upon to arrive at the final value.
• Engage a professional appraiser to conduct an on-site inspection or drive-by of the property to validate information supplied as part of the mortgage application.
• Ask the professional appraiser for a reliance letter if you are not the original client or intended user of an appraisal report. Reliance letters are critical to the mortgage process. They are issued by the author of the report/appraiser and provide a great cross-reference tool to validate the value conclusion and data from the original report.
• Contact the appraisal professional if you suspect any fraudulent activity.