Mortgage Fraud in Canada: Legal Implications and Remedies

Fraudulent activities have long been a significant challenge in Canada’s mortgage sector. Moreover, virtual solutions in real estate processes have made it easier to happen. Due to the amount of information in the cloud, fraudsters can easily access data. 

Similarly, the challenging mortgage market and ongoing economic headwinds contribute to the rise in mortgage fraud. Equifax Canada’s quarterly data reveals that fraud rates in mortgage applications continued to increase by 9.9 percent in Q4 2023 compared to the same period in 2022. Most mortgage fraud involves first-party fraud, where the individual gives false information to secure a mortgage. 

Although lenders are commonly the primary victims of mortgage fraud, buyers can also fall prey. Suppose you’re falsely accused of mortgage fraud or harmed by such actions. Consulting with a lawyer is imperative. 

This article explores the legal implications of mortgage fraud and the remedies available for those affected in Canada. We’ll also walk you through the steps to take when facing such a complex situation. 

How Mortgage Fraud Can Happen in Canada 

Mortgage fraud commonly happens when someone knowingly misrepresents information during a house purchase or financing agreement. 

Its primary goal is to acquire a property or a more expensive one that the individual wouldn’t qualify for with truthful information. Most often, it is homeowners who commit mortgage fraud by misrepresenting income and debt levels to secure mortgage financing. 

However, industry insiders can also commit this fraud for financial gain. They usually target real estate investors and homeowners facing bankruptcy or needing financing. Professionals involved in these schemes can include lenders, mortgage brokers, title insurers, and credit agency employees. 

Mortgage fraud can take different forms. Familiarizing yourself with how they can happen will help you detect and avoid them. Here are typical instances of how fraudsters carry out this scheme in Canada: 

• Taking out a mortgage on your home using stolen identity and false documents
• Manipulating the appraisal report to inflate the property’s value deliberately
• Proposing a debt-consolidation plan in exchange for upfront payment and transfer of property title
• Including a co-borrower in the application who has no intention of living in the property but assumes responsibility for the mortgage
• Claiming the property is owner-occupied while intending to use it for rental purposes 
• Offering you cash to be a straw buyer or put your name on someone else’s mortgage application

Potential Legal Implications of Mortgage Fraud

The repercussions of mortgage fraud can be severe for both perpetrators and victims. From misrepresentation on loan applications to falsifying property value, it can result in significant financial losses for lenders, borrowers, investors, and the entire housing market. 

That’s why real estate, banking, and law enforcement entities take these deceptive practices seriously. All parties dealing with a transaction in real estate must understand the legal implications of committing mortgage fraud.  

Criminal prosecutions

Under Section 380 of the Criminal Code, anyone who employs deceit, falsehood, or other fraudulent methods to defraud the public or an individual of money, property or service can face criminal fraud charges. 

Depending on the value of the offence, perpetrators may be subject to fines, imprisonment, and asset forfeiture. Those guilty of offences exceeding $5,000 are subject to a term of imprisonment not more than 14 years. 

When the offence amounts are less than $5,000, offenders could be sentenced to an imprisonment term not beyond two years. Moreover, a minimum sentence of two years in prison applies for fraud exceeding one million dollars. 

It’s interesting to note that even if a fraud suspect may face criminal charges, victims typically have minimal input on how the prosecution proceeds. The only possible exception is during the sentencing phase. 

Civil lawsuits

Unlike criminal fraud prosecutions initiated by the government, civil fraud charges occur between two individuals. The fraud victim can directly file legal action against the perpetrator. However, the burden of proof rests with the victim, meaning they must demonstrate to the court that the fraud occurred. 

With civil lawsuits, victims must establish the four elements to prove the case of fraud. In the case of  Hryniak v. Mauldin, the Supreme Court of Canada summarized these elements as follows: 

• A false representation committed by the defendant
• Defendant’s awareness of the false representation, either through knowledge or recklessness
• Victim’s reliance on false representation to act 
• The victim experiences harm due to the fraud

Legal Remedies Available for Mortgage Fraud Victims

After falling victim to mortgage fraud, you may feel helpless, and seeking justice and remedy can seem daunting. With the help of a lawyer, you can pursue compensation for the resulting losses you suffered. However, the remedies differ between criminal and civil fraud cases.

Criminal cases

A restitution order is a common remedy awarded to victims in a criminal fraud case. It’s a criminal court order mandating the offender to pay a victim a predetermined amount based on the offence for which they were convicted. 

There won’t be a restitution order for repayment to the fraud victim if there’s no conviction in criminal court. Section 738 of the Criminal Code also specifies that it’s only appropriate when the amount of loss is easy to determine and not significantly disputed. 

Obtaining a restitution order doesn’t guarantee that fraud victims will recover their financial losses. It’s only the first step in the process. The victim must ensure the enforcement of the order to receive the compensation. 

Suppose the offender doesn’t comply with the restitution order. Under Section 741 of the Code, the victim may take the procedures to enforce it through the civil courts. Implementing this remedy can be challenging and often disappointing. 

Civil cases

Alternatively, in civil fraud cases, victims can negotiate directly with the perpetrator’s lawyers and seek compensation for their losses. The monetary award aims to compensate for the losses the victim suffered due to the fraudulent act. Such losses can be economic or non-economic. 

Additionally, victims of civil fraud can pursue a legal remedy known as rescission. It’s a discretionary remedy that empowers the civil court to nullify a contract. Its primary objective is to restore the parties involved to the position they would have been in had the fraudulent transaction not taken place. 

Crucial Steps After Falling Victim to Mortgage Fraud

Realizing that you’ve fallen victim to a fraudulent real estate transaction can be overwhelming. But you must take action promptly to minimize the potential losses and achieve a better resolution. Here are the crucial steps you must take when confronted with such a situation: 

Consult a lawyer as soon as possible

Consult a lawyer as soon as you suspect you’ve fallen victim to mortgage fraud. Ideally, hire someone with extensive experience in real estate disputes and mortgage fraud. 

The lawyer can determine whether the mortgage document was fraudulently forged, falsified, or registered. Based on the available evidence, they can help you decide the most appropriate actions to protect what you’re legally entitled to. 

Report the fraud to law enforcement agencies

 Reporting fraud or suspected fraudulent activity is crucial. It provides law enforcement with information necessary to apprehend fraudsters and help stop others from becoming victims.  

Reach out to the Canadian Anti-Fraud Centre at 1-888-495-8501. Such reports are collected and forwarded to the relevant police agencies in your jurisdiction. You can also directly file a formal report to your local police. 

Contact your local land registry office

It’s also crucial to contact your local land registry after experiencing real estate fraud. Alerting them about the fraudulent activity enables them to investigate and take action promptly to safeguard your property rights. Your report can help detect fraudulent activity patterns and enhance property owner security measures. 

Initiate a fraud alert with the credit bureau

Another essential step is to contact Canada’s primary credit bureaus, Equifax and TransUnion. Request a free credit report immediately. If you discover any unfamiliar information on your credit file, contact the creditors to investigate the account or inquiry. Ask them to place a fraud alert on your file for extra protection. 

Seek Legal Guidance From a Lawyer

Mortgage fraud is nothing new. Anyone can fall victim to this scam. As such, you must stay vigilant when conducting real estate transactions. You must do due diligence and not sign any papers without fully comprehending their content.

Suppose you’re a victim seeking legal remedy or facing a mortgage fraud charge. The guidance of a lawyer is crucial to safeguard your rights and interests. They can help you navigate the possible legal options in this challenging time. Contact Diamond and Diamond for legal consultation. Our team of lawyers can advocate for your rights and secure the justice you legally deserve. 

The consequences of mortgage fraud can be devastating. Seek consultation with a Diamond and Diamond Lawyer today. 

FAQs on Mortgage Fraud 

What’s the limitation period for mortgage fraud claims in Canada?

Provincial and territorial Limitations Acts set the basic initiation period at two to six years from the date of the discovery. The timeframe for initiating a lawsuit based on fraud starts from the date the victim should have reasonably become aware of the loss.

What can happen if a real estate professional commits mortgage fraud?

Suppose a real estate agent or broker gets involved in mortgage fraud. They may face the following consequences:

• Face a lawsuit in civil court
• Undergo disciplinary action, which includes revoking their license and freezing their assets
• Charged with criminal fraud

What are the consequences of allowing someone to use your personal information for a mortgage?

Straw buyers who authorize someone to purchase a property under their name are committing mortgage fraud. They will be responsible for any financial deficit if the borrower defaults. Even after the property is sold, they will be liable for the entire debt. Likewise, they could face criminal charges for their deception.