Mortgage Fraud β Red Flags
Lawyers must always be diligent in preventing mortgage fraud. If any of the following red flags are present in a real estate transaction, think twice:
- The mortgage advance exceeds the balance due on closing.
- Credits which are not noted in the purchase agreement or in amendments to the purchase agreement are granted to the purchaser:
- as an additional deposit,
- as a gift,
- under a promissory note,
- for renovations and repairs,
- as a vendor take-back mortgage, or
- as a rebate for a real estate commission.
- Credits are granted to the purchaser in an amendment to the purchase agreement that have not clearly been disclosed to the lender.
- The purchase price of the property has escalated substantially over a relatively short period of time.
- The lender is effectively advancing more than 95% of the purchase price where the mortgage is insured.
- The purchaser provides no or minimal funds on closing such that only the mortgage advance is required to complete or substantially complete the purchase.
- Closing funds come in the form of a cheque or bank draft drawn from a source that indicates that the source may not be the purchaser.
- The purchase agreement (and any amendments to the agreement) indicate that the deposit is payable directly to the vendor rather than to the vendorβs real estate broker or lawyer.
- There is third-party involvement, for example, instructions or directions given by a third party, client identification and information coming from a third party or directions to report to or pay excess mortgage proceeds to a third party.
- The same purchasers, vendors, real estate agency or mortgage broker are present in multiple transactions.
- The lawyer is asked to make a last-minute registration under a power of attorney.
- The lawyer is asked to complete a transaction in a short period of time.
- The lawyer is offered higher than usual legal fees for acting on the transaction.
Related Topics:
Real Estate Transactions
Procedure for Real Estate Transactions
Payment of Disbursements and Expenses
Commissions and Discounts
Final Reports on Title
Anti-Money Laundering and Terrorist Financing Guidance for Lawyers
Risk Advisories for the Legal Profession
Risk Assessment Case Studies for the Legal Profession
(Posted: June 12, 2020)