Damage reputation, investigations and a criminal offence; real estate fraud happens and the consequences can be dreadful. This week our members participated in a REALTips presentation by RECA’s Senior Professional Conduct Review Officer, Tricia Hickey.

For those who couldn’t attend, here are some highlights from the presentation that focused on straw buyer fraud.

What is straw buyer fraud?

A straw buyer is someone who agrees to put his or her name on a mortgage application on behalf of another person. In return for their participation, straw buyers may be offered cash or promised high returns when the property is sold. Often, straw buyers are deceived into believing they will not be responsible for the mortgage and don’t even see the property. The identification from the straw buyer may be used on several transactions without their knowledge.  

What do I look out for?

Key themes include misrepresentation, falsified documents and financial stability.

Common red flags include:

• A housing purchase that does not make sense for the buyer;
• Land title records that don’t match seller information; 
• A buyer that is a numbered company seeking a high ratio mortgage;
• Quick succession of trades on one property;
• Uncommon commission arrangements, unusual adjustment to commissions, low fees;
• Listing information that is unusual or inconsistent with the transaction. For example, listing is removed from the listing database prior to sale, sale is not reported, listing reappears at higher price, associates named in the listing is different from the purchase contract, listing database history doesn't support pricing; and
• Individuals appear to be coached.

What are misconceptions?

People often think straw buyer fraud only happens in extremely hot markets, but it can happen anywhere. The difference is that the process happens quickly in a hot market while the process can be slower in cooler markets.  

Is this straw buying unethical or illegal?

Yes, straw buying is illegal. Mortgage fraud is a criminal offence and there are many examples of REALTORS^® being involved in straw buyer fraud, knowingly and unknowingly.

Participation in mortgage fraud also violates the Real Estate Act Rules. Industry professionals who breach the Rules face strong sanctions, including suspension, investigation by RECA, cancellation of their authorization and reputation damage.

Industry professionals must help prevent mortgage fraud by identifying suspicious deals and notifying authorities.

How can I avoid real estate fraud?

1. Ask questions;
2. Do your due diligence;
3. Meet the person you are representing and view the property in person; and
4. Be prepared to walk away from a suspicious deal.

For additional information:

RECA: Straw Buyer Infographic

RECA: Mortgage Fraud Red Flags - Real Estate Professional

CMHC: Mortgage fraud information