Recent RCMP data shows that fraud losses in Canada hit a new record. In 2022, the Canadian Anti-Fraud Centre reported $530 million in fraud and cybercrime losses. Police estimate, however, that only 5-10% of frauds are ever reported. How can real estate agents combat fraud while guiding their clients?
For Canadians, the most worrying type of fraud involves their home, which is often their biggest investment. Recent media reports have highlighted fraudulent home and condo sales, heightening concerns among homeowners.
The Canadian government outlines several common types of real estate fraud that every real estate agent and homeowner should recognize. Being familiar with these fraud types can help you and your clients take pre-emptive actions to avoid falling victim. These fraudulent activities not only lead to financial losses but can also cause severe emotional distress for those involved.
- Title fraud occurs when someone steals a home’s title to sell the property or obtain a mortgage.
- Foreclosure fraud scares owners into transferring properties in exchange for false financial relief.
- Mortgage fraud involves obtaining a mortgage under false pretenses, such as fake income slips.
How Can Your Clients Protect Themselves from Real Estate Fraud?
There are several precautions that your clients should be aware about to protect themselves from falling victim to fraud. Here are some recommendations you may want to share:
- Dispose of sensitive information safely.
- Secure passwords.
- Discuss title insurance with the real estate lawyer.
- Work with trusted professionals.
Dispose of Sensitive Information Safely
Explain the importance of shredding sensitive documents. Your clients could risk identity theft if they simply throw away mortgage or bank statements. A fraudster, for example, could sift through the recycled papers, find these statements, and use clients’ personal information to impersonate them. Identity fraud can serve in fraud schemes, such as illegally selling a home or obtaining a mortgage in your client’s name.
Secure Passwords
Remind your clients to maintain strong and unique passwords, especially for their email accounts. This is particularly important during real estate transactions. A hacker, for example, could gain control of an email account and patiently wait for the right moment. When that moment comes, they can send fraudulent wire instructions to the real estate lawyer. Consequently, the funds could be misdirected to the fraudster’s account.
Discuss Title Insurance with the Real Estate Lawyer
You should also recommend that your clients talk to their real estate lawyer about title insurance. This type of insurance is crucial to insure that you have (and continue to have after closing) “good and marketable title” to a property. It’s usually obtained at the time of buying or mortgaging a property, serving to protect both the buyer and the lender against various risks. One of the main benefits of title insurance is to defend against fraudulent sale conducted by someone other than the registered owner.
In addition to its primary role, title insurance can offer protection against a range of other potential issues, such as:
- Construction liens that were placed on the property before the purchase and have not been paid.
- Unsettled tax obligations from previous owners.
- Planning action violations between adjoining properties.
- Rights of way, which are especially critical for rural properties.
By discussing and securing title insurance, your clients can add an extra layer of safety and security against fraudulent transactions and various other property-related issues.
Work with Trusted Professionals
Working closely with a team of professionals offers an additional layer of defense against fraud. Your client should ask some of the following questions when buying or selling a property:
- What are some warning signs to look out for in detecting real estate fraud?
- How to ensure that funds are wired to the correct party?
- What extra steps could be taken to verify a property’s legitimacy?
By taking these steps, your clients can reduce the risk of becoming a fraud victim. It’s imperative to be proactive in an era when fraud losses are consistently rising.