Mortgage Broker

MortgageBroker mbabc.ca winter 2015 | 43 detectingfraud fraudster), the straw buyer is le responsible for the deficiency on the mortgage (which arises because the property sold for its true value), and the fraudster flips the property again or uses the profits to commit a similar fraud elsewhere. Regardless of the sophistication of the scam, a mortgage broker needs to be alert to red flags. It is impossible to list all possibilities, scenarios or precautions for scams, but the following are a few examples. Red flags e more red flags present in a transaction, the more your interest should be piqued. You need to be satisfied that borrowers have provided accurate information about their identity and circumstances. It is a red flag if borrowers: • Do not provide photo identification bearing their exact and complete name; or • Do not state their income in a way that is standard for their industry or the employer is not a known or determinable entity. You need to be satisfied that the borrower is the real buyer (e.g., not a straw buyer). You should see a red flag if borrowers: • Have no particular connection to the property (e.g., they're from out of town); • Are purchasing a property inconsistent with their other assets and lifestyle (e.g., buying a multi-unit rental property as a first purchase without having employment to support the purchase); or • Pay the down payment in cash or have someone else pay the down payment. You need to be satisfied the property valuation is valid. You should see a red flag if: • e appraisal value is markedly different from what's indicated by the property tax assessment; • ere is a discrepancy between the property appraised and the one being mortgaged; • e contract price is not consistent with the value of comparable properties in the area; or • e property has been flipped several times in a short period of time, accompanied by unexplained increasing values. You need to be satisfied, in the case of a purchase, that any claimed deposits were in fact made. It's a red flag if: • Deposits were not made to a real estate brokerage or lawyer; or • Deposits were made by transferring chattels, by work performed, or by payment being made directly to the seller and cannot be verified. You need to be satisfied that anything unusual in the closing process is legitimate. You should see a red flag if: • e mortgage advance exceeds the balance due on closing; • Credits are granted to the purchaser in an amendment to the purchase agreement that has not clearly been disclosed to the lender; or • In addition to a "fuzzy" deposit, the buyer is not putting in any additional funds to close. Finally, you need to be satisfied that any documents provided are legitimate. Check for things such as changes made aer signature, different handwriting or fonts, and cross-outs. Also check for consistency between documents and evaluate whether the documents together create a situation you accept as real. Preventive measures In the middle of this, borrowers and lenders are looking to you for assistance in putting deals together. What can a mortgage broker do? What can't a mortgage broker do? Certainly you expose yourself to civil and perhaps criminal liability if you commit fraud or are a party to fraud. Simply put, you are not entitled to participate in a fraud. If you pretend not to be aware of the fraud or are not reasonable in being alert to it, you are at risk. Aside from ethical and other concerns, you are less likely to be criminally or civilly liable if you can show that you were mindful and prudent in protecting against participating in a fraud. Most importantly, disclose clearly and in writing to the lender if you are not taking on any responsibility as to the accuracy of the information. is will put the lender on notice to pass on the deal, take the risk or perform their own due diligence. If you do perform any of the due diligence, disclose clearly and in writing what you have done so the lender can identify any remaining risks. For due diligence you do take on, be prudent and approach it with a healthy dose of suspicion. Do not accept everything put before you or said to you. ere is nothing more helpful than asking yourself, "Does this make sense?" In addition to being alert to the deal and using common sense, you will want to consider: • Asking any questions, in a straightforward manner, that need to be asked to resolve any issues. (You may receive a straightforward admission of something improper having been done, particularly if the borrowers feel you are on to them.) • Independently verifying basic things such as identification, employment letters, employment history and credit bureau information. • Independently verifying any other information if you are not satisfied as to its completeness and accuracy (e.g., a suspicious property valuation). Finally, consider whether title insurance is appropriate in the circumstances. Your client will want to consider not only its availability but any exclusions to coverage. Remember, so long as you either do not take on the responsibility or are reasonable in performing the responsibilities you do take on, you are less likely to be found civilly or criminally responsible for frauds you do not detect. •

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