Unit 9: Mortgage Financing and Fraud Flashcards
____________ is the pledging of a property by a borrower to a creditor or lender as security for the payment of a debt or land.
Mortgage
___________ is the individual or institution participating as a lender in a debt obligation that is secured by a mortgage
Morgagee
_________ is the individual participating as a borrower in a debt obligation that is secured by a mortgage
Mortgagor
_______ is the governing body for mortgage broker professionals
RECA
___________: someone who elicits a person to borrow or lend money that will be secured by a mortgage
Mortgage Broker Professional
Duties of a Mortgage Broker Professional (4)
1) Solicits someone to borrow money for a mortgage
2) Negotiates mortgage transactions
3) Collects mortgage payments and administrates
4) Buys/sells/exchanges mortgages (or offers to)
According to the Real Estate Act, these people are exempt from requiring a Mortgage Broker licence (6)
1) Bank, treasury, credit union, loan corp, trust corp, insurance company
2) An agent or employee of principal mortgage agent
3) Member of Law Society of AB
4) person exempted from the regulations
5) Corporation providing housing to employees
6) Agricultural financial services corp
Duties of Mortgage Brokerage Pros include (5)
- Disclose and explain options
- Gather info about property and borrower’s financial details
- Prepare and submit loan file
- Close transaction / follower up
- Keep borrower in formed of progress of application
Mortgage Brokerages must disclose the following info in writing (5):
1) Nature of relationship with borrower
2) Nature of relationship with lender
3) Range of lenders whose products it offers
4) How brokerage is compensated
5) Nature of any other benefits
___________ is the deliberate use of misstatements, misrepresentations or omissions to fund, purchase, or secure a mortgage loan
Mortgage Fraud
What are the 2 types of Mortgage Fraud?
1) Fraud for Housing
2) Fraud for Profit
In Fraud for __________, a borrower attempts to obtain a larger mortgage than they would otherwise be able to arrange by falsifying the info to the lender to qualify
Fraud for Housing
In Fraud for ________, the borrower (typically organized crime or individuals) seek to make money through property manipulations
Fraud for Profit
2 schemes within Fraud for Housing
- Fraudulent Qualification: getting a bigger mortgage by misrepresenting income or debt levels
- Fraudulent Occupancy: acquiring high-ratio financing without meeting the usual requirement to reside in property
___________ results in the borrower getting a bigger mortgage than they would normally qualify for by falsifying personal info like financial info, employment, etc.
Fraudulent Qualification
_________ results in the borrower acquiring housing that they do not qualify for by pretending to live there themselves, but actually renting it out, therefore getting high-ratio financing when they shouldn’t.`
Fraudulent Occupancy
__________ scheme is when applications or supporting docs are altered in some way to enhance the borrower’s ability to qualify for a desired mortgage.
False Documentation
___________ scheme is when a borrower claims that they will live in the property to get a high ratio mortgage, but they intend to actual use it as a rental property
Non-occupancy
___________ scheme is when a borrower changes around their first / middle names or initials to create a new credit bureau record and avoid the lender finding out they have bad credit.
Name Manipulation
________ scheme is when a borrower falsifies docs, employment, credit, finances, etc. using someone else’s personal info
Identity Theft
_________ scheme is when the buyer find properties with existing mortgages in the hopes to assume it and to bypass the mortgage application process
Buyer Financing
Some fraudster sellers may acquire new financing secured by a mortgage using credit info supplied by a ___________ and may involve false appraisal or inflated purchase price.
Straw Buyer
In the _____________ scheme, the fraudster have the sellers offer to hold the mortgage, then instead of moving in, they use it as a grow op and fail to make payments.
Seller Financing
In the _____________ scheme, the fraudsters find private investors to contribute to the build of new properties or upgrading old ones, but just take the money and run
Private Financing
In __________ fraud, the fraudster acquires titles of multiple revenue properties but doesn’t make payments on any (usually acquired using straw buyers) but collects revenue in the meantime until foreclosure
Bankruptcy
___________ scheme is when a few loans are replaced with a consolidated loan that has a lower interest rate (and sometimes longer payment period). They target individuals in debt, claim to provide financing assistance and then take the title as collateral.
Debt Consolidation / Foreclosure Fraud
_______ targets high value properties with no existing mortgage. The fraudster claims to hold the title temporarily while the owner pays off debts to avoid foreclosure
Title Fraud
___________ is when the borrower gets money from a third party to use as a down payment but doesn’t tell the lender that they money doesn’t belong to them
False Deposit
__________ may involve conversion of apartments into condos or upgrading old buildings. They get an inflated appraisal one a single unit to get a good mortgage loan but then don’t go through with the rest of the renos.
Re-development scheme
________ refers to a second mortgage that is taken out and kept secret from the other mortgagee to put a bigger deposit.
Secret Second
________ is a loan advanced on a property that doesn’t exist.
Air Loan
___________ scheme is when a purchase contract is written using an inflated amount and the price is amended to show the real lower price later but the lender only receives the higher price contract
Vendor Cash-Back
___________ requires 2 or more contracts for the same transaction but the false one is provided to lender to get a larger loan
Contract Kiting
A ___________ is a person who is paid by a fraudster to act on their behalf using their personal info / credit history for applications / title transfers.
Straw Buyer
____________ is 2 or more transactions in a short time on one property so that the first transaction isn’t registered at the land titles office in time.
Property flip
- it’s not illegal but it does hide ownership trails and can inflate the value of a property
Red flags from buyers / borrowers of mortgages (8):
- they won’t provide photo ID
- Involves a relative of the professional
- Land title records don’t match seller info
- Buyer is a numbered company seeking high-ratio mortgage
- Info about the buyer’s income doesn’t match industry expectation
- Buyer purchases investment property but doesn’t have a principal residence
- Deposit is in cash or money order
- Buyer / seller is presented by a power of attorney
Red Flags for property value (4)
1) Vendor take-back mortgage is offered
2) Vendor take-back / sweat equity not referenced in contract
3) Property owned by company with mortgage >80% value
4) Appraisals done by party themselves
Red Flags for unusual transactions (17)
- quick successive trades on one property
- ‘Seller rights reserved’ on listing
- uncommon commission arrangements
- listing refers inquiries to unlicensed individual for sale
- Listing database or info unusual or inconsistent
- Agent asked to creature feature sheet with inflated price
- One lawyer for both buyer and seller
- All / many units for sale at same time
- Immediate possession dates
- no conditions
- no counteroffer
- contract statements like ‘this is a private sale’
- names added or deleted from contract
- contract requires signing of both parties at same time
- No info for buyer, seller or agent on docs
- schedules, addenda, amendments don’t reference original contract
- deposit not held at brokerage
Red Flags regarding professionals (12)
1) Info section not filled out
2) Uses same lawyer for most transactions
3) Only does transactions with the same other agents
4) Refers clients to the same lender always
5) Sells their own property regularly
6) Directly assists clients with financing
7) Lends the down payment themselves
8) is licensed as both an agent and brokerage pro
9) ads with ‘low down’ ‘no down’ ‘quick possession’ ‘assumable’ ‘no qualifying’
10) Lifestyle doesn’t match income from brokerage
11) Listing volume doesn’t match brokerage record
12) Contract witnessed by someone other than the agent
Red Flags regarding Brokerage (9)
- No fraud protection or detection policies
- no oversight for personal trades
- admin staff not trained in detection
- Titles not required to be reviewed
- original docs don’t need to be filed
- no background check for staff
- no disclosure of info or verification
- no compliance with FINTRAC
Red Flags for appraisals (5)
- Purchase is higher than listing price
- Property ownership changed lots in short period with price increases
- Selling price high for that area
- Parties are ‘undisclosed’, ‘care of listing broker’ or ‘nominee’
- property has illegal or non-conforming suites
_____________ happens when someone conceals criminal sources of money or assets
Money Laundering
3 objectives of PCMLTFA and FINTRAC
- Implement measures to deter and detract that activity
- Respond to the thread posed by organized crime groups
- Help fulfill Canada’s International commitments to multi-national crime
Brokerages must report transactions that (3)
- have suspicious aspects
- are all in cash or involve large amounts of cash
- include international money transfers
Suspicious transactions may include(4):
- Cash deposits that accompany contract
- Buyer / seller is unregistered charity
- ID of seller or buyer is hard to determine
- Similar transactions by same / similar parties
Failure to retain records of buyer / seller ID may lead to fines of __________ or ____ years imprisonment (or both)
$500,000, 5 years
What to check if a corporation is used for a transaction (3)
1) is the corporation registered and where
2) Is the individual an officer of the corp and have the right to represent them in that transaction
3) Determine the info the brokerage needs from them
If a property was used for drug operations, ______ may put a caveat on the title
AHS
Signs of Grow Op (9)
1) Enhanced security
2) Interior/exterior lacking maintenance
3) Odd equipment (fans, lights)
4) Interior / exterior moldy, musty, skunky
5) Condensation damage
6) Windows covered
7) Electrical meter tampering
8) Exterior walls have moisture stains
9) Plant / soil material discarded
Signs of Drug Lab (8)
1) Chemical odor
2) Coloured stains on walls
3) Evidence of odd cooking activities
4) Evidence of waste disposal outside
5) Fire / smoke detectors removed
6) Supplemental ventilation added
7) Increased security
8) Lack of maintenance
Mortgage Fraud recent key concepts (5)
- Fraudsters seek accomplices
- Fraudsters use tech
- Fraudsters find opportunities (regardless of market)
- Fraudsters seek out any property type
- Fraudsters adapt
_______ is the repayment of debt through a series of equal payments
Amortization
_________ is the amount of time the borrower is committed to a lender a particular interest rate and specific conditions
Mortgage Term
A ____________ is one where the loan amount does not exceed 80% of the appraised value or purchase price of the property.
Conventional Mortgage
A ___________ is one where the loan amount is more than 80% of the appraised value or purchase price of the property.
High-Ratio Mortgage
Principles of Property Valuation ()
- Principle of Supply and Demand
- Principle of Highest and Best Use
- Principle of Contribution
- Principle of Change
- Principle of Substitution
- Principle of Conformity
- Principle of Progression
- Principle of Regression
- Principle of Anticipation
- Principle of Balance
4 Key criteria for determining highest and best use
1) Legal permissibility
2) Physical Possibility
3) Financial Feasibility
4) Maximally Productive
_________ the value of the property feature relates to its overall affect on the value of the property
Principle of Contribution
____________ states that economic, social, and political factors are constantly affecting property values
Principle of Change
______ states that the buyer will pay no more for a property than the cost of a similar / equally desirable property on the market
Principle of Substitution
____________ states that in order to maintain maximum value, properties must reasonably conform to existing standards in the area
Principle of Conformity
___________ states that when properties in the area are dissimilar, the lowest priced property will be in enhanced in value by properties of greater value around it
Principle of Progression
_________ states that when properties in area are dissimilar, the property of greatest value will have lower value due to the proximity of lesser value properties
Principle of Regression
____________ states that value is created by buyer expectations of future benefits
Principle of Anticipation
(e.g. LRT station planned for area)
______________ value is created and sustained when their is balance
Principle of Balance
(e.g. too much competition when too many similar businesses are established in same area)
3 Types of Appraisal Reports
1) Form Report (fill in blanks)
2) Letter of Opinion (brief statement)
3) Narrative Report (full report with details)
