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Red flags and best practices: Preventing fraud in real estate transactions

Fraud in the Canadian real estate industry has reached a level of sophistication that has never been seen before. From falsifying identification to impersonating homeowners, fraudsters continue to get more and more creative. 

What’s even scarier is that fraud can occur at any time within the real estate transaction – meaning real estate professionals need to be vigilant in order to spot red flags and protect their clients. 

The industry is working together to navigate this, from adapting processes and establishing best practices to exploring new technologies as part of the solution. 

However, ongoing collaboration among real estate professionals and other stakeholders is critical to fully understanding the growing threat of fraud and effectively communicating how Canadians can protect themselves. 


Understanding fraud in the current marketplace 

Financial fraud is on the rise, and given that houses are usually the biggest asset an individual will own in their lifetime, fraud in the real estate industry has been at the forefront of this conversation. 

Two common types of fraud in the Canadian real estate industry are title fraud, where someone steals an identity or impersonates an individual to get a mortgage in their name and transfer fraud, which is when someone steals an identity and uses it to sell the property itself. 

While these types of fraud and several others have been occurring for many years, they can be difficult to detect as fraudsters are constantly changing their approach— primarily due to the increasingly prominent role of technology. 

It’s also important to note that this can happen anywhere in Canada. For example, FCT recently prevented $400,000 of fraud in a city of 20,000. In this case, it seemed like a standard refinance deal from a community east of Calgary— just a homeowner leveraging some of their equity – but, in reality, the owner had nothing to do with the deal.

This requires real estate professionals and other industry professionals to continuously educate themselves on ongoing and emerging fraud threats that could impact their clients, as well as the red flags to watch for. 

For example, vacant or paid-off properties can sometimes be a red flag, meaning real estate professionals should do their due diligence to ensure they are dealing with the actual owner. Other red flags include unusual title activity, such as frequent mortgaging, pressure to close quickly and clients who are unable to connect in person or on camera to verify information. 


Real estate professionals have a role to play in prevention and protection


From the first interaction with a homeowner or prospective buyer, real estate professionals should be watching for red flags. These can include everything from inconsistencies in identification or employment records that the homeowner or buyer is unable to explain to vacant land that may indicate you’re not dealing with the actual owner.

It’s of utmost importance that real estate professionals watch for these flags and work with other industry participants— such as banks, fraud experts and lawyers, to point out when something seems off. The more the industry works together, the faster we can detect and prevent fraud. 

Additionally, real estate professionals can play a role in preventing fraud by educating clients on how to protect their personal information throughout the buying process. This is especially important as the breach of personal information is one of the many new risks that stem from the movement towards more automated processes. 

For example, all parties have a responsibility to ensure they are on protected networks when sending or receiving financial information. While this may seem obvious to those in the industry, it’s a very important piece of information that needs to be shared with homeowners or potential buyers. 

Lastly, real estate professionals can encourage clients to purchase title insurance when they buy their homes. This will guarantee they are protected should they fall victim to title or transfer fraud in the future. 

As the threat of fraud in the real estate industry continues to evolve, it will be essential for industry participants to work together to detect and prevent ever-evolving threats. 

Real estate professionals play a vital role in preventing fraud and protecting clients by watching for red flags and encouraging clients to protect their personal information at all times.