Beware of Mortgage or Title Fraud

In a time where identity theft and Ponzi schemes are plastered across the daily news, the last thing you want to worry about is yet another way to lose your hard-earned money.

But as a homeowner, you need to be aware of crimes on the rise known as mortgage fraud and real estate title fraud.

 

Mortgage Fraud

The most common type of mortgage fraud involves a criminal obtaining a property, then increasing its value through a series of sales and resales involving the fraudster and someone working in cooperation with them. A mortgage is then secured for the property based on the inflated price.

 

Following are some red flags for mortgage fraud:

  • Someone offers you money to use your name and credit information to obtain a mortgage
  • You are encouraged to include false information on a mortgage application
  • You are asked to leave signature lines or other important areas of your mortgage application blank
  • The seller or investment advisor discourages you from seeing or inspecting the property you will be purchasing
  • The seller or developer rebates you money on closing, and you don’t disclose this to your lending institution

 

“Straw Buyer” Scheme
Because of the recession, more people are desperate and eager to find a way to hang onto their homes. A couple was recently arrested in Canada after duping 100 families looking for help to avoid foreclosure in the US.

Another term for mortgage fraud is the “straw” or “dummy” homebuyer scheme. For instance, a renter does not have a good credit rating or is self-employed and cannot get a mortgage, or doesn’t have a sufficient down payment, so he or she cannot purchase a home. He/she or an associate approaches someone else with solid credit. This person is offered a sum of money (can be as much as $10,000) to go through the motions of buying a property on the other person’s behalf – acting as a straw buyer. The person with good credit lends their name and credit rating to the person who cannot be approved for a mortgage for his or her purchase of a home.

Other types of criminal activity often dovetail with mortgage fraud or title fraud. For example, people who run “grow ops” or meth labs may use these forms of fraud to “purchase” their properties.

 

The Fallout for Lenders
Fortunately (for you, at least), mortgage fraud typically hurts the lender the most.

Canadian precedents have been set in which banks are held responsible for mortgage fraud. The BC Court of Appeals recently ruled that “the lender – not the rightful property owner – is the one out of luck in a fraudulent mortgage scheme” and that lenders “must ensure their mortgages are valid by taking steps to ensure that the registered owner obtained title to the property legally.” The same conclusion was made by the Ontario Courts a couple of years ago.

Banks, as you can imagine, aren’t too thrilled about this trend. Royal Bank of Canada recently sued a former bank employee over an alleged mortgage fraud scheme.


Title Fraud
Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes into default and the lender begins foreclosure proceedings. Even worse, as the homeowner, you are the one hurt by title fraud, rather than the lender, as is the case with mortgage fraud.

Unlike with mortgage fraud, during title fraud, you haven’t been approached or offered anything – this is a form of identity theft.

Here’s what happens with title fraud: A criminal – using false identification to pose as you – registers forged documents transferring your property to his/her name, then registers a forced discharge of your existing mortgage and gets a new mortgage against your property. Then the fraudster makes off with the new home loan money without making mortgage payments. The bank thinks you are the one defaulting – and your economic downfall begins.

 

Following are ways you can protect yourself from title fraud:

  • Always view the property you are purchasing in person
  • Check listings in the community where the property is located – compare features, size and location to establish if the asking price seems reasonable
  • Make sure your representative is a licensed real estate agent
  • Beware of a real estate agent or mortgage broker who has a financial interest in the transaction
  • Ask for a copy of the land title or go to a registry office and request a historical title search
  • In the offer to purchase, include the option to have the property appraised by a designated or accredited appraiser
  • Insist on a home inspection to guard against buying a home that has been cosmetically renovated or formerly used as a grow house or meth lab
  • Ask to see receipts for recent renovations
  • When you make a deposit, ensure your money is protected by being held “in trust”
  • Consider the purchase of title insurance

 

It’s important to remember that if something doesn’t seem right, it usually isn’t – always follow your instincts when it comes to red flags during the home buying and mortgage processes.

Buying versus Renting

At some point in their lives, most Canadians have probably asked themselves whether it is better to buy or rent a home. And purchasing a home is one of the biggest decisions most people ever make.

Ultimately, the decision is a personal choice, but it helps to look at the pros and cons of buying to determine whether home ownership is right for you.

 

Some advantages of buying a home

Owning a home is generally considered to be a sound, long-term investment that can provide satisfaction and security for you and your family.

 

Each month when you make your mortgage payment, you are building equity in your home.

 

Equity is the portion of the property that you actually build through your monthly payment versus the portion that you still owe the lender.

 

At the beginning of your mortgage, more of your payments go toward paying off the interest and less toward paying off the principal. But the longer you stay in your home and the more mortgage payments you make, the more principal you pay off and the more equity you accumulate.

 

Most mortgages also offer you the option of making additional monthly or annual payments to reduce your principal faster. Some prepayment privileges, for instance, enable you to pay up to 20% of the principal per calendar year. This will also help reduce your amortization period (the length of your mortgage), which, in turn, saves you money.

 

There is also a tax advantage. If your home is your principal residence, any profit you make when you sell it is tax-free. A home can appreciate – or increase in value – as time passes, building more equity. As you build up equity, it’s usually easier to upgrade to a more expensive home in the future thanks to the profit you’ll make when selling your current home.

 

As an owner, you can also decorate and improve your home any way you like. Ownership tends to give you a sense of pride and can offer you and your family stronger ties to the community.

 

If you do decide that home ownership is right for you, it’s important to choose a home you can afford. If you can’t afford to buy your dream home, purchasing a more modest home can be a great place to start building equity that one day may allow you to buy the home of your dreams.

 

Since we’re currently in a buyer’s real estate market and interest rates have been dropping, now may be an ideal time to enter into home ownership for the first time.

 

Some disadvantages of buying a home

Since it’s easy to get caught up in the excitement of buying a home, it’s important to remember that home ownership has some additional responsibilities as well.

 

For one thing, a home can be expensive. Chances are, your monthly payments will be more than what you are currently paying in rent when you factor in such things as your mortgage, property taxes, repairs and general maintenance.

 

Owning a home ties up some of your cash flow and is likely to reduce your flexibility to move to a new location or change jobs.

 

While your home might increase in value as time goes by, don’t expect to get a big return quickly. There are no guarantees that your home will increase in value, particularly during the first few years. In the beginning, you could actually lose money if you sell because your home may not have appreciated enough to cover the real estate fees, and moving, renovation and other selling costs.

 

Real estate is, however, usually considered a good investment over the long term.

 

When making the decision about whether to buy or rent, it’s important to carefully choose a home you can afford, and then weigh the pros and cons. Millions of people enjoy the rewards of home ownership but, ultimately, it’s a personal decision based on your own priorities.

 

If you’re thinking of buying your first home, Dominion Lending Centres mortgage professionals can answer all of your mortgage-related questions.

10 Questions to Ask Your Home Inspector

The purchase of a home is likely the largest financial expenditure you’ll ever make. And getting your home inspected is an essential step in the home-buying process. No one wants to buy a money pit – and once you have signed on the dotted line, there is no turning back.

The best way to ensure you use a professional home inspector is to seek referrals from your mortgage professional, real estate agent or friends. Since you want to be able to trust your home inspector’s judgement, you have to ensure they’re not part-time home inspectors just trying to make some extra cash on the side, or they aren’t only home inspecting so they can also offer to complete any work for you that you need done on the home. To ensure the job’s done right, after all, the home inspection must not be biased.

The purpose of a home inspection is for the inspector to be able to tell you everything you need to know about the home you’re going to purchase so that you can make an informed decision.

Following are 10 key questions you can ask your home inspector before they’re hired to ensure the inspection will be completed professionally and thoroughly:

  1. Can I see your licence/professional credentials and proof of insurance?
  2. How many years’ experience do you have as a home inspector? (Make sure they’re talking specifically about home inspection and not just how much experience they have in a single trade.)
  3. How many inspections have you personally completed?
  4. What qualifications and training do you have? Are you a member of a professional organization? What’s your background – construction, engineering, plumbing, etc?
  5. Can I see some references? (Make sure you also check the references.)
  6. What kind of report do you provide? Do you take pictures of the house and add them to your report?
  7. What kind of tools do you use during your inspection?
  8. Can you give me an idea of what kind of repairs the house may need? (Be wary if they offer to fix the issues themselves or can recommend someone else to complete the job cheap.)
  9. When do you do the inspection? (Let’s hope they don’t have a day job, and can only do them at night when it’s too dark to see the roof. It’s best to stay away from part-time inspectors.)
  10. How long do your inspections usually take?

Single Ladies Buying Homes

It’s becoming increasingly apparent that a greater number of women are now taking the reigns when it comes to home purchases. There’s a growing trend among single women – and, more precisely, professional single women – who are becoming independent homeowners. While many of them may be putting off marriage, they’re not waiting around for Mr Right before taking the plunge into homeownership.

 

It’s believed that around 20% of homebuyers in North America are single women based on a 2011 report released by the US National Association of Realtors. Harvard University’s Joint Center for Housing Studies also released a report that said single women are buying in record numbers.

 

There’s no equivalent data for Canada, but an abundance of anecdotal information has led to the creation of shows like HGTV’s Buy Herself, which follows single women making their first real estate purchases.
Women are looking for ways to become financially independent, and investing in real estate and building equity for themselves are ways to invest in their future – building financial security.

 

Women are taking advantage of historically low interest rates and recognizing homeownership is often more affordable than renting.

 

Seeking expert advice

One of the amazing things about women looking to invest in real estate is that they’re getting more advice before they make the decision to enter the market. They’re seeking out mortgage experts and real estate agents, and building a plan for the perfect entry into the market. They’re making lists of areas in which they’re interested in purchasing, itemizing amenities they would need in their ideal neighbourhoods, ensuring they have all the facts around closing costs and fees associated with making the purchase, and securing a mortgage.

 

Buying a home is likely one of the largest purchases you’ll ever make in your lifetime, and can feel overwhelming. That’s why working with a professional mortgage agent, real estate agent, home inspector and so on is essential. You’ll be working with these professionals closely – possibly for months – so interactions should feel comfortable, and they should be knowledgeable and responsive even to the smallest question.

 

The more prepared you are, the smoother the experience will be so do a little research on your own over the Internet to get a good idea of what types of properties and areas are of interest to you. Make a list of questions to ask your mortgage agent or realtor – and keep it on hand so you can add to it as more questions arise.

 

Interest rates are the lowest they’ve been in history and they have nowhere to go but up. Industry professionals believe that as rates begin to rise, they’ll continue to rise for some time. There has never been a better time for women to make the decision to get into the real estate market to find the perfect place to call home.

Tips for Paying Off Your Mortgage Faster

Mortgages in Canada are generally amortized between 25 and 35 year terms. While this seems a long time, it does not have to take anyone that long to pay off their mortgage if they choose to do so in a shorter period of time.

With a little bit of thinking ahead, and a small bit of sacrifice, most people can manage to pay off their mortgage in a much shorter period of time by taking positive steps such as:

  • Making mortgage payments each week, or even every other week. Both options lower your interest paid over the term of your mortgage and can result in the equivalent of an extra month’s mortgage payment each year. Paying your mortgage in this way can take your mortgage from 25 years down to 21.
  • When your income increases, increase the amount of your mortgage payments. Let’s say you get a 5% raise each year at work. If you put that extra 5% of your income into your mortgage, your mortgage balance will drop much faster without feeling like you are changing your spending habits.
  • Mortgage lenders will also allow you to make extra payments on your mortgage balance each year. Just about everyone finds themselves with money they were not expecting at some point or another. Maybe you inherited some money from a distant relative or you received a nice holiday bonus at work. Apply this money to your mortgage lender as a lump-sum payment towards your mortgage and watch the results.

By applying these strategies consistently over time, you will save money, pay less interest and pay off your mortgage years earlier!

The Trouble with Debit Cards

We live in a society of instant gratification. Unlike our parents or grandparents – who saved up for larger purchases – we are often tempted to splurge on bigger-ticket items simply because we have a debit card in hand when we head out “window shopping”.

And aside from overspending thanks to the advent of debit cards, consumers are also more likely to dip into overdraft, which ends up costing more thanks to fees and interest that banks charge whenever you spend more than you have in your account.

Basically, a debit card works like a cheque. The only difference is that every time you use it, you’re immediately taking money out of your account. That’s why when you overdraw it’s like bouncing a cheque – only worse because, unlike cheques, you probably don’t keep a record of every debit card purchase you make.

You may even make a bunch of small purchases before you realize you’ve spent more than you have. So before you pay for that coffee or lunch purchase with your debit card, make sure you have enough money in your account to cover it.

 

Revert to using cash for daily expenses

Cash controls spending, plain and simple. Using cash to pay for everyday purchases such as coffee, transit, lunch and magazines alerts you to the idea that you’re actually spending real money. You just don’t get the same cautionary sense when you haul out plastic, be it a debit or credit card.

There’s a distinct cognitive event that happens when you handle money – it’s called awareness. Over the counter goes the five dollar bill and back comes a loonie, a dime, two nickels and four pennies.

Did you just add up the change above to determine how much money you have left? Did you think about what that purchase could have been? You see, you are much more conscious of this imaginary purchase than if you had paid with plastic.

Now, add in the awareness of the bills left in your wallet and you become attuned to your temporary wealth, or lack thereof. At the end of the day, what encourages or cautions many consumers about spending is knowing where you stand from a financial perspective. That’s why cash can help control spending. Using cash to pay for everyday purchases alerts you to the idea that you’re actually spending real money.

By allotting yourself a weekly cash allowance for entertainment and everyday expenses – such as that daily morning coffee or weekly movie – you are building a budget around what you can spend on these purchases. And once the money in your wallet has been spent, you have to ensure you fight the urge to withdraw more cash or resort back to using your debit card.

Be realistic about what you typically spend on these items in a week. If you routinely eat out for lunch or stop at Tim Hortons for coffee, count that as well. If you think you’re spending too much on these items, you can then decide to find a less expensive alternative, such as brown-bagging your lunch or making your own coffee.

Let’s say, for instance, that you start the week off with $50 in your wallet and you began to spend it on your purchases. You will see $50 turn into $40, $40 turn into $25, $25 turn into $15 and so on. Every time you look into your wallet, you will see what’s left over from your original $50 and be aware of how quickly your money is being spent. This alone can make you think twice before making a purchase.

If you have any questions concerning budgeting, contact your Dominion Lending Centres Mortgage Professional.

Using Home Equity to Finance Cottage Improvements

 

With interest rates sitting at “emergency” levels – low rates never before seen by your parents and even your grandparents – now is an ideal time to tap into the available equity in your home or cottage to fund your renovation or landscape needs. But these rock-bottom rates won’t be available forever – the Bank of Canada estimates fixed mortgage rates will likely begin to rise this summer.

As a cottage owner, you understand the importance of maintaining your cottage and property to ensure it ages well with the times. But you also know that it can be daunting when you think about all of the ongoing costs for renovations and maintenance required to keep your cottage to your liking – especially if you also own a primary residence.

The good news is, if you have built up equity in your primary residence or even your cottage, refinancing your mortgage is a cost-effective way to have funds available for upgrades to your home away from home.

One refinance strategy that mortgage consumers often use involves extending their amortization period – to a maximum of 35 years (with no age discrimination on this product) – so they can lock into an excellent fixed rate for their mortgage and renovation expenses.

In addition to setting you up with a new lower mortgage payment, your mortgage professional can also find a lender that offers the most flexible prepayment privileges.

If you choose to refinance, it’s important to note that there may be penalties for paying out your existing mortgage loan prior to renewal, but these penalties will be offset by a lower interest rate and, at the same time, you can access extra money to put towards your cottage renovations.

By refinancing, thanks to lower interest rates, even though you’re taking on more debt, you can pay your mortgage off faster. Most mortgage products, for instance, include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) in lump sum payments per calendar year. This will also help reduce your amortization period (the length of your mortgage), which, in turn, saves you money.

Some lenders also allow consumers to pay anywhere from an extra 20% of their monthly mortgage payment to up to double the payment.

Using a line of credit

Another option to enable you to access funds for cottage renovations is to take out a home equity line of credit (HELOC) on your primary residence. Although HELOC interest rates are lower than credit cards or other high-interest means of accessing funds, a refinance at today’s low rates is your best option.

A HELOC is a good tool for those who know they want to renovate their cottage in the future but do not know exactly when they want to make the improvements. In other words, a HELOC enables you to access equity on an add-needed basis and you only pay interest on the portion of the HELOC that you use. Another benefit is that you can pay the HELOC off at any time without a penalty.

There are also combination mortgage products available that enable you to have a portion of your mortgage in a fixed interest rate and another portion as a HELOC, which mean the HELOC can be used as a rainy day fund.

By using a HELOC to fund renovations, etc, the savings are substantial versus using a credit card or loan. Just the comparison of paying 3.25% interest with a HELOC compared to 18% for a credit card or loan clearly shows the HELOC advantage.

The other savings is seen in your monthly repayment of the debt. With loans or credit cards, the minimum is typically 3% of the total balance, whereas with the HELOC you’re only paying interest on the loan.

For instance, a $50,000 credit card balance with a 3% monthly payment means $1,500 must be paid each month. With the interest-only payment on the HELOC, you’re only required to pay $135 per month.

If your primary residence does not have enough equity for a refinance or HELOC but your cottage does, you still have options depending on whether your cottage is a vacation property (year-round with road access) or seasonal.

Financial institutions will lend on year-round property up to a maximum loan to value (LTV) of 95% (which means you will only have to have 5% equity remaining in your second home).

Most mortgage financing products are available for year-round cottages as long as the property is in good shape and is marketable. Your lender will want to know they will easily be able to sell your property if you do not continue paying your mortgage or HELOC.

When looking to access home equity, it’s best to speak to your mortgage broker to find an option that suits your unique needs.

Using Home Equity to Your Advantage

Canadians purchase homes for a variety of reasons. Some want the stability of owning their own home, while others also look at home ownership as an investment vehicle. No matter what the reason, the truth is that home ownership has proven itself to be a good stable investment over time, and one which many Canadians are profiting from.

While many people have chosen to purchase their first home during these times of lower interest rates, there has also been a large movement to refinance home loans and pull out equity for home improvements, investments, college expenses, and even high interest debt consolidation. Canadians have been borrowing against their home’s equity in record numbers, taking out billions of dollars in cash each year.

In years past, many saw their homes as a shelter of safety, yet today, they are more than ever before willing to borrow against the equity owned in their homes to further their investment portfolios, get out of debt, send their children to university, make improvements to their home, or even boost their RRSP contributions. Where home equity was once sat upon, today it is something to be tapped out and used to one’s advantage.

While tapping the equity in your home can be a good idea, you should do so with caution and understand any of the possible consequences. The best thing you can do is consult a licensed mortgage professional and financial planner to discuss opportunities to make your home’s equity work for you.