This story originally appeared on Business Insider.
If you’re an absent landlord renting out your home to a stranger, you should tread carefully, fraud experts say.
Dubious renters could pretend to be you in order to secure a new mortgage on your property and then run off with the cash, as was the case in Canada recently.
Insider reported earlier this month on the case of Jay Allen Macdougall, a 42-year-old man who is charged with five counts of fraud over $5,000, as well as laundering the proceeds of a crime. Toronto police say that Macdougall obtained the identity information of the owner of the home he was renting, impersonated them while applying for a mortgage, and collected the proceeds — over $2 million — for himself.
Three industry professionals told Insider that incidents like this also happen in the US, and that homeowners should be taking steps to avoid it happening to them.
How does it work?
In some instances, criminals find a property that is unencumbered by a mortgage to get a loan without the homeowner’s knowledge, by using anything from their driver’s license to utility bills to pose as them, according to Josh Migdal, a founding partner at the Mark Migdal & Hayden law firm.
This is relatively easy to do, he said.
In other cases, criminals engage in fraud by refinancing the property and then releasing the equity, leaving homeowners burdened with an additional mortgage and the fraudster with cash to hand.
Arthur Pfizenmayer, a retired FBI agent and senior adviser with Home Title Lock, explained the possible consequences of both scenarios, one of which is that since the real owners don’t know about the new mortgage they likely aren’t making any payments on it.
As a result, the bank will eventually let them know they’re in default on the loan and may threaten to initiate foreclosure proceedings to recoup their funds, he said.
“The real owner is then in a situation where they have to go to court to prove to the court that the house that they own is actually theirs and the loan was not negotiated by them,” Pfizenmayer said.
How common is it?
The frequency of this specific type of fraud is hard to quantify, with most data tending to focus on the prevalence of mortgage fraud as a whole.
According to Pfizenmeyer, it happens “more frequently than people would like you to believe” in the US.
Even so, Bridget Berg, a principal of fraud solutions at CoreLogic, told Insider that it’s still relatively rare.
The Federal Trade Commission told Insider that the only data it has is self-reported complaints on real estate loan-related identity theft, which a spokesperson added would not necessarily reflect the true prevalence of the problem.
Of these, there were 1,722 reports in the first quarter of 2023, and 9,726 reports since the start of 2022.
Fraud of this kind becomes increasingly prevalent during quieter market periods, since mortgage brokers may be incentivized to prioritize making commissions over spotting red flags, Migdal said, adding that this is likely the case today.
Industry professionals told Insider in March that real-estate fraud as a whole has surged in the past year.
Those caught face an average sentence length of just under two years in prison, according to the United States Sentencing Commission.
Costly and upsetting
Berg, who works at CoreLogic, said becoming the victim of mortgage fraud of the kind that happened in Canada can be financially disastrous for homeowners.
Even in cases where the defrauded individuals successfully contest the loan, Berg said it can still be “costly and, of course, upsetting.”
She said that those most at risk are absentee owners, with those who skip appraisal inspections or forgo title insurance being the most vulnerable.
Properties without mortgages and with small mortgages relative to the property value are the easiest targets, she added.
But preventing this type of fraud is difficult, Berg said, while advising homeowners to keep their personal information secure and be wary of unsolicited calls and emails.
Toronto Police’s Financial Crimes Unit similarly urged homeowners to lock their filing cabinets, safely store confidential records, and avoid leaving mail at their rental properties.
The experts agreed that another way to stay safe is by purchasing insurance, such as an owner’s title policy.
This can protect a homeowner against fraudulent claims on their ownership, as well as cover legal fees, but Berg advised those interested to speak to an attorney to find out their specific level of risk.
Pfizenmayer suggested homeowners should also consider signing up for identity theft protection, with LifeLock, Experian, or another company, which would quickly notify them if something suspicious arises relating to their identity.
Still, there’s no way of completely protecting yourself, and the reality is that some unlucky homeowners will find themselves unexpectedly facing a mountain of new debt, and exhausting legal proceedings. Try not to let it be you.