How to Spot Fraud in Mortgage Documents: A Guide for Realtors and Brokers

Mortgage fraud is a growing concern across Canada’s real estate market—and both realtors and mortgage brokers are on the front lines. Whether it’s falsified income, fake employment letters, or inflated appraisals, mortgage fraud not only puts deals at risk but also exposes professionals to legal liability, reputational harm, and regulatory penalties. This guide outlines the most common types of mortgage document fraud, the red flags to watch for, and practical steps to protect yourself and your clients.

1. Why Mortgage Fraud Happens—and Why It’s Getting Smarter

Fraudsters aren’t always career criminals. In many cases, they’re buyers trying to qualify for loans they can’t afford or investors desperate to close during a downturn. Some are coached by dishonest agents, brokers, or third-party “document fixers.”

With rising interest rates and tighter lending rules, the temptation to cheat the system has increased—so has the sophistication of the schemes. Fake documents can look impressively real.

That’s why trained eyes and due diligence matter more than ever.

2. The Most Common Types of Fraud in Mortgage Documents

• 🔹 Falsified Income Statements: Borrowers submit manipulated pay stubs, NOAs, or T4s showing higher income than they actually earn.
• 🔹 Fake Employment Letters: Letters from employers that don’t exist or are created by “friends” in real companies.
• 🔹 Identity Fraud: Using someone else’s name or SIN to obtain financing. Sometimes involves stolen identities or straw buyers.
• 🔹 Down Payment Fraud: Borrowers claim funds are saved when they’re actually borrowed, violating lender rules.
• 🔹 Fake Appraisals: Overstated property values generated to secure larger mortgages or facilitate illegal flipping.
• 🔹 Occupancy Misrepresentation: Borrowers say they’ll live in the property (to get better rates) but plan to rent it out or flip it.

3. Red Flags for Realtors and Brokers to Watch For

• ✅ Documents That Arrive All at Once or Look “Too Clean” Multiple documents submitted at once in pristine condition or with identical fonts, spacing, or formatting.

• ✅ Inconsistencies Across Documents E.g., job title on the T4 doesn’t match the employment letter, or the income shown doesn’t match the lifestyle or credit profile.

• ✅ Unverifiable Employers or Websites Search the company listed in the employment letter. Is the website new? Does the contact number go to voicemail? Red flag.

• ✅ Unusual Sense of Urgency Fraudsters often rush deals, pressuring professionals to skip verification steps.

• ✅ Repeated Use of the Same "Helper" Be wary of clients who refer the same unlicensed individual who assists them with documents, translations, or credit repair.

• ✅ Gaps in Paper Trails Missing pages in bank statements, sudden large deposits without source, or lack of supporting documents for gifts or bonuses.

4. How to Protect Yourself Professionally and Legally

🔒 Verify Everything—Even When You Trust the Client Cross-reference income with tax documents, check employer websites, and call HR departments to confirm employment. Never assume authenticity.

-🕵️ Use Reputable Lenders and Appraisers Stick to licensed professionals and vetted appraisal firms. Avoid working with any source that circumvents due process.

-🧾 Keep Detailed Records Log communications, save original documents, and track all interactions—especially when something feels “off.”

-📣 Report Suspicious Activity In Ontario, both mortgage brokers and real estate agents have a duty to report suspicious transactions to regulators or FINTRAC if money laundering is suspected.

• 📚 Stay Educated and Updated Fraud tactics evolve. Attend legal seminars, subscribe to regulatory updates, and educate your team regularly.

5. What If You Discover Fraud After the Deal?

Even if a deal closes, discovering fraud after the fact can lead to litigation, license suspension, or personal liability. If you suspect you’ve been involved in a deal where documents were fraudulent:

• Notify your brokerage immediately
• Contact your regulator (FSRA or RECO)
• Seek legal advice
• Report the transaction if required

Final Thoughts

In a high-stakes market under intense pressure, mortgage fraud is becoming more creative and more common. Realtors and brokers who take shortcuts may unknowingly walk into legal minefields.

Your best protection? Ask questions. Verify sources. Slow down when things feel rushed.

📌 A vigilant broker or agent isn’t just protecting the deal—they’re protecting their license, their reputation, and the integrity of the industry.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Reading or relying on this content does not create a lawyer-client relationship. If you require legal assistance or advice regarding your specific situation, please consult a qualified legal professional.