What to Do When You Suspect a Fraudulent Mortgage Application

In today’s competitive and high-stakes real estate market, fraudulent mortgage applications are on the rise. Whether it’s falsified income, fake employment, or hidden sources of down payments, mortgage fraud can expose real estate agents, brokers, and lenders to serious legal and professional consequences.

If you suspect something is off during a transaction, ignoring the signs or looking the other way is not only risky—it can put your license, your business, and your client relationships at risk. Here's a step-by-step guide on what to do when you suspect a mortgage application might be fraudulent.

1. Stay Calm—But Alert

The first step is to remain professional and cautious. A suspicious document or inconsistent detail doesn’t always mean intentional fraud. But if you notice any of the following red flags, it’s time to look deeper:

• Employment letters from unverifiable companies
• Mismatched financial data or fake pay stubs
• Unusual urgency to close the deal
• Third parties handling the process on behalf of the buyer
• Large, unexplained bank deposits

💡 Red flag ≠ proof of fraud, but it does mean extra due diligence is required.

2. Don’t Ignore Your Instincts—Document Everything

If something feels off, start documenting your observations immediately:

• Keep notes on suspicious communications or inconsistencies
• Save all relevant emails, texts, and documents
• Create a written summary of why you’re concerned

This isn’t just for your protection—it may be useful to internal compliance officers, lenders, or regulators down the line.

3. Verify Before You Report

Before escalating the matter, take reasonable steps to verify questionable information. For example:

• Call the employer listed on the letter using official, independently verified contact details
• Compare T4 slips with bank deposits and NOAs
• Use government databases or public registries to verify companies or addresses

🚫 Never confront the client directly with accusations. If it’s fraud, this could give them time to cover their tracks.

4. Involve the Right People

If your suspicions grow, escalate the issue through the correct channels, depending on your role:

• Mortgage Brokers & Agents: Report the matter to your principal broker or compliance officer. They may then report to FSRA (Financial Services Regulatory Authority of Ontario) or FINTRAC if money laundering is suspected.
• Realtors: Notify your broker of record. Do not attempt to resolve it yourself. If client misrepresentation is confirmed, report it to RECO (Real Estate Council of Ontario).
• Lenders: Escalate the matter to the lender’s fraud prevention or underwriting team for review.

5. Protect Yourself from Liability

Even if you’re not directly involved, failing to act on signs of fraud can make you legally or professionally liable. Here’s how to protect yourself:

• Disclose concerns in writing to your supervising broker or compliance officer
• Avoid working with third-party “document fixers” or aggressive agents who pressure you to overlook issues
• Review and follow your regulator’s guidelines on handling suspected fraud

If a deal collapses or a client is investigated, your documentation and reporting will show you acted in good faith.

6. Know When to Walk Away

Sometimes, the safest thing to do is withdraw from the transaction. If a buyer refuses to explain red flags or insists on pushing forward despite inconsistencies, you are not obligated to continue representing them.

⚠️ It’s far better to lose a deal than to be named in a regulatory or legal investigation.

Final Thoughts

Mortgage fraud is not just a lender problem—it’s a real threat to real estate professionals, clients, and the integrity of the entire market. As a realtor or broker, your best defense is a combination of due diligence, ethical boundaries, and clear documentation.

📌 If something doesn’t feel right, don’t ignore it. Take action—protect your clients, your business, and your license.

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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.