Mortgage Fraud
- Thread starter Darts
- Start date
Interesting. How does one go about if there has been mortgage issued to the residence?
If there is enough equity in the property, one could theoretically take a second mortgage out on the property.
Nowadays, when you apply for a Mortgage with the Bank, the Bank generally puts a Collateral Charge for 100% - 120% on Title in anticipation that you may want to borrow more money in the future through a Home Equity Line of Credit; this serves as a kind of insurance against Mortgage Fraud.
Curious. - So if a property owner applies for a mortgage for $200,000, the bank would place a charge on the home for $400,000 as protection against mortgage fraud?
How does it work?
Not as a protection against mortgage fraud - but that is a benefit of what the Bank does.
The Banks these days give you a Mortgage and a Re-advanceable Home Equity Line of Credit.
Maximum Loan to Value is 80%....with the caveat being that the Line of Credit cannot be more than 65% of the appraised value of the property.
So, let's say you have a Property With Appraised Value of $500,000.
You put $100,000 down; as you pay down the Mortgage Principal, a Line of Credit becomes available to you. The more mortgage principal you pay down; the higher the Line of Credit Limit up to $325,000.
In order to secure the Collateral, the Bank puts a Collateral Charge on Title for $500,000 (or more).
Since the Bank has already reserved the entire value of your house to support your lending arrangement, there is nothing further for a fraudster to borrow.
EDIT: I should also note that the Bank may require purchase of separate Title Insurance as a condition of Financing....Title Insurance is really what is supposed to protect you from Mortgage Fraud.
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So would the total encumbrance on the property be $500,000 or $900,000 (composed of a mortgage of $400,000 + a collateral charge in the sum of $500,000)?
Total encumbrance under a Collateral Charge is usually 100% - 120% of Appraisal; or $500,000 to $600,000 in our example. The Bank figures your Property Value will increase and you may wish to Refinance and increase the Limit on your Line of Credit.
If you only had the Mortgage on your Property (you declined the Line of Credit), Bank would only encumber the amount actually borrowed, which would be $400,000 in our example; otherwise known as a Standard Charge.
So would the mortgage on title be in the facial amount of $500,000 + $400,000 = $900,000, if a line of credit was taken out? Or just $500,00 to $600,000?
Is there an online source that I can look at for banking practice in this regard?
It depends on the type of product you have (Mortgage vs. Mortgage + HELOC).
I'm using CIBC as an example here. Banks are required by the Government to explain clearly the difference between Standard and Collateral Charge.
Types of Registered Mortgage Charges | Mortgages | CIBC
This will answer all your questions. The general rule of thumb is that any Home Financing arrangement which includes a Re-advanceable Line of Credit is secured by Collateral Charge.
Banks have different marketing terms for the hybrid Mortgage + HELOC product; CIBC calls it "Home Power Plan"; BMO calls it "ReadiLine"; etc.
Thanks. I owe you a favour for this.
Feel free to ask me any litigation question in my area of knowledge at any time in the future.
No problem.
The Re-advanceable Lines of Credit can be quite useful for Consolidating Debt or performing Home Renovations; the Terms on these things are usually "Interest Only" (meaning you are only obliged to pay the interest every statement period, and you don't have to pay any principal).
The Bank has your house encumbered via the Collateral Charge, so they are quite happy to let you have that money outstanding indefinitely.
The danger is being undisciplined and using your house as essentially an ATM; because you can re-borrow any Mortgage Principal you pay, you can easily find yourself "paying for your house twice."
At the end of your Term? No. Your Bank will assess a discharge fee of a few hundred dollars; the new lender is usually happy to reimburse those charges.
So if a judgment debtor has a collateral mortgage of $475,000 on his house securing a LoC for that amount which is unused - i.e. actual debt load of $nil - and I want to execute on that property and seize it, I assume that the bank has no actual, real interest in the property and will bow out when I force a judicial sale?
This is outside my purview; on the surface, I would say "yes".
Even though the Bank has perfected its Collateral and holds a First Mortgage Position; the Bank has no interest in the property whatsoever; unless said Debtor ran to the Bank, took out a Draft for $475,000, and then ran to deposit it in another Bank the day before you force that judicial sale.
I should also note that the Terms of these Lines of Credit state that the Bank may Freeze the Account; Suspend Withdrawals; Call the Balance; and Decrease the Limit, including to $0, at any time; for any reason; or for no reason.
If the Bank became aware of a decline in the Financial Position of said Debtor, the Bank has the responsibility to protect itself and its shareholders from losses and should have restricted the ability of the Debtor to advance funds.
I remember one story from a friend (he's a Realtor). They were raising money for a pre construction condo and took deposits for it then the lawyer took off with the money.
Relevant story
Relevant story
