Every day last year, about $1.7 million worth of fraudulent activity was detected in Canada by Equifax Canada. "The greatest dollar value of detected fraud activity is within mortgage applications, at over $400 million," says John Russo, vice-president at the company. "This staggering dollar figure illustrates the need for continued vigilance by financial institutions to reduce this threat to both consumers and lenders."

Criminal Intelligence Service Canada (CISC) says there are three general categories of mortgage fraud: fraud to further other criminal activities, fraud for profit and fraud for shelter. The last category represents the most frauds. These crimes are by individuals who falsify their personal or financial information so they can get a larger mortgage than their income can support, which makes them more vulnerable if there are any changes to their financial situation.

Sometimes mortgage fraud is used to facilitate marijuana grow operations, illegal drug laboratories or money laundering. The criminals obtain properties by using fraudulent personal or financial information, and later may make superficial renovations to the properties to cover up damage to the property. Or, they may simply default on the loan.

For money laundering, CISC says a fraud called "value tampering" happens when a property owner sells the property on paper for a price below its actual value and then takes the difference in cash. Later the criminal is able to sell the property for its actual value.

There are several scams that fall under the "fraud for profit" category. An appraisal may be performed on a property that overvalues it, so the lender is willing to provide a larger mortgage than the property is worth. Then the criminals walk away with the money, leaving the lender with a property that is worth much less than they thought it was.

A property flipping scheme involves having a number of people repeatedly buy and sell the same property over a short time period, with the price increasing for each transaction. The last person in the chain is a "straw buyer" – someone who uses false or stolen identification – who gets a mortgage based on the inflated price and then disappears with the funds.

Title fraud is the scariest kind of mortgage fraud for honest homeowners. The criminal steals a homeowners' identity and discharges the existing mortgage, transfers the title and then gets a larger mortgage under a new name. The poor property owner doesn't know anything is amiss until someone shows up to say they have purchased the house, or the lender starts asking about missed mortgage payments.

Perhaps the most vulnerable homeowner is one who has no mortgage on the home and/or rents it out. If a criminal can steal the homeowner's identity, they'll be able to sell or refinance the property based on the existing owner's credit rating. Again, the owner doesn't know there's a problem until it's too late.

"Financial crimes like mortgage fraud are facilitated in large measure by technological advances, specifically in underwriting systems and property-valuation models as well as communication technologies," says CISC in a 2007 report. "Criminal groups undertaking mortgage fraud exploit online transfers of funds and electronic communications that reduce the need for individuals to meet in person."

Although steps have been taken by government and financial institutions to curb the practice, Equifax's most recent report shows that there's a lot more work to be done. As the 2007 CISC report predicted, "Mortgage fraud for profit will remain a significant criminal threat as there are always ways to illicitly manipulate the age, size and value of a property and to commit fraud….Criminal groups will continue to exploit professionals within the financial and real estate industries who will knowingly or unknowingly assist them in their fraudulent activities."

A blog by the Real Estate Council of Alberta for real estate and mortgage brokers says, "It is your responsibility as a licensed industry professional to ensure you do not become a participant – willing or otherwise – in any scheme to obtain mortgage funds through deceit…if you suspect fraudulent and/or other illegal behaviour, take it one step further and contact your local police."

Mortgage fraud often starts with identity theft. To protect yourself from having someone assume your identity, protect your personal information. Don't give out your social insurance number and don't carry your SIN card in your wallet, says Equifax. Generally when you go out you should only need your credit and ATM card, your driver's license and your health card. Lock up your birth certificate and SIN card somewhere safe at home or put it in a safety deposit box.

Don't leave your mail out in the mailbox for long periods – someone could steal it. Shred any old invoices, bank statements, preapproved credit applications, insurance forms and other financial documents that you are discarding.

If you are selling your home and there are showings or open houses, make sure all your personal information is put away where it won't be a temptation for thieves. The same goes if you are having some work done in the home by strangers.

You can also buy title insurance for your home.

Check your credit report regularly. In Canada, Equifax and TransUnion will provide this for free.

Published: February 28, 2012

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Jim Adair is editor of REM: Canada's Real Estate Magazine, a business publication for real estate agents and brokers. He has been writing about Canadian real estate, home building and renovation issues for more than 30 years. You can contact Jim at .