The growing problem of real estate title fraud
It was a relief when homeowner Susan Lawrence was finally told that she would not be responsible for paying a mortgage that a stranger had taken out on her home. Pay a mortgage that wasn’t hers! Is that possible? Yes, it was a case of title fraud: a stranger managed to use Susan’s identity to take out a mortgage on her home. By the time the lender (and Susan) realized what was happening, the stranger had disappeared with the money – about $290,000 – leaving Susan to pay it back. It took more than a year to sort it out.
The real estate industry estimates that mortgage fraud amounts to about $1.5 billion per year, with an average fraud case of $300,000. This isn’t about hanging out with “the wrong people.” Title fraud doesn’t play favourites: if you’re a Canadian homeowner, then you’re at risk. And the risk is growing. In 2000, real estate title fraud claims accounted for only 6% of total dollars paid in claims at Canada’s leading title insurance provider, First Canadian Title. By 2005, that number reached 33%.
So how does it happen? Title fraud occurs when a criminal targets a specific homeowner and, using forged documents, poses as the homeowner to falsely discharge the existing mortgage. The criminal obtains a new mortgage against the property – and promptly disappears with the money, without making any mortgage payments. It’s called title fraud because the criminal fraudulently takes over title, the legal term for property ownership.
The rightful owner doesn’t have a clue what’s going on until the mortgage goes into default and the lender demands payment on the mortgage loan or – worse – decides to foreclose on the property. Keep in mind, too, that if the fraudster has already stolen your identity, you would have to persuade the authorities that you are who you claim to be! Restoring the property’s title can be costly and definitely takes a huge emotional toll.
Although the incidence of title fraud is growing, the good news is that Canadians have access to protection through title insurance. The cost of title insurance is very modest, and it protects homebuyers from a wide range of title problems. If you thought a property had a clean title, but later learn there are debts or claims against it – your title insurance covers you. If the property has title defects – an encroaching fence, an uncertain boundary, a right-of-way – title insurance offers protection. It can also be valuable in facilitating a sale: maybe the buyer is unable to obtain a property survey, or a clean water test, for example. Title insurance will cover that risk so the sale can proceed – and in the case of a survey, may actually be the cheaper option! Unpaid liens, title defects, building code violations that are discovered after you’ve moved in – they’re all covered. And in a case like that of Susan Lawrence, title insurance would have covered all the costs and legal expenses related to restoring the title.
No surprise, then, that many lenders now require title insurance, and lawyers will often recommend it for the extra protection it offers at a very low cost.
If you already have a home and an existing mortgage, you can still buy title insurance at any time. We’re careful to lock up the barbecue, protect our credit and debit cards, and never leave our wallet in an exposed place. Our home is usually our most expensive possession; it’s time we thought about protecting it from theft, too! Next time you talk to your mortgage broker or lender, ask about title insurance.
