Real estate title fraud is on the rise—this occurrence happens when fraudsters steal ownership of a home in order to benefit from its value.
You receive notification that one of your properties have been listed for sale. Shocked, you learn that the fraudster has access to your home while you were enjoying your warm tropical vacation.
The fraudsters listed the property through a realtor for sale below the market value to entice a quick sale. Then, the purchaser arranged a mortgage and purchased the property. However, shortly after the deal closed, the transaction did not sit well with one of the lawyers. Why? The lawyers determined that you were overseas.
So, your lawyer contacted a company that specializes in title insurance. The title insurance company contacted the police to investigate the fraud. Later on, the bank was then contacted where the sale proceeds were deposited.
Interestingly, the bank had also frozen the account because they were not satisfied with the identity of the account holder. The police advised the bank to hold the funds.
Through quick and coordinated effort, the fraudsters were arrested. You take a deep sigh in relief.
Three Main Types of Fraud
To avoid real estate title fraud, any property owner must be well-informed of the various types of fraud:
First, title fraud occurs when the ownership, or title of a property is fraudulently changed, or documents are forged to allow a fraudster to illegally sell, or refinance the property.
Second, mortgage fraud is a scheme used to obtain a mortgage from a lender under false pretenses, also known as application fraud.
Third, value fraud occurs when a lender is led to believe the property is worth more than it actually is because of the misrepresentation of the property’s attributes and value.
Identifying Fraud Trends
Using the knowledge of various types of fraud, property owners must educate themselves on the associated fraud trends as well as they coexist.
1. Sophistication
People working these frauds are knowledgeable about real estate law and the mechanics of title searching. They also know how title insurers and lenders underwrite transactions. They create their scams to purposely avoid triggering some of the automatic underwriting that is done on the transactions.
Furthermore, fraudsters scout out their victims and choose law offices that are easier targets because of inexperience and financial pressures.
There is a trend towards technological sophistication. This includes fake IDs and email hacking scams. There are greater occurrences of title fraud where homes are being sold to unsuspecting purchasers and lenders. The main types of properties being targeted include investment properties and Airbnbs.
2. Elder Abuse
Since the equity in a mortgage free home increases almost weekly, these properties are attractive to fraudsters. The senior victims are well-known to perpetrators. Adult children sometimes take advantage of their elderly by committing real estate title fraud to vulnerable individuals and have the ideal opportunity to gain access to everything needed for fraud.
3. Private Lenders
Fraudsters see private lenders as the ‘low hanging’ fruit. Banks and highly regulated financial institutions have seen stringent lending criteria imposed by regulators over recent years. Remember, if you are a private lender, make sure that the balance of the mortgage proceeds are paid only to the registered title holders.
If the borrowers lawyer is controlling the disbursement of funds, then make sure you get a written undertaking requiring that the mortgage funds will be paid to the registered title holders. To add on, ask your own lawyer about steps that they will take in your behalf to guard against fraud.
4. Synthetic Identity
A combination of real and fake data is used to create a new synthetic identity by fraudsters. Often children and seniors are targeted. The fake ID is used to apply for licenses, passports and other real ID, especially when applying for credit cards, mortgages, and bank loans.
Fraud Flags
Fraud flags for purchase transactions involve private agreements of purchase and sale, equity gifts, requests for further deposits, a power of attorney, and a power of sale involving private lenders. To add on, this includes recent activity on the title, and recent changes to respective (commercial) corporations.
For mortgage transactions, fraudulent flags to look out for include funds used to pay off a loan, or other debt not associated with the transaction, or otherwise paid to any third party. In addition, fraudsters can conduct recent transfers of title prior to mortgage. There may be equity gifts, a power of attorney, a focus towards investment properties, and numerous notices of security interests.
Lastly, fraud flags for private lender deals include rushed transactions, this occurs when the borrower’s lawyer has never acted for the client. For example, rushed transactions with elderly borrowers, especially those with no mortgages on title, or no sensible reason to incur debt. Further flags to look out for include having a borrower that resides at the property, but the identification does not support this. To add on, fraudsters may use virtual signing in dealings as well.
Now, hopefully, you are much more educated on the types of real estate title frauds, fraud trends, and fraud flags. Being proactive and well-versed in identifying fraud as a property owner means risk reduction and no interruptions on that sunny, tropical vacation of yours.
References
“Real Estate Fraud and Risk Mitigation.” Zoom, uploaded by First Canadian Title (FCT), 30 March 2023, https://fct.ca/webinars/real-estate-fraud-and-risk-mitigation-03-30-2023/. Accessed 12 January 2024.
“Real estate fraud.” Government of Canada, 22 June. 2023, https://www.canada.ca/en/financial consumer-agency/services/real-estate-fraud.html. Accessed 12 January 2024.