Homeowners and lenders can protect themselves by obtaining a title insurance policy from Stewart Title. The coverage provided in residential title insurance policies helps protect both innocent homeowners and lenders who might otherwise face huge financial losses resulting from title fraud.
How Does Real Estate Title or Mortgage Fraud Occur?
Real estate title or mortgage frauds take several forms, but a common denominator is that the fraudsters are sophisticated and thanks to modern technology, are armed with the appropriate documentation and necessary knowledge of the real estate process to enable them to perpetrate these major crimes.
Legal ownership in property is evidenced by the title to the property being placed into the purchaser’s name. The purchaser obtains title when the vendor of the property signs transfer documents (a deed) transferring the ownership of the property to him/her. Once this occurs, the government land registration records will reflect the purchaser as the new owner and anyone searching those records will also recognize him/her as the owner.
A Typical Example...
- A fraud artist obtains title to a property via a fraudulent transfer document (a deed).
- The fraud artist goes to a bank and obtains a mortgage that is then registered against the property.
- When the fraud artist does not make any mortgage payments, the lender will serve notice that it intends to sell the property, and the scheme is revealed to the legitimate owner when they receive the notice that the lender is trying to sell their property.
The above is an example of a fraudulent transfer and mortgage, but other types of fraudulent transactions also occur:
Spousal Impersonation Fraud
This type of fraud can occur when one spouse mortgages a property for their own benefit using an accomplice to impersonate their spouse.
Fraud by Breach of Undertaking
Fraud, unfortunately, is not limited to rogue clients. Fraud can also occur by way of a lawyer’s / notary’s breach of an undertaking to pay off and obtain a discharge of a mortgage. That is, the vendor’s lawyer or notary absconds with the funds intended to be used to pay off the vendor’s pre-existing mortgage. Accordingly, while title to the property has been transferred into the name of the new purchaser, the property remains subject to the prior mortgage.
The Role of Title Insurance
Generally, the losses from real estate title or mortgage frauds are catastrophic with homeowners paying thousands of dollars in legal fees to defend their title, and lenders possibly losing the full amount of their mortgage.
Stewart Title’s Residential Gold Owner Policy provides coverage against losses arising from fraud, forgery, duress, incapacity, or impersonation and for forgery after the Policy Date of an instrument by which someone else claims an interest in or fraudulently places a mortgage on the owner’s title.
Stewart Title’s Residential Gold Loan Policy provides coverage against losses arising from the insured mortgage not having the expected priority and from the invalidity or unenforceability of the insured mortgage on title, as well as from forgery after the Policy Date of any assignment, release, discharge, postponement or modification of the insured mortgage.
Stewart Title’s Residential Existing Homeowner Policy is for those homeowners who already own their home and did not obtain the protection of title insurance when they first purchased their home. The policy date for the Existing Homeowner Policy is the date of registration of the original transfer document (deed) to the existing owner. Search requirements are minimal for this type of policy, and the policy lasts for as long as the homeowner owns their home.
Title insurance is purchased for a one-time premium and coverage is provided for the entire time the homeowner owns the home and the lender holds the mortgage. If a homeowner needs to make a claim, there is no deductible. Homeowners should contact their lawyer / notary who can arrange to obtain a policy directly from Stewart Title Guaranty Company.
Did you know...
- Thieves often target properties that are mortgage free and where owners have a good credit rating. This allows them to apply for a significant mortgage.
- Stewart Title paid a fraud claim to a lender valued at more than $851,000.
- Fraud accounted for nearly a third of all claims in terms of dollars paid out in 2008 at Stewart Title.
- Although it’s difficult to pinpoint an exact number, one association suggests that mortgage fraud amounts to $1.5 billion a year across Canada.