In our work with clients, we often are tasked with verifying information provided by a buyer or seller on the other side. Whether it is because they make a wrong assumption or because they are actively trying to deceive the other side, it’s sadly common to find things aren’t always as presented.
In most cases, the level of deception is relatively minor. A seller forgets to mention that the hot water tank is a rental, or they don’t realize that they built a garden shed on top of a hydro easement. A little bit of money can often address the issue to the other side’s satisfaction and the deal moves forward.
In some cases, however, the falsehood is much more impactful. The absolute biggest example of this is when title fraud takes place.
Title fraud occurs when someone falsely assumes the identity of an individual homeowner and then uses that false identity to pose as the homeowner. If they are successful at doing so, they can assume the title on the home and either take out a mortgage or even sell the property without the real homeowner knowing about it.
Imagine buying a home and moving in only to receive a knock on the door at some point from someone demanding why you changed the locks on their home and telling you to leave. As a homeowner, picture your confusion when you receive a mortgage statement from a lender you’ve never heard of telling you that you’ve missed a payment on a mortgage you never authorized.
While title fraud is very much a legal matter that involves the courts, as real estate agents we can offer some tips on how to make sure it doesn’t happen to you. Here’s some background on how title fraud takes place and how we work to protect our clients!
How does it happen?
When title fraud occurs, it is often in a very specific set of circumstances.
- The homeowner doesn’t reside at the home.
- There is no mortgage in place on the property.
As real estate is, as the name implies, a real physical asset, the first aspect is quite crucial. If someone impersonates a homeowner in order to let bank appraisers, real estate agents and potential buyers through the home, they have to be able to provide access to the home. While this can in theory be done with the homeowners living there, it is very difficult and the vast majority of title fraud takes place with properties where the actual homeowner isn’t residing at the residence. This allows the fraudster to pretend to be the homeowner successfully.
The second aspect is also very important in preventing title fraud. While having no mortgage may be the goal of many homeowners, any sale of a property with a mortgage in place requires the existing mortgage to be paid off before ownership is transferred. When lenders are involved, the likelihood of a successful fraudulent sale goes down considerably.
In circumstances where the homeowner doesn’t live at the property and there is no mortgage in place, it is simply a matter of obtaining fraudulent ID that matches the actual name of the homeowner. If you visit someone at a home they say they own and their name and ID matches the ownership on the land registry, it is reasonable to believe they do in fact own the home.
Once a fraudster has managed to successfully impersonate a homeowner, they have a few options.
Get a mortgage or just sell it?
When someone successfully impersonates a homeowner, the end goal is of course to make money off of the fraud. While that can come in the form of a fraudulent mortgage or line of credit, banks have fraud and security teams working to prevent such things. When the entire purpose of an institution is to conduct financial transactions, they have lots of people and fail-safes in place to prevent fraud. With a mortgage or line of credit, the lender is naturally concerned with making sure that the monies being borrowed against the real estate are properly secured, so paperwork and verifications are integral.
Believe it or not, it can be easier to fraudulently sell a home than to get a mortgage or line of credit placed on the home. This is because the people involved in real estate transactions have preventing fraud as part of their job, but not the entirety of their job.
When selling a home, the lawyer representing the seller does verify the identity of the homeowner, but they do that as an ancillary part of their role in facilitating the legal transfer of ownership and funds. Yes, lawyers look to make sure the people buying and selling are who they say they are, but only as a step in transferring ownership. If there are other people on title, or someone doesn’t have the right to sell a property, lawyers are very good at identifying those things and making sure it’s a legal transfer. If, however, there are fraudulent identities being used that are congruent with the ownership details of the home, the possibility of it being missed increases significantly.
Real estate agents are also tasked by the Financial Transactions and Reports Analysis Centre of Canada to verify the identity of the buyers or sellers we are representing in a transaction. In both buying and selling, if a fraudster has ID that supports the information we are told about the transaction, we record it as provided and the transaction moves forward. Just like lawyers, real estate agents are good at catching situations where someone may not have the right to sell, such as a “seller” who isn’t on title, or an individual trying to sell without the permission of other people on title – but if fake identities are used that match what real estate agents see for ownership of the home, fraud can move forward.
Before you take out a mortgage and move back into the home, let’s discuss the advice we give and the ways we work with our homeowner clients to prevent title fraud.
Insure that title!
Title insurance is an insurance policy that protects property owners and their lenders against losses related to the property’s title or ownership, including title fraud. It has become very common practice in Ontario to have title insurance purchased as part of the buyer transaction with your lawyer. This is because it also simplifies the closing process for your lawyer, thereby saving you time and money.
If you bought your home a while ago, however, you may not have title insurance in place, but this doesn’t mean it has to remain that way. As a homeowner, you can purchase what is called an “existing owner’s policy” for your home so that you’re covered in the event of title fraud. You will need to have a value for the home established, as unlike a title insurance policy that was obtained when you bought the home, there is no current fair market value when you buy a policy some time after the fact. The amount of insurance can be set with a realtor’s letter of opinion or appraisal, and this is something we do for our clients on a regular basis. As real estate (hopefully) increases in value over time, there is good news in that the coverage you buy will increase with the value of the property, up to a maximum of 400% for most title insurance policies.
If you have a title insurance policy in place and you do somehow fall victim to title insurance fraud, the policy is what will save you!
We’re watching you.
Another way in which we help our clients avoid falling victim to title fraud is by setting up an alert on the MLS system for their home. While a fraudster could sell privately and avoid triggering this notification, any attempt to hire a Realtor and sell on the open market will result in our client receiving a notification that the property is for sale. If you didn’t list it for sale, that notification is a clear indicator something is going on!
I’m a Realtor, but also a bouncer.
It should come as no surprise that people who commit title insurance fraud often use fake ID. When we work for landlord clients, one thing we watch out for is a tenant who presents fake ID as part of their application. Whether they are using someone else’s ID so they can appear to be a better option as a tenant, or whether they are moving in under false pretenses with the goal of committing title fraud, catching someone who is using fake ID is very helpful.
The Ontario government has a useful tool in this regard, called Driver’s Licence Check. This website allows you to input a driver’s licence number and see the status of the driver’s licence. You won’t see the driver’s personal information due to privacy rules, but a fake ID that doesn’t actually exist will show up as invalid.
We haven’t encountered a situation where we checked our seller’s ID and found it to be invalid, but taking a few minutes to do so decreases the chance we represent a fraudulent seller. We ask listing agents to do the same for their clients and while most aren’t aware of the government website, they’re often happy to check.
Give yourself some credit (checks).
Speaking of checking, we often recommend to our clients who are concerned about a fraudulent mortgage being registered to pay for a credit monitoring service via Equifax or Transunion. This means that they can put an alert on their credit bureau so that anytime their credit is checked, they will be notified. As credit would be checked in the application process for a mortgage or line of credit, this would help someone know if fraud is being committed.
Love Thy Neighbour
Finally, we advise any of our clients who don’t live at the property anymore to establish and maintain relationships with a few neighbours. If you have introduced yourself to your neighbours and they know you’re the owner of the home, any indication someone else is pretending to be the owner will result in a call from a concerned neighbour.
As neighbours do change more often now than in the past, it is worth doing an annual visit to any home you own to knock on a few doors in the neighbourhood and say hello.
Falling victim to title fraud is a very alarming thing to have happen, so let’s make sure it doesn’t happen to you. Even if you fit the criteria for the most common circumstances in which it happens, you can take a few easy steps to avoid it. We help our clients do this and if you want some help for yourself, we’d love to do so and earn the right to help you with your next transaction. If that sounds reasonable, get in touch with us!
