Common types of title fraud
Title fraud is essentially a form of identity theft, said Todd Ewing, founder and chief executive of Federal Title & Escrow Company in Washington.
“While the common thinking might be that title fraud involves a squatter coming in to occupy an owner’s vacant property, the bigger concern should be the threat title fraud poses to a homeowner’s equity,” Ewing said. “The most common title fraud involves someone stealing the identity of a homeowner and then applying for a mortgage or home equity line of credit and taking cash out.”
In that case, Ewing said, if the scammer makes payments on the loan, the homeowner may not even be aware of the fraud until a title search for a refinance or property sale. If the scammer doesn’t make the payments, the homeowner will receive notices of a loan default and foreclosure threats within a few months of the fraudulent event.
“In either case, the victim would be required to pay off the balance of the debt as secured by the lien in order to sell the property or avoid foreclosure,” Ewing said. “Or they would need to hire an attorney to file suit to defend the title and seek a quiet title action at a cost of tens of thousands of dollars.”
Typically, this type of title fraud involves a home equity line of credit (HELOC) rather than a traditional mortgage, said Nicholas Vlissides, owner of New World Title & Escrow in McLean, Va.
“Unlike primary mortgage financing, HELOCs aren’t typically closed through title companies, so many of the security precautions are not in place, and title insurance isn’t issued,” Vlissides said.
Another less common type of title fraud involves scammers selling a property they don’t own. Ewing said scammers look for property that’s vacant and doesn’t have a mortgage.
“The D.C. metro area is fertile ground for this type of title fraud, as it is common for property owners to live out of town or even out of the country,” Vlissides said. “Real estate settlements, especially with the advent of covid-19, are being conducted remotely with closing documents being sent via email to sellers who return them via overnight mail. Fraudsters impersonating sellers forge a notarization or engage a notary accomplice to deed away a victim’s estate.”
Vlissides said that sometimes, property owners can commit fraud against a lender by recording a forged document releasing a lender’s mortgage lien. The owners can then sell the property without paying the mortgage from the sales proceeds.
Title insurance protection against fraud
Home buyers and homeowners who are refinancing are typically required to purchase a lender’s title insurance policy by their mortgage company. Owner’s title insurance is an optional policy.
“A lender’s title insurance policy would not provide protection for the homeowner,” Ewing said. “An enhanced owner’s title insurance policy is the only means of protection homeowners have to assure their equity is safe from the threat of title fraud and identity theft scammers.”
Homeowners can buy a standard owner’s title insurance policy or an enhanced owner’s title insurance policy, the American Land Title Association Homeowner’s Policy, which is offered by all title insurance companies and insures against post-policy forgery or impersonation, Vlissides said.
“The ALTA Homeowner’s Policy costs about 25 percent more than the standard policy and covers more risks, including forgery and impersonation occurring after the policy is issued,” Vlissides said. “The premium for either type of owner’s policy is charged once at closing on the purchase of the insured property.”
In addition to purchasing the enhanced owner’s title insurance policy, Ewing and Vlissides recommend that homeowners remain vigilant about reviewing their credit reports from all three credit bureaus to check for a mortgage or HELOC that they didn’t obtain.