How to protect yourself from real estate title fraud

In these most uncertain times, we worry about everything from identity theft to scams where people try to take our money. Your home is one of, if not your most important asset, and you need to protect it.

There has been widespread media coverage recently about title fraud affecting property owners, which may be of concern to homeowners or prospective homebuyers. Most of the stories have had one common theme: The property owner was away from home for a significant period. During this absence, fraudsters took several steps to impersonate the owner and sell the property to an innocent third party.

While COVID-19 kept us confined for some time, we cannot all stay at home indefinitely to prevent title fraud, so below are a few things you should know.

1. WHAT TO LOOK FOR TO PREVENT REAL ESTATE TITLE FRAUD

To fraudulently list a property, there may be “For Sale” signs, appraisals and prospective purchasers around the home, so it’s good to have trustworthy neighbours to alert you of suspicious activities.

Keep an eye on your mortgage statements and payments. One helpful thing to know is that if someone (typically the lawyer acting for the seller) requests a mortgage discharge statement, most lenders will pause your mortgage payments in anticipation of the payment. One of our clients contacted us recently because they noticed red flags for real estate fraud on their property. We suggested they change their mortgage payment frequency to weekly, so if someone did order a discharge statement for their mortgage, they would know as soon as possible.

In addition to real estate specific protections, follow the usual steps to protect your identity: Shred documents containing personal information, check your credit report periodically and keep your passwords secure.

2. WHAT PROTECTIONS ARE AVAILABLE?

In the event of a fraudulent transfer, most property owners will be protected through the Land Titles Assurance Fund and/or their owner’s title insurance policy.

The Land Title Assurance Fund was created pursuant to the Land Titles Act of Ontario and one of its purposes is to reimburse those who have been wrongfully deprived of land because some other person is registered as the owner, through fraud (such as the circumstances described above).

Title insurance is another form of protection. Title insurance provides coverage for post-closing fraud. If there is a fraudulent transfer to a property you own, then your title insurance company will take action to correct the issue (such as work to have the property transferred back to you, or pay you for the value of your property).

It is important to note that your title insurance policy has a limit; for example, our preferred title insurance company provides coverage for the initial purchase amount, but the coverage increases with the fair market value of the property to a limit of 200 per cent of the initial amount (your policy may differ). What does that mean?

If your property value increases significantly after the purchase of the title insurance policy, you may not have enough coverage. Here is an example: You purchased your home in Toronto for $500,000 seven years ago, and today it is worth $1.4 million. Not an unusual occurrence. You are covered only to $1 million if defrauded. We recommend all of our clients consider increasing the coverage to today’s values.

Finally, keep in mind that you may remember seeing something about a title insurance policy when you last completed a refinance, but that was most likely a lender title insurance policy, so make sure you are aware of the details of your owner’s policy.

Title fraud is ultimately rare, but horrible if it happens to you, and can result in terrible tragedy and cost. We recommend that all homeowners, whether new or existing, should know how this kind of fraud occurs, how to prevent it and what to do if it happens.