Many clients have asked us about title “insurance” or “locks” that claim to prevent losses and wonder if they should be protecting themselves from home title fraud. This is no doubt due to the non-stop ads warning about this very scary threat. This can be a confusing issue and, as with many financial subjects, there is a lot of noise and hype, so here is our take.

Home title fraud occurs when a scammer changes ownership of your home to another name by forging your name on a deed, filing it in the records room of your county courthouse, then takes out a loan using the home as collateral.

A title denotes who has legal ownership of a home. It is a concept – not a document. When you have title to a piece of real estate you have rights associated with the property:

• The right of possession
• The right of control
• The right of exclusion
• The right of enjoyment
• The right of disposition

The deed is the physical document that conveys the title to the new owner when a home is sold. It contains a detailed description of the property and is signed by the seller who conveys the title to the buyer who also must sign. Home title fraud would more aptly be called deed fraud as it seeks to change the home’s title on the deed.

Home title insurance purchased at the property closing only protects from irregularities that occur before the date of purchase but does nothing for events that occur afterward.

In 2017, the FBI reported over 9,600 real estate and rental fraud victims with losses totaling over $56 million. In just two years, this number grew to almost 12,000 victims with losses totaling over $220 million. Sounds scary, but these statistics include all different types of real estate, rental, and timeshare crimes, with only a small fraction of cases involving home title fraud.

When we drill down it is clear that the instances of home title fraud are very low and usually occur in very specific situations:

• When there is not a mortgage on the property. If there is an incumbent lender when a scammer tries to retitle the property, the lender is on the deed and will need to approve any transfer of title and the existing loan will have to be paid off. If you have a loan on your property, the chance of this happening is near zero.
• When properties are vacant and not monitored it is easier to forge a deed and transfer the property illegally.
• Elderly property owners are more vulnerable as monitoring this may be too difficult for them.

If you have aging parents, multiple and/or vacant properties, or a large amount of equity in the property, the risk is higher, but we believe still quite low due to the fact that all fifty states and the District of Columbia require multiple documents to transfer ownership of real estate which prevent this from happening. Title transfer requires multiple verifications, and the perpetrator must successfully execute false identification, forgeries, notary fraud, involve straw buyers, and so on. It is a lot of work.

If this were to happen, and the perpetrator was able to take out a loan and receive cash using the property as collateral, the rightful owner would be under no obligation to repay the loan. The deed is fraudulent, the scammer never actually was the homeowner, and the lender has no legal claim on your property to satisfy the fraudulent borrowing. Interestingly, lender’s insurance, which is usually a part of closing costs when a loan is taken out, pays the lender in cases like these making it easier to reconcile the problem, although there may be some legal costs associated with the cleanup.

What benefit does home title insurance actually provide?

It is important to remember that this is not ‘insurance’ nor is the term ‘lock’ legitimate; in fact, they are both misleading. Title fraud protection simply offers to monitor for home title activity and provides alerts if a title change has occurred or an irregularity exists – but only after it has occurred, so it does not prevent it.

Also, it appears to offer no real assistance if someone successfully uses forgery to steal your title. For example, Home Title Lock’s website has no details on what they provide beyond the ‘alert’ if a title is changed or if there are irregularities on titles. We are not saying there are no benefits, but it would seem that if they are valuable there would be details.

How to Protect Yourself 

According to the FBI, house-stealing and home title fraud is not a common threat right now and we believe the cost of home title insurance may not be worth the limited protection it provides unless your property is:

• Paid for
• Not monitored or unattended or not regularly occupied
• Owned by someone who is elderly or vulnerable

Even then, this crime is very rare.

In most counties, you can access the county property ownership records online free of charge and check for yourself. While you can do this on your own, having this service does provide fraud monitoring convenience but the likelihood of fraud is so remote that it may be a waste of money. Further, these services typically do not cover all the legal fees and other financial exposure to clear your home title from fraud.

The best thing you can do is to stay vigilant. Keep your eyes open for the information you receive from mortgage or title companies that you do not recognize. Whether your name is on it or not, open it, read it, and follow up with the company that sent it. It is also a good idea to periodically check all information pertaining to your home through your county’s deeds office. If you see any paperwork or filings you do not recognize, or any signatures that are not yours, it is important to investigate further.

If you suspect fraud or have any additional questions, we are here to help. Please contact a member of the Cassaday & Company Financial Planning Team or your financial advisor for more information.

By: Stephan Quinn Cassaday, CFP®, CFS & Riley Saunders, CFP®