Home equity makes up a large percentage of Americans’ net worth. A home purchase is a significant investment and one of the largest financial transactions most Americans make in their lifetimes. But what if one day you find out that someone else has stolen your equity in your property by taking ownership of your property fraudulently?
Deed fraud, also known as home title theft, is when someone illegally takes title, or ownership of your property, without your knowledge. This type of fraud can have devastating effects on homeowners and real estate investors who own real estate investments. In this article, I’m going to go through some of the tricks used by fraudsters in deed fraud to help you spot red flags. But make sure to stick around until the end to learn the 7 essential steps to protect the equity in your property!
What is Deed Fraud?
Deed fraud is when criminals transfer the title of your property into their name through deceptive means, and/or they take out a loan on your property stealing the equity. This can also be a form of identity fraud because it involves forgery, impersonation, and the use of documents like quitclaim deeds. Perpetrators exploit public records and use technology, making illegitimate transfers appear authentic.
How does it work? A fraudster identifies a property as a target. Targets tend to be vacant land, vacant homes or buildings, second homes, vacation homes, or rental properties. Once a property is identified for the fraud, the fraudster forges the property owner’s signature on the deed and then transfers ownership from the property owner to an entity that the fraudster controls.
In order to facilitate the transfer, they will use the property owner’s personal information to take on the property owner’s identity. The fraudster could use fraudulent identification, use a counterfeit notary signature, or use a fraudulent notary. After taking ownership of the property, the fraudster can sell it to someone else and then take the cash and run. Or take out a hard money, private money loan on the property and run. Some fraudsters rent out the property illegally once on title to the property.
The Use of Forgery and Impersonation
Fraudsters may forge your signature or impersonate you to execute documents that transfer your property’s title. Through the use of new AI tools, it’s easier than ever to create fake documents out of thin air. The perpetrators may also impersonate a notary public to legitimize the fraudulent documents. Once the fraudulent deed is recorded with the county recorder’s office, the criminal can mortgage, sell, or even rent out the property without your consent..
Quitclaim Deed is a Red Flag
A quitclaim deed transfers whatever interest the grantor has in the property without guarantees, this means not guaranteeing the validity of the title.
Anytime you see a quitclaim deed, a red flag should go up. Warranty deeds are generally better than quitclaim deeds because warranty deeds imply the grantor has legal title to the property.
Quitclaim deeds are most often used when property is being transferred between family members, for example, or when no funds are being exchanged.
Who is at Risk?
Who are the most frequent victims of this type of fraud?
Homeowners and Second Home Owners
Homeowners who have a lot of equity in their homes, or homes owned free and clear of any debt. Once homeowners pay off their mortgages, they don’t know that they’ve opened themselves up to deed fraud or mortgage fraud. Because senior citizens tend to own their homes outright, they are often a target for these types of scams.
Real Estate Investors
Properties owned as real estate investments are at higher risk because suspicious or unauthorized activity can go unnoticed or unreported to the property owners.
Land Owners
Vacant land is often a target because it is vacant and no one is on premises.
Consequences of Deed Fraud
The fallout from deed fraud can be both financially and emotionally devastating.
Financial Losses and Legal Fees
Victims often have to pay legal fees to an attorney to prove the fraud and reclaim their property. If a fraudulent mortgage was taken out, victims may also be considered responsible for debt that will end up as on their credit reports. This will have to be legally disputed which can be a difficult and time consuming process.
Potential Eviction and Loss of Rental Income
In extreme cases, real estate investors may be evicted from their own properties. This could mean losing rental income until the issue is resolved and the perpetrator or its tenants have been legally evicted.
Protecting Yourself with Title Insurance
One effective defense against deed fraud is obtaining a Policy of Title Insurance when you purchase or refinance a property.
Benefits of a Policy of Title Insurance
Title insurance companies offer policies that insure your property’s title and can protect you against losses arising from issues in your property’s title, including forgery and deed fraud. If deed fraud occurs, you can file a claim on your insurance policy and your title insurance company may cover legal expenses to resolve the issue, and may compensate you for losses.
7 Essential Steps to Protect Your Property Title
Taking proactive measures can significantly reduce your risk of becoming a victim of Deed Fraud or Property Fraud.
- Research New Scams regularly: Keep up-to-date with the latest fraud schemes by visiting resources like the FBI Internet Crime Complaint Center.
- Review public records regularly: Sign up for property alerts by enrolling in your county’s “Property Watch,” “Property Alert,” or similar programs to receive notifications of any new document filings related to your property. Or if no such program exists, regularly check with your local county recorder’s office for any unauthorized changes to your property’s title records. Check your property records to see if there are any new deed transfers, mortgages, deeds of trust, and foreclosure documents recorded on your property. You can do this by visiting the county clerk’s office where your property is located or by going to the county clerk’s website.
- Sign up for Fraud Alerts: Install a “Business Fraud Alert” for your business at the state level that notifies you if anyone makes a change to your business. If you own properties through a business entity, consider setting up a Business Fraud Alert to monitor for unauthorized transactions. Sign up for a credit alert service that lets you know when someone opens up on account using your credit.
- Purchase Title Insurance: Secure a Policy of Title Insurance to protect against potential fraud.
- Check on your properties and inform your property managers: Periodically visit your vacant properties and rental properties. Keep an eye on homes you own that aren’t always occupied such as second homes or vacation homes. Inform property managers or renters about property fraud and encourage them to report suspicious activities to you immediately such as surprise visits by realtors, appraisers, inspectors, surveyors, or insurance providers.
- Review property mailing addresses frequently: Make sure the county records where your property is located have your correct mailing address.
- Consult with Professionals: Work with trusted real estate fraud attorneys and other professionals who can provide guidance on protecting your property from illegal deed transfers or mortgage fraud.
Real-Life Examples of Deed Fraud
Hearing stories about fraud tends to help people understand what to look for and make a plan for preventing it. Here are a few stories on this subject.
The Burns Family in Morgan, Utah
Ty and Ellie Burns of Utah had paid off their mortgage on their property many years ago and owned it free and clear. A fraudster discovered that they had a ton of equity in the property because there was no debt on it. The fraudster forged a deed, transferring ownership from the Burns to himself.
The criminal then took out a new mortgage against the property from a hard money lender. The fraudster created a fake purchase contract, and the hard money lender assumed Ty and Ellie Burns sold the property to the fraudster. It wasn’t until the perpetrator defaulted on the loan, and the notice of sale was posted to the door to the home, that the Burns family found out what had happened.
It took them over a year and significant legal costs to reclaim the title to the property. The hard money lender purchased title insurance when it made the loan to the fraudster, so he filed a claim with the title company to recover his losses. At the time of this writing, the hard money lender still hasn’t recovered his loss.
Vacant Land Sold Illegally in Park City, Utah
A real estate investor owned some vacant land in Park City, Utah and found out that his vacant land was sold without his consent when he received a tax notice addressed to a different property owner. The fraudster in this case impersonated the property owner and then forged documents to sell the property to an unsuspecting buyer who paid cash and didn’t get title insurance.
What to Do if You Suspect Deed Fraud
Contact Local Authorities
Report the suspected fraud to your local police department and FBI and provide any evidence you have.
Consult a Real Estate Fraud Attorney
A real estate attorney experienced in real estate fraud can guide you through the process of reclaiming your title and addressing any financial repercussions.
File a Claim with Your Title Insurance Company
If you have title insurance, notify the company immediately to file a claim. These claims can sometimes take years to resolve, and may involve lawsuits.
Frequently Asked Questions
Can businesses fall victim to deed fraud?
Yes, businesses owning property can be targets. Implementing a Business Fraud Alert can help mitigate this.
Is title insurance necessary if I own multiple investment properties?
Absolutely. Title insurance is crucial for protecting all your properties from potential fraud, especially if they’re vacant or tenant occupied.
How common is deed fraud?
While less common than other forms of identity theft, deed fraud cases are on the rise due to technological advancements that make assuming someone’s identity much easier. Also, there are currently a large number of vacant homes all across the U.S. that fraudsters are targeting for this type of fraud.
Conclusion
Deed fraud can be totally life changing for homeowners and real estate investors. By taking a few, or all, of these 7 steps, you can lower your exposure to this type of fraud.
This article is for informational purposes only and should not be considered legal advice. Consult a qualified attorney or other professionals for advice on this topic. Also don’t rely on the accuracy of the information contained in this article, make sure to verify all of this information yourself before taking action. And always do your own independent research!