Understanding Home Title Fraud
It is probably not the first time you've heard these frantic people telling you that your home can be stolen. Indeed, thieves can deed your property to their names, mortgage it or sell it without your knowledge. It may have already happened. All your home equity may have been wiped out. When the foreclosure or new owner evicts you, that's when you discover the fraud.
This is called title theft, also known as deed fraud. It involves the fraudulent transfer of a house title into another person's name. A thief can steal your identity and use it to forge a deed in your name, making it appear that they're the property owner.
Theft of home titles can take place in several ways:
Thieves can refinance your mortgages, cash out the equity, and flee with the difference. In addition, the new mortgage will not be paid, so that you will be in foreclosure.
They can apply for a home equity line of credit in your name, flee with the money and leave you with back-breaking repayments.
They can use a forged deed to sell an empty home - like your unoccupied vacation home or rental property - then profit off you.
Thieves may offer mortgage refinancing to homeowners in financial difficulty. Once the deal is completed, ownership is transferred to them.
Get Title Insurance
Title insurance is a type of insurance that protects the buyer from a defect in the title of a property. Normally, a title search is conducted to find any outstanding issues with the property's title before it can be purchased. But even with this due diligence, many homeowners have been duped. Title insurance can protect against forgery and fraud, defects, and liens.
The difference between it and, say, homeowners insurance is that it protects your purchased interest in the property by ensuring that the title (ownership) is valid and peaceable.
How Title Insurance Works
Like those used by Escrow companies, a title insurance policy insures buyers against financial loss due to issues relating to the legal title of the property.
While this insurance mostly protects the lender against loss, it also protects the borrower. Title insurance can cover any defects, liens, or possible encumbrances that could still happen to the property well after closing. The borrower will not have any issues buying a home with "cherry-picking" or similar tactics.
When someone seeks title insurance, they seek protection against deed theft and liabilities that they may have unknowingly obtained. These include errors due to earlier records that state institutions have not updated for years, mills still owed on the property, or an agreement to pay for subdivision fees until 2040. Whatever the issue is, title insurance buyers want to be protected against it.
Types of Title Insurance
Lenders' title insurance: Lenders will invariably require their borrowers to take out an owner's title insurance policy when purchasing property with them, which protects their stake in the property if there are any outstanding liens on it.
Owner's title insurance: Owner's title insurance protects the owner against defects in their property when they sell or refinance it in future years. Preferred cost services policy protects the owner at a lower value. However, it doesn't include things like government-disclosed water problems or pre-existing easements/covenants on the property, while highest cost services include all but will likely be more expensive.
Here are the other types of losses a title insurance policy might cover:
Cancellation – Title insurance protects lenders from cancellation. A regular, customary cancellation results if a party reveals that they have a better claim to the property than the one being sold.
Loss – It ensures that the buyer doesn't suffer loss for any reason after they buy and occupy the property, such as damage from a natural disaster.
- Charging order – The policy ensures that if a lender succeeds in getting a court order charging their loan on title, it's considered an exception of the regular cancellation of the sale due to third-party rights.
In addition, some policies will cover certain personal injury occurrences, including someone being purposely shot on or near your property.
In a nutshell
When you buy property, it's not always easy to make sure you're getting what you paid for. Title insurance protects individuals so that their properties cannot be stolen. Apart from deed theft, this insurance policy allows you to purchase a home without worrying whether there are any claims against the ownership.
A qualified legal professional can review your transaction documents for possible misrepresentations and even fraud, thus reducing the chances of any trouble down the road.