How to protect your home - and financial security - from frauds and scams
Did you know that your home can be stolen from you? Not broken into, but the title to your property can be stolen from you. Or your property can be financed without your knowledge or consent. And you likely won’t find out until the new “owners” move in or the lender starts foreclosure proceedings against you.
As you may have seen in the news recently, real estate fraud is on the rise in Ontario. Brian King, an insurance investigator in the GTA, was interviewed for a recent Maclean’s article and shared that total title fraud was once “very, very rare,” but now it “seems like every other file that’s coming in is a total title transfer”. Read on to learn more about how it happens, some common scams, risk factors, and how you can protect yourself from it.
What is real estate fraud?
There are many types of fraud targeting real estate, but the focus of this post is on two of the most devastating ones - title fraud and mortgage fraud. These types of fraud can net fraudsters hundreds of thousands of dollars and it can take months before they are even detected.
Title fraud involves the transfer of title to your property to someone else without your knowledge or consent. Basically you will no longer be the registered owner of your home and you will need to prove that you were defrauded to get it back, which isn’t possible in all instances. Practically speaking, this means that if you call the police because a stranger has moved into your house, you will be the person asked to leave because it will be the stranger’s name on title.
Mortgage fraud occurs when someone obtains financing on your property and takes off with the proceeds leaving you with the obligation to repay it. This can impact your credit rating and ability to borrow money and, again, the onus is on you to prove that you were defrauded if you hope to be relieved of the obligation to pay it. This means that until you’ve proven the mortgage is fraudulent, you’re on the hook for it.
In some cases, title insurance may help to restore title or cover your losses, but it is usually a long and stressful process that can take years to resolve - and still won’t necessarily make you whole again. The best way to protect yourself is through prevention.
How does real estate fraud happen?
There are three main ways that your home might be targeted: identity theft, scams, or elder/vulnerable person abuse.
Identity theft involves a fraudster pretending to be you and attempting to sell your home or finance it as though they are you. While access to your home can help make this fraud easier, it isn’t necessary. In some of these cases, there may be multiple bad actors involved including fake buyers and dishonest professionals making it a very sophisticated operation. It is believed that organized crime was behind the recent wave of identity theft based real estate fraud in the GTA where over 32 homes are known to have been affected over an 18 month period. While almost any homeowner can be a victim to this type of real estate fraud, the most attractive targets are landlords, snowbirds, frequent travelers, owners of vacant properties, and prior victims of identity theft.
Scams are situations where a fraudster tricks you into transferring or financing your property for their benefit. There are too many scams to describe them all here, but generally a scammer will manipulate you to either knowingly transfer money and property to them directly (such as in a romance scam or grandparent scam) or unknowingly sign transfer or financing documents by misrepresenting them to you.
A scam of the latter variety hit Collingwood homeowners recently whereby scammers offered renovation services and even did some of the work as promised, but had homeowners unknowingly sign mortgage documents rather than service agreements. In a similar operation reported in Kitchener, homeowners were promised some type of rebate or benefit for work on their properties and willingly provided personal information over the phone. Scammers then used that information to take out financing on the properties. In all those cases, the victims did not know they had been victimised until their homes were in the process of being repossessed and police are still tracking down victims.
Finally, seniors and other vulnerable persons are at much higher risk of financial abuse. This broad category can include anything from a stranger acting under a forged Power of Attorney to an adult child convincing their parent to transfer their home to them for little to no consideration. The common thread to this type of exploitation is that someone is preying on a vulnerable person to extract a material benefit from them for their own personal gain. In these instances, exploitation related to real estate is usually just one component of a broader case of elder financial abuse. These cases can be hard to detect and are rarely reported as the victims may be unable to even recognize that they are victims of abuse, let alone take steps to address it.
What are the risk factors?
In addition to those mentioned above, there are many general risk factors that make a homeowner or property attractive to fraudsters.
Seniors are an attractive target because they usually have significant equity in their home and may be more easily manipulated. They are also less likely to have any financing on their properties, which makes fraud more difficult to detect as there are fewer parties involved in any transaction. (That said, having financing on your property is not enough of a deterrent to protect against real estate fraud. In some cases, fraudsters will simply pay down an existing mortgage and walk away with your equity. And an undrawn home equity line of credit might even make a senior an easier victim as fraudsters can target that directly.)
Rental or vacant properties are also very attractive targets as it is easier for fraudsters to gain access to them so landlords, snowbirds, and frequent travelers are at a higher risk.
How can you protect yourself?
Until now, there hasn’t been a lot that you could do to protect yourself against real estate fraud. Existing guidance required hypervigilance and seemingly demanded superpowers from potential victims. Best practices included taking steps to protect yourself against identity theft, making sure you had insurance coverage in place to cover any potential losses, and only working with “reputable” professionals. You were expected to regularly monitor your credit reports, run title searches on your property, open all your own mail, shred sensitive documents, and not sign anything unless you had read it and understood it. While these are still best practices and should be followed, they do not go far enough. Identity theft is largely out of our control and most victims do not realize they are victims of it until it is too late. Equally, vulnerable victims are preyed upon precisely because they are unable to do what is needed to protect themselves or recognize when they are being taken advantage of. So, what can be done?
From my perspective (and I think most people agree), prevention is far more valuable than a cure. While insurance is important to help recover losses, wouldn’t you like to prevent them? That’s where Lighthouse Registry and our Property Alert Service comes in. Our Property Alert Service helps prevent real estate fraud. By providing homeowners with advance notice of any upcoming transfers to or charges on their property, they can intervene to stop fraud before it happens. Additional alerts sent out to others chosen by the homeowner such as their family and friends can help in the event that homeowners cannot be reached or are victims of a scam or financial abuse. Overall, the Property Alert Service itself serves as a strong deterrent against real estate fraud as any potential bad actors would know they are more likely to get caught if they target a home using our service. Think of it like a home alarm, but for your title.
Our Property Alert Service can benefit all homeowners, however we highly recommend it for older homeowners, landlords, owners of vacant properties, snowbirds, and frequent travelers. To learn more about Lighthouse Registry and our Property Alert Service, please visit www.lighthouseregistry.com. Readers of this blog can receive $50 off their registration fee by using the code UNTANGLE50 at checkout.
Erin MacKenzie is the co-founder of Lighthouse Registry, which offers fraud prevention services to both individuals and the professionals serving them. Follow Lighthouse Registry on Twitter. Erin started her career as an estate litigator where she so frequently came across instances of financial exploitation that she pivoted her career to focus on preventing them and started Lighthouse Registry. Just like an actual lighthouse, Lighthouse Registry helps prevent fraud and financial exploitation by shining a light into the shadows to identify hazards and guide a path to safety. Erin holds both a law degree and an MBA and also has experience in management consulting with The Boston Consulting Group and in banking with The TD Bank Group.