Is Your Home Safe from Title Fraud?

Title fraud occurs when fraudsters illicitly take over the title of an individual's home. In many cases, the unsuspecting homeowner has paid off their mortgage long ago – or has at least made a significant dent. Because they're not mortgaged to the hilt, the fraudster has room to take out a loan or line of credit against the home and take off with the cash.

To commit title fraud, the criminal will typically forge the property transfer deed, register the title in their name, and take a loan out against the house. The original homeowner is then left with a mortgage against their home – a mortgage they usually have to pay back themselves.

It typically takes a while for the homeowner to discover that they owe more money on their property. If the homeowner misses payments either because they aren’t aware of them or because they can't afford to make them, their credit score can suffer.

Lenders usually not liable

The BC Court of Appeal made history earlier this month when it ruled that lenders – not homeowners – should be forced to pay the tab left behind by title fraud.

The BC Court of Appeal's decision is groundbreaking because it is the first decision in Western Canada to force the lenders to pick up the tab. Despite the fact that title fraud often occurs due to a lack of due diligence on behalf of lenders (i.e. requesting proper identification or attempting to contact the homeowner to verify the transfer of title), the Western courts have traditionally been quite easy on them.

The Torrens land registration system is in place in BC, Alberta, Saskatchewan, and Manitoba. This registration system often forces homeowners to foot the bill of title fraud, although it does grant them access to partial compensation from a provincial assurance fund.

Some headway for homeowners

Other parts of the country, namely Ontario, have attempted to ease the burden that title fraud places on homeowners. In 2006, the province introduced new legislation that shifted the onus to lenders.

The Ministry of Government Services Consumer Protection and Service Modernization Act of 2006 essentially offers added protection for homeowners, and protects them from having their home stolen from under them as a result of title fraud. It also gives the government more power in terms of returning a property’s title to the rightful owner and removes the red tape that previously made accessing money from the Land Titles Assurance Fund difficult for homeowners.

The Ontario government also took steps to tighten the accessibility of the electronic land registration system – the method of changing property titles in Ontario. Previously, virtually anyone could log into the system and gain access to the title of a property. Today, only registered, certified individuals – such as lawyers – have access to the system.

Protect yourself – and your title

While the Western provinces are moving towards increased protection for homeowners, there are a few things you can do now to protect yourself against title fraud until legislation is passed.

For starters, start safely disposing of all your personal financial information – such as credit card and bank statements – that you no longer need. The cost of a paper shredder is small compared to what you could end up paying if your identity is stolen!

Secondly, keep track of your billing cycles. If you haven’t received your bank statement lately, it could be that a fraudster has intercepted it. Thieves can use this information to learn more about you and place a mortgage under their name.

Thirdly, purchase title insurance. Unlike mortgage default insurance or term insurance, title insurance protects you from title fraud as well as other losses resulting from title defects that were not revealed when you purchased the home. Issues like unpaid liens and costs arising from building code violations and construction liens are all covered. The cost for title insurance is usually minimal.

While the likelihood of title fraud is miniscule, it does happen. By taking simple, affordable steps to protect yourself, you could be saving yourself from financial devastation in the future.