You’ve heard the ads on the radio — identity thieves can take your house unless you buy title fraud insurance. You’ve also heard that home title fraud is a growing type of identity theft. But is the answer really another insurance policy, or can you protect yourself? Rob talks about that on this episode of Faith&Finance.
You’ve heard the ads on the radio — identity thieves can take your house unless you buy "TITLE FRAUD INSURANCE". You’ve also heard that home title fraud is a growing type of identity theft. But is the answer really ANOTHER insurance policy, or can you protect yourself? Rob talks about all that on this episode of Faith&Finance.
Here’s it's is supposed to work - a lender notifies you that they’re about to foreclose on your home. That’s news to you because you haven’t taken out a new mortgage or other loans on the property. The type of fraud that kicks off that scenario can take several forms but all of them start with identity theft. There’s even a very sophisticated version involving wire fraud that has the FBI’s attention, but it’s pretty rare.
We're talking about a much simpler and more common variety that we’ll just call title fraud, and it works like this. The thief walks into your county deeds office and fakes your signature on what becomes a fraudulent deed transfer in your name, giving the property to someone else. The thief then takes out a home equity loan or refinances with cash out and skips town. After a few months of nonpayment the lender then begins foreclosure proceedings. All of this is happening without the real homeowner knowing anything about it until it’s too late. Many companies today are advertising that they can protect you from this type of fraud. But what exactly are you buying with title fraud insurance that may cost $15 a month or more?
First you need to understand that this is NOT what’s typically known as title insurance which you should always get when you purchase a property.
Title fraud insurance really isn’t insurance at all and it doesn’t lock your title, as some of the names imply. Real title insurance protects you against any claim involving the validity of your ownership of the property. And it’s a one time purchase usually several hundred dollars. Title fraud insurance is a completely different product and it WON’T protect you in the very unlikely event that a scammer forges your signature and transfers your title.
Title fraud insurance products will usually just monitor whether your deed has been transferred out of your name at the county records office and that might be helpful, if you’re able to react in time and challenge the deed transfer at the county records office before the scammer takes out a new loan. But that’s a big “if.”
Also, there’s no way to actually “lock” a title in any state. There’s nothing to stop a scammer from forging your signature and transferring a deed out of your name. But you can monitor YOURSELF whether a fraudulent transfer has occurred. Most counties allow you to view the status of your deed online and some counties even allow you to sign up for automated alerts involving deed changes.
So by now you’re asking, “If I don’t monitor the status of my deed all the time, how do I protect myself from home title fraud?” In theory, you don’t really need protection against it, because no matter how the scam plays out, it’s STILL FRAUD. If someone forges your signature, transfers your deed, and then takes out a loan on the property, you’re NOT responsible. The con artist didn’t legally own your property, so the lender doesn’t have a legal claim to it. If they tried to foreclose on you, it would be “wrongful foreclosure” and wouldn’t hold up in court.
There’s another reason that the bank or mortgage company wouldn’t come after you - they would, as a matter of course, require the scammer to pay for “lender’s” title insurance at closing protecting them against any loss. There would be no reason for them to come after you even though they’d have no case against you.
But you can take further precautions. Get out your title insurance documents from when you purchased the property. Look to see what it covers and doesn’t. It’ll always protect you from legal claims against your ownership and possibly but not necessarily against fraud. If it doesn’t you can purchase a title insurance policy that protects against fraud even if you bought the property years ago.
If you didn’t buy title insurance when you first bought the property, you can still get it. It will not only protect you from a loss, but will also cover any legal fees involved with defending your ownership. In most cases, the title company will actually provide an attorney to represent you.
The bottom line is that title insurance is always a good idea; title fraud insurance probably not worth the money. As Matthew 10:16 teaches, be innocent as doves, but wise as serpents.
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