You’ve heard the commercials for insurance that locks your title and protects your house. But is it really worth it? Just the words, “home title fraud” are enough to cause concern for many homeowners.
You’ve heard the commercials for insurance that locks your title and protects your house. But is it really worth it? Just the words, “home title fraud” are enough to cause concern for many homeowners. And there are several insurance products on the market that claim to provide protection. Today we'll talk about title fraud insurance on Moneywise.
The idea behind it is that you’re minding your own business one day and you get a call or letter saying that a lender is about to foreclose on your home for non-payment of a loan you didn’t take out.
You think, “how could this happen?" Well, an identity thief simply strolled into your county deeds office, faked your signature on a quit claim deed and transferred ownership of your home to someone else. The thief then took out a home equity loan, or refinanced with cash out, and skipped town. After a few months of nonpayment the lender is now looking to foreclose - on you.
Many companies are claiming their insurance can protect you from this type of fraud. But what exactly are you buying with title fraud insurance which usually costs around $15 a month?
First you have to understand what you’re not buying. This isn’t what’s typically known as title insurance, which you should always get when you purchase a property. It 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 on the other hand is a completely different product. It isn’t really insurance at all. It doesn’t lock your title and it won’t protect you if a scammer forges your signature and transfers your title.
These products will usually just monitor whether your deed has been transferred out of your name at the county records office. That might be helpful, if you’re able to react in time and challenge the deed transfer at the records office before the scammer takes out a new loan. So it’s on you to act.
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.
The good news is you can monitor whether a fraudulent transfer has occurred. Most counties now 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.
But again, if you don’t challenge a fraudulent deed transfer in time, a thief can still take out loans against the property.
In theory, however, you don’t really need protection against this type of fraud. If someone forges your signature, transfers your deed, and then takes out a loan against the property, it’s still fraud.
The con artist didn’t legally own your property, so the lender doesn’t have a legal claim to it as collateral. If the lender tries to foreclose on you it would be “wrongful foreclosure” and wouldn’t hold up in court.
Plus, the lender almost certainly required the scammer to buy lender’s title insurance at closing protecting them against loss. So the lender would be covered and might not even take you to court.
Take out your title insurance documents from when you purchased the property. Look to see what it covers and doesn’t. It will always protect you from legal claims against your ownership, 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.
All of this can be a bit confusing. You usually have to pay for "lender's" insurance whenever you finance the purchase of a property, but it protects only the lender.
That’s why it’s important that you get owner’s title insurance when you buy a home to protect you. It not only protects you from legal claims against your property, it will also cover any fees involved with defending your ownership. In most cases, the title company will actually provide an attorney to represent you.
So the bottom line is, title insurance, always a good idea. Title fraud insurance, probably not worth the money.
On this program, Rob also answers listener questions:
Is there a limit to what you can earn after Full Retirement Age before affecting your Social Security benefit or how it is taxed?
Are there any downsides to combining several non-qualified annuities you have owned for several years?
What can you do if you co-signed a loan with your son and he is no longer paying on it and you now have a strained relationship?
If your father passed away but didn't leave a will, does his estate have to go through probate even if it is only for a small amount?
How can you balance purchasing decisions if you feel like you keep buying the wrong thing and are getting overwhelmed by too many decisions and too much stuff?
Remember, you can call in to ask your questions most days at (800) 525-7000 or email them to Questions@MoneyWise.org. Also, visit our website at MoneyWise.org where you can connect with a MoneyWise Coach, join the MoneyWise Community, and even download the free MoneyWise app.
