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Your clients count on you to help them navigate the real estate process and manage their risk. That’s why you use title insurance to help them close confidently. You know it can be an essential tool to deal with risks like encumbrances, encroachments and even zoning issues. Not every property has those risks, so not every property needs title insurance, right? Wrong.
There’s one risk that applies to every property, and it’s on the rise: fraud. Mortgage fraud is making headlines, though it’s not the only type of fraud in Canada’s real estate industry. Title fraud can have even greater consequences, and can happen to any of your clients, no matter how diligently you prepare.
How does title fraud work?
Title fraud starts with identity theft. The fraudster assumes a homeowner’s identity and takes out a mortgage on their property, then walks away with the proceeds. The homeowner often doesn’t learn about the fraudulent mortgage until they receive notice of missed payments or, worse, when they try to sell the property.
A title insurance policy is one of the only things that can protect homeowners and lenders from the consequences of title fraud. Without title insurance, lenders are left with no way to recover the stolen funds—they can’t enforce a fraudulent mortgage against the homeowner. On the homeowner side, a fraudulent mortgage registered on title makes the property unsellable until it’s resolved, which can rack up tens of thousands in legal fees.
A real example of title fraud
When an Ontario condo owner was trying to sell her property, she discovered a second mortgage on its title that she had never taken out. The sale was threatening to fall through, thanks to a fraudulent $100,000 loan. But fortunately, when she had first purchased the condo years prior, she had also purchased a title insurance policy from FCT.
Once the lender knew that we were looking into the case, they were happy to let the sale close on time, with a holdback. Once we determined that fraud had occurred, we compensated the lender for the full amount of the mortgage holdback, plus interest, for a total of $103,729.43.
How can legal professionals and homeowners protect themselves from fraud?
Title fraud, and the emerging scam of transfer fraud are costly, difficult to predict, and a possibility for every property. Some properties are at even greater risk:
- high-value homes with most of their mortgage paid,
- seasonally occupied properties,
- homes with their owners living out-of-province or abroad.
Legal professionals can fight back against the rising levels of fraud in Canada’s real estate industry by doing these two things:
1. Title insure every transaction
In Ontario, title insurance is automatically added to most real estate deals. But in other parts of Canada, not every deal is protected. The problem is, fraud isn’t just happening in Ontario. With new construction on the rise in Alberta, and property values running high in B.C., the risk of title fraud or transfer fraud is rising across Canada. A title insurance policy with proper fraud protection is the best way to protect lenders, homebuyers and existing homeowners. But insurance can’t prevent fraud, it can only compensate the targets for their losses and help restore the stolen title. Insurance is only half the equation.
2. Work with fraud prevention experts
It’s essential to work with someone who can have your back on deals and help catch fraud before it happens. The right underwriting team should act as a second set of eyes, watching out for the warning signs of suspicious transactions.
At FCT, we take fraud prevention extremely seriously. We’re the only title insurance provider with a Certified Fraud Examiner on staff. That expertise has helped us identify hundreds of millions of dollars in suspicious transactions for our customers. We learn from contacts in the industry as well as from every claim we receive. Fraudsters are always evolving, but when you work with fraud prevention experts, you can stay ahead of them.
When you title insure your deals with FCT, you get more protection for your clients and their biggest investment—their home. Learn more about our residential title insurance coverage, and help keep your clients and their property fraud free.
Insurance by FCT Insurance Company Ltd. Services by First Canadian Title Company Limited. The services company does not provide insurance products. This material is intended to provide general information only. For specific coverage and exclusions, refer to the applicable policy. Copies are available upon request. Some products/services may vary by province. Prices and products/services offered are subject to change without notice.
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