Sun
You think you’ve insured your home against any eventuality — fire, theft, vandalism, water damage or a litigious visitor slipping on your stairs. For additional peace of mind, you have installed smoke and burglar alarms, deadbolts, window locks and motion-sensor lighting. Despite all those safeguards, you’re still not protected from a crook stealing your house and selling it, or refinancing your home and making off with the money.
Not only are such outrageous offences easy to commit, with sky-high house prices and a competitive mortgage lending market, they have become the crime of our time.
Canadians hold more than $1.6 trillion worth of land and residential buildings and owe more than $600 billion in residential mortgages. Royal Lepage predicted that the average sale price of homes this year will rise 6.5 per cent to $293,000 over a year earlier, while the number of units sold will slip to 468,000. In other words, the value of residential real estate transactions in 2007 will be something in the order of $137.1 billion.
That’s too much money for criminals, especially organized crime, to ignore. The annual take from real estate fraud is estimated to range from $300 million to $1.5 billion. The risk-reward ratio is compelling. The chance of getting caught is low and, even if apprehended, penalties are light. Often, neither the victim nor the police realize that a crime has been committed until months after the fact.
The two principal components of real estate fraud are title fraud, in which a criminal transfers ownership of a property to himself/herself or others, and mortgage fraud, which may involve securing a mortgage against a property the criminal does not own or using fraudulent documents to meet eligibility requirements for a mortgage.
In one recent case, a thief stole a homeowner’s identity, — a simple task with so much personal information now transmitted and stored electronically — mortgaged the home for $300,000 and disappeared with the money, leaving the homeowner saddled with a mortgage in default. It took two years and $35,000 in legal fees, during which time the homeowner faced the threat of eviction, to restore proper title and terminate the mortgage.
Owners of investment property are particularly vulnerable. In a hot property market, when deals are done fast, conditions are waived and due diligence is dispensed with, a tenant using phony ID may pose as the owner, list the property for sale and actually sell it to an unsuspecting buyer. The criminals may be long gone before the legitimate owner realizes what’s happened.
A number of these frauds could be significantly reduced if all parties in a transaction would take due diligence more seriously and were less concerned with completing the transaction in the shortest time possible. Faster means less scrutiny. Appraisals may be automated rather than done in person. Proof of income and employment letters may not be adequately checked. Tax and utility bills may not be reviewed. Photo ID may not be properly verified.
It should be noted that British Columbia offers more title protection than some jurisdictions because it uses the Torrens System of Land Registration, which provides a clear line of title and a registry where all transactions are recorded.
Advice usually given to consumers to guard their personal information — change passwords, use security software, check credit reports, shred receipts and empty residential mailboxes — have merit but may not deter a determined thief.
Perhaps we should take a tip from the financial institutions that lend mortgage money. They protect themselves with title insurance. This protects the mortgage lender from any title defects, such as undischarged mortgages, old construction liens and property description errors, that they may not have noticed.
As it happens, title insurance policies also cover fraud, forgery and identity theft. If lenders think title insurance is a good investment, why wouldn’t individuals benefit too?
Title insurance is cheap — premiums would be be around $250 for a home with a purchase price of up to $500,000. And they’re paid just once. The average selling price of a home in Vancouver last month was $591,722. An online quote generated on the Chicago Title Insurance Co. Canada website for a residential property at that price was $255.72, or less than 0.05 per cent of the purchase price. Real estate lawyers might want to consider making title insurance part of the package of services they provide. It’s low-cost risk management and inexpensive peace of mind.
© The Vancouver Sun 2007
