I recently read an article on the CBC website about criminal organizations illegally selling other people’s homes and pocketing the purchase price. While this occurred in Toronto, Manitobans remain vulnerable.
While many frauds involve technology and complicated programs that find their way to your money, these frauds are surprisingly simple. The fraudsters hire small town criminals and provide them with fake ID, who pretend to be the owners of a house. The realtors and lawyers are fooled because the fake ID looks legitimate.
By the time the real owner finds out, the fraudsters are long gone and so is the money. The owner who was the victim can usually apply to court to have the title or ownership of the property re-instated in the owner’s name. The buyer, however, who is also a victim of the fraud may be without remedy unless they obtained title insurance.
We’ve written about title insurance here and here. When buyers acquire a home, they can obtain title insurance. This is different from fire insurance (which usually includes water damage, theft, and other similar risks). Title insurance covers risk related to ownership.
In the case of these fraud victims, they never obtained proper ownership of the property because the “vendor” did not own a legitimate interest in the home. The party who actually owns the home retains his or her interest, so the title never fully vested in the buyers. If a victim buyer obtained title insurance, the insurance would normally cover their loss in terms of costs. However, as the fraudulent vendor could not legally transfer title, the buyer will not be able to take ownership. This usually results in losses because they have nowhere to live.
There are several title insurance companies that offer policies in Canada. We use Steward Title. Their policy states:
Forgery or impersonation to the extent they affect the validity of the insured’s interest in title.
This is the covered risk that leads to an insurance payout. We would expect that the Title Insurance policy would pay out in these circumstances. While that sounds great at first, insurance companies cannot sustain ongoing significant loses like this. Should the losses mount, they will likely limit their coverage or stop offering the coverage altogether.
This happened in the last few years in the city of Winnipeg. Title insurance covers unauthorized renovations or additions that normally require city permits. In Winnipeg, these companies paid out significant sums to cover losses – essential repairs to ensure the unauthorized renovations met code. Accordingly, they adapted. Some companies increased their premium significantly, while others started limiting the amount they pay out.
So while the individuals who fell victim to those frauds in Toronto should be compensated, all future buyers of title insurance now run the real risk that premiums will rise.
Most of the properties targeted were rental proprieties. To fool real estate agents, the fraudster stand-ins – the ones hired as fake owners – would pose as potential tenants with fake ID. They would sign a lease and “move in”. They staged the property and with new fake ID, matching the owner’s name, they would list the property for sale.
Unless someone noticed the home for sale, the fraudsters would get away with it. Remote landlords are particularly vulnerable to these scams. If you own rental properties and you keep an eye on them, you would likely notice unusual activity. The CBC reported on how one diligent family prevented this type of scam from going through.
Landlords who are disinterested are therefore more vulnerable. As in every facet of business, an owner needs to exercise diligence. If you own valuable properties and regularly communicate with tenants and keep an eye on your properties, the chances of falling victim to this type of fraud decreases. Conversely, if you own properties in other cities and you rely on property managers who have not personal interest in your properties, your risks increase.
There’s no sure way of preventing these types of scams or falling victim to them. Fraudsters are endlessly creative in their ventures. However, using your judgement, and keeping a close eye on your investments and properties will go a long way to protect you. If something seems off, then investigate.
In another similar case, where the fraudsters were successful, the owner of the property had moved out of country. He did not find out about the fraud until months after the property had been sold.
With the recent increase in real estate values and hot (or at least, previously hot) markets like Toronto and Vancouver, criminal organizations will continue targeting vulnerable assets. It’s unfortunate, but it’s our new reality. For now, title insurance provides protection, but at this rate, those costs will increase and may become unaffordable. Common sense and due diligence remain your second best line of defence. As with any situation, if something feels off, slow down and investigate.
This article is presented for informational purposes only. The content does not constitute legal advice or solicitation and does not create a solicitor-client relationship (this means that I am not your lawyer until we both agree that I am). If you are seeking advice on specific matters, please contact Philippe Richer TLR law at 204.925.1900. We cannot consider any unsolicited information sent to the author as solicitor-client privileged (this means confidential).