Commercial Real Estate Blog by Madison

Real Estate Fraud – “Stealing” a Home

An increasingly common type of real estate fraud occurs when someone impersonates the true owner of real property and does one of two things- sells the home or obtains a mortgage on it.

Typically, the wrongdoer first identifies a low risk transaction.  The wrongdoer may look for a home nearing foreclosure for unpaid taxes.  This is very easy information to obtain because so much data is accessible on the Internet now.  The wrongdoer will then visit the property and confirm it is vacant.  The ideal target has no mortgages (or only a very small mortgage) encumbering it.

The wrongdoer will obtain fake identification in the true owner’s name.  He may then sell the property to a bona fide purchaser.  He collects the net sale proceeds and moves on to the next victim.  In criminal proceedings against Maria Leyna Albertina in Brooklyn a decade ago, it was alleged that she had identified and purportedly “sold” 32 such properties.

There are many variations on this scheme.  If the wrongdoer has reason to believe the seller is deceased, he will produce fake Affidavits of heirship to the title company.  The fake heirs will then convey the property.  Assuming there are no probate proceedings, the wrongdoer can be as creative as he wishes.

Alternatively, the wrongdoer may obtain a mortgage on the real property.  The wrongdoer may actually make monthly debt service payments for several months.  The reason for that is that lenders give much more scrutiny to loans that go into default in the first few months, consequently increasing the chance that the wrongdoer will be apprehended.

What happens to the innocent true property owner who doesn’t know that someone has “sold” or placed a mortgage on his house?  How does the real owner find out?

 The true property owner may also find out his house was sold by driving by the home (assuming it was vacant at closing) and seeing contractors at work.  In one case, the innocent owner received a call asking for contact information for a Jerry Smith.  The caller said he saw the Quit Claim Deed transferring the property from the owner to Jerry Smith in the public records.

The innocent property owner has not lost title to his property nor will his property be subject to the new mortgage.  The law is clear that forgeries are ineffective to transfer title. However, generally, the true owner will have to spend a significant amount of time and money to unravel the situation.  In one case, the homeowner was not able to recover the property for more than seven years.

The new mortgage lender and the purchaser will, of course, have title insurance claims.

But does title insurance afford the true homeowner protection? Generally not. Title insurance protects against losses resulting from defects in title in existence at the time the policy is issued. In fact, the standard ALTA policy forms contain an exclusion for losses resulting from post policy events. However, there is an Extended Coverage Residential Policy available for just such situations. This policy provides all the coverage afforded by the other policies, but, also provides coverage for a variety of matters, including losses from post policy forgery or impersonation. There is an additional charge for this policy (In NY, for example, the premium is 120% of the premium payable for the conventional policy.) Also, it is only available for 1-4 family dwellings owned by a natural person.

Are there red flags that can help identify these types of frauds? If you are a buyer or a buyer’s attorney, be attuned to anything that seems unusual. For example, if the price is significantly below market and the seller is requiring an all cash purchase on a rush basis, this may be a red flag. Or, if an issue comes up that requires a price adjustment and the seller all too readily agrees to a more substantial adjustment than you would have anticipated, proceed with caution. Be aware of the seller’s behavior at closing. Does the seller seem disinterested? Is the seller unusually quiet? While no individual factor is dispositive, if something doesn’t seem right, make the closer aware of it and ask questions.

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