October 18, 2023
Fraudulent real estate sales are on the rise! The FBI’s Internet Crime Complaint Center warns that losses from real estate and rental scams are steadily increasing, reaching more than $396 million last year. Victor Petrescu, an attorney with Levine Kellogg Lehman Schneider + Grossman LLP in Miami who represents victims of real estate scams, says he’s noticing an uptick in one particular type of scheme: title fraud. “Pirates,” as he calls them, are recording fake liens or deeds that are jeopardizing a growing number of closings and putting more homeowners at risk. Petrescu caught up with REALTOR® Magazine to share the dangers of these scams and what to watch for.
It’s a term that refers to a person or entity who commits title fraud by attempting to create the appearance that the person or entity has legal title to a piece of real property when they do not. This usually takes the form of the title pirate recording a fraudulent or forged deed or other similar document purporting to convey title to a property. To accomplish this, a title pirate will usually use falsified documents, such as a forged driver’s license or Social Security card, to hold themselves out as the owner of a parcel of property. If the property is owned by a limited liability company or corporation, the title pirate may use a forged signature or falsified documents to hold themselves out as a party authorized to execute documents on the company’s behalf to effectuate the transfer of title. Title pirates can then profit by, among other things, securing a loan on the property, renting the property out, temporarily living in the property or attempting to sell the property to a potential buyer.
Title piracy has become increasingly more common since 2020, especially with the rise of remote and mail-away closings and remote notarization in our post-COVID society. It has been an especially big issue in South Florida in recent years.
Title fraud can take many forms. Vacant parcels of land are a favorite target among title pirates because they are not occupied, and they are not usually closely monitored by their actual title owner, who may even be located out of state. In the case of vacant properties, once a title pirate records documents purporting to grant them an interest in the title, their next step is usually to attempt to borrow money against the property from third-party lenders. This is usually based on the title pirate’s representations that the money will be used as a construction loan to finance construction on the property. Then, subsequently, they’ll abscond with the funds after the loan’s closing without paying the lender back afterward, leaving the lender to attempt to foreclose their loan against a property the borrower does not actually have legal title to.
Properties with recently deceased owners and investment properties owned by holding companies are another potential target. As an example, in May of 2018, the Broward County Sheriff’s Office in Florida arrested a group of people who, using forged quit claim deeds and powers of attorney, purported to take the title of 44 homes in Broward County that the group did not actually own. Eighteen of those were owned by the estates of deceased owners. The group would rent the homes, attempt to sell them or even live in them.
Paying attention to detail is the most important role a real estate professional can play to help protect their clients from title fraud. A real estate professional closing a transaction should pay careful attention to the documentation provided by the parties to substantiate their identity and/or the parties’ authority to execute documents on behalf of a company or corporation in furtherance of the real estate closing. The real estate professional should immediately look into any discrepancies or irregularities in the documentation provided and should always err on the side of caution. They should ask for multiple forms of contact information from the parties to the transaction and verify that this contact information is, in fact, valid.
Insisting on an in-person closing rather than a remote or mail-away closing is another way to decrease the risk of title piracy. However, that is not always possible. Insisting on the use of an in-person notary whom the real estate professional knows and trusts also is important.
You should immediately contact a lawyer to discuss the most efficient and expedient way for you to clear your chain of title. If you have title insurance, you should also initiate a claim with your title insurance carrier. You should also contact your county clerk’s recorder’s office to notify them of the fraud.
Wire diversion scams in conjunction with real estate closings is another area of fraud in which we have noticed a recent uptick. A closing agent should always be sure to verify wire instructions, including the correct bank and account numbers, over the phone before sending out funds in conjunction with a closing.