The Decibel - How people are being cheated out of their new homes

Episode Date: February 22, 2023

Title fraud happens when someone poses as a homeowner to sell real estate they don’t own to an unsuspecting buyer – and while still rare, it’s on the rise in Canada. For victims, whether the buyer or the legitimate homeowner, the anguish of learning you’ve been defrauded almost always comes with a lengthy legal process to straighten things out. And without title insurance, the buyer may be out the cost of the house.Salmaan Farooqui is the Globe’s personal finance reporter, and he’s explored why title fraud has gotten a boost thanks to the pandemic, despite all the paperwork and checks and balances built into the process of home-buying.Questions? Comments? Ideas? E-mail us at [e-mail]

Basically what happened is there was this couple who was working abroad for an extended period of time and when they came back they came back to the fact that people were actually living in their house. Not only were they living in their house but they had renovated it, they had gotten rid of the furniture, it was basically it felt like it was no longer theirs at all. The Globe's Salman Faruqi has been looking into a new kind of fraud. Fraudsters, while this couple were away on a work trip, had managed to impersonate them, probably opened up bank accounts in their name, that sort of thing,

and then just sold the home right from underneath them and, you know, ran away with the proceeds. What these people experienced is called title fraud. It wasn't really a thing before the pandemic, but now it's happening in Canada. Today, Salman will walk us through how homeowners and buyers are getting scammed and how you can protect yourself from losing a house to title fraud. I'm Maina Karaman-Wilms, and this is The Decibel from The Globe and Mail.

Sal, it's great to have you on the show. Thank you so much for being here. Thanks so much for having me. So the kind of fraud that we're talking about is called title fraud. What exactly is title fraud, Sal? So title fraud refers to basically any sort of fraud that involves the title of your house. That is kind of like your legal ownership of your house. And, you know, in the past, title fraud, the more common version of it would be that someone would, if your title was clear of a mortgage, then they would remortgage or add debt to your house and basically be able to run away with a lot of money because they could finance it against your house.

But what is popping up now is called total title fraud. And this is basically where fraudsters, if you've been away for a long time from your home, fraudsters are able to gain access to your home. They're able to impersonate you and eventually sell your house right from underneath you and run away with the entire proceeds of the entire value of the home. So that's something that, you know, insurance companies hadn't really seen happen until after the pandemic. Let's go through how this would happen. Like what steps does someone have to take in order to commit total title fraud? Well, the important thing about this kind of fraud is it definitely starts with data collection. Regular old hackers of surveillance on your accounts, on your bank accounts, on all sorts of your details. Basically,

if hackers are able to get access to these personal financial accounts of yours, they can start to really paint a picture of who you are, how long you're spending away from your home, and whether your home is a good target because it doesn't have a mortgage. Okay. So I guess just help me understand how exactly this would happen. So somebody is targeting your house. They figure out you're away for a long period of time. They figure out you don't have a mortgage on that house. Then what happens?

Well, it's been different in different cases, but it could involve forgery of your identification. The fraudster is actually opening up bank accounts in your name. And eventually, once they have copied enough of your information to use themselves, that's when they can actually go through the process of starting to impersonate you with real estate lawyers, agents, the government, to be able to make agents think that you are, or the fraudster is basically the homeowner. And they'll complete the whole process of selling your home,

which is obviously not a simple one. It involves a lot of balances and checks that are supposed to cash this sort of thing and eventually sell the entirety of the home. So they've got the information. They're hiring impersonators, I guess, to act as the seller. And then they're actually selling your home out from under you. Yes, that's exactly right. Once that happens, so someone then on the other end has bought a home like through this fraud process then. So they don't actually, they think

they own a home, but they don't actually own the home or how does that work? So the buyer could actually be, you know, the worst off in this situation. And it depends on whether they have something called title insurance. If they don't have title insurance, then what people understand is that the legal powers that be would have to return the home to the rightful owner somehow. And if you were a buyer and didn't have title insurance and bought from a fraudster, you might be out, you know, the entire value of the home. So we're talking like, I mean, this could be hundreds of thousands, even over a million dollars, right? Absolutely. And this is what some people involved in this space think is the reason why it's happening so much is when the pandemic started, housing prices just increased so rapidly. And this extremely complicated form of crime suddenly became a

little bit more viable because of the sheer amount of money that people could make from it. Okay. Where exactly is this happening? Like, is this happening all across Canada or are there particular cities, areas that we're seeing being targeted? So the insurance companies that I've talked to and an investigator that I've talked to who handles this sort of crime, basically they're seeing this happen mostly in the Greater Toronto area, some suburbs outside of that general area, and then also in Vancouver. But also one of the investigators I spoke to, Brian King,

he mentioned that it's definitely feasible that this crime will move into other parts of Canada if authorities get a better handle on what's going on in Toronto and Vancouver. And how common is this? How many times have we actually seen this happen? Well, before the pandemic, one of the insurance companies I spoke to said they'd never seen it in their decades-long history until the pandemic. And at this point, this one company alone is dealing with over 30 cases of this. Over 30 cases. Over 30 cases, which is a massive increase. And that's only one insurance company. And we've talked around this a little bit, but could you just very clearly explain, Sal,

what is title insurance? So title insurance, it's something that came into vogue kind of in the mid 2000s, the early 2000s. And basically, it protects you from any issues related to title when you purchase a home. It could even protect from such simple things as if your seller had made some changes to the house and they weren't up to code. If you were responsible for fixing some things in the house and making sure they're up to code, title insurance could protect you there. Title insurance could also protect you from other forms of title fraud that we discussed earlier, like when someone refinances your home

or that sort of thing. But now it is also protecting you from the damages you face if someone was to either fraudulently sell your home from underneath you or to actually sell you the home themselves. So title fraud is not something that we used to hear about. You mentioned before that this is a relatively new thing, Sal. How exactly has the pandemic made this easier to do? I mean, the pandemic definitely shifted a lot of parts of the home buying procedure online. People were starting to verify identity through ID cards online. They were signing more forms online.

There was less face-to-face communication. So we definitely did see a spike as the pandemic started of fraud taking place because hackers believe they could take advantage of it. But what people are saying is that it really is the high value of homes that has really made this such a lucrative thing for fraudsters. So I guess there's that just that increased incentive, right? If you know there's

going to be a bigger payoff, you're more willing to go through all of these steps because you know there's going to be more money at the end then. A big part of it is that there is less stuff happening in person. You know, one of the stories I'm working on right now is about another area of fraud where hackers are actually impersonating real estate lawyers and convincing homebuyers to send their down payments to a fraudulent account. And, you know, that's something that maybe wouldn't happen before the pandemic as much because, you know, the vast majority of purchases, buyers were going in person to their lawyers to hand over their bank draft for the down payment. We'll be right back. in this kind of situation. You know, it absolutely has because, you know, I'm buying in a small market where the process of buying a home, you would imagine would be relatively unstressful.

But for me as a first-time buyer, even as a business journalist who deals with a lot of this stuff, I mean, it has been just really, really difficult. And you feel like you're being pulled in all these different directions and doing all these different things for the first time. So I definitely understand

how someone could be taken advantage of because it's such an emotionally charged process where you really also feel the need to do things quickly to make sure that everything is getting done in time. So, you know, for first time homebuyers, they're definitely really vulnerable to being taken advantage of just because, I mean, I really, I just don't understand a lot of what's happening. A lot of the time when I'm buying a house, it's kind of wild to say that. It's complicated, right? Yeah, no, it's super complicated. There's a lot of different documents. There's a lot of what's happening a lot of the time when I'm buying a house. It's kind of wild. It's complicated, right? Yeah, no, it's super complicated. There's a lot of different documents. There's a lot of different people asking for a lot of your personal information. So it definitely makes sense that,

you know, this is an area that could be targeted. And I guess too, when we're talking about houses, condos that have their mortgage paid off, I mean, you're at a certain point there if you've had the money to actually be able to do that. So that's something you maybe want to pay attention to. Absolutely. And that's also an important note because, again, title insurance only became something that was really common in the early 2000s. So a lot of the insurance companies I spoke to were emphasizing that people who maybe bought their house in the 90s or the 80s and have paid off that house should really look into getting title insurance now. And, you know, not to sound like a salesperson, but it is a pretty easy form of insurance. I mean, it usually involves just a

one-time payment. For example, like a small condo in the $200,000s, that would be, you know, just a $200 payment roughly one time, and you'd be protected for basically the amount of time that you own that home. And generally, it doesn't really cost more than $1,000. And if you bought your house, you know, say 25 years ago and you don't have title insurance, could you get it now pretty easily? Yeah, absolutely. So Sal, what recourse do you have if you have actually been defrauded in this way? Well, I mean, if you're the buyer, you would definitely begin by contacting your insurance

agency and, you know, start to understand a bit of the process of what's going to happen now. It's a new area. And when I was trying to get answers on what happens, I mean, it was definitely a little bit vague. What I do know is that, you know, eventually, the rightful homeowner is going to get their home back. And that process really depends on how cooperative the buyer who is defrauded is going to be in that process. There will be a legal process involved almost no matter what. But it could also be taken to court if the buyers really want to fight it and basically try to keep the home themselves as well. So it sounds like at that point, I mean, the fraudsters have taken off with the money and then the person who bought the house and the person who owned the house first are kind of left

to fight it out, essentially. Yeah, the fraudsters are the ones who are running off into the sunset and the home buyer and the original owner are the ones who have to deal with the recourse. That's a really difficult situation, right? Because I mean, a house is a kind of often it's a massive purchase for a lot of people and to have to go through that process and then to'll never be able to own a home. So when that actually, when that process gets started, I mean, even for myself, it was like, wow, this is amazing. I can actually own a home. You're putting a lot of emotional weight on that whole process. And I can't imagine what it would be like to go through all of that and only, and then realize that, you know, you were defrauded. Sal, has anyone been charged with total title fraud? There have been some charges laid, but there's also, you know, a lot to be understood still

about the people kind of perpetrating this form of crime. It takes an organized team of criminals to be able to make this process happen. And generally, the masterminds behind this crime aren't the people who are actually doing the impersonating. Even those people will be hired and might even be paying a little bit less than the people who masterminded this fraud. And one of the investigators I talked to talked about how they've seen footage of some of these impersonators at work and they do a really good job. His quote was that they might deserve an Emmy because they're really able to convince so many different people that they are in fact the rightful homeowner. So with a scam like this popping up all over here in the GTA and in the Vancouver area,

I would imagine the government and regulatory bodies are looking at what can be done here. What could be changed in the process of selling or buying a house that would actually make this a little bit better? So the one government body I talked to was in Ontario, just because most of this crime is happening in Ontario right now. And it's the Ontario Ministry of Public and Business Service Delivery that deals with this area. And when I asked them about this, they basically said that they are updating the act that surrounds kind of the legal process of buying a house.

And they're just trying to add more protections for sellers and buyers who are affected by fraud and also trying to put more of the odyssey on lawyers, real estate agents, all the professionals who work in the space to look out for fraud and to act when they suspect that something fraudulent is happening. And what about the role of realtors here, Sal? Because they are obviously involved in these transactions. Is there something that they could do from their perspective to maybe prevent this from happening as often?

One of the sources I spoke to just talks about how there has to be more education in this space, because when you think of, say, a real estate lawyer, it's mostly a transactional process that's happening there. It's not like a lengthy legal process where a lawyer is working really closely with the clients. So they basically want, you know, realtors, lawyers, all sorts of professionals to be aware of the fact that this is happening and able to spot where something fishy is going on. From my understanding, the ID that people need usually just involves, you know, two plastic pieces of ID when they go through this process. And that's a real weak point in security that lawyers and real estate agents have kind of pointed out.

And what they want to see is more multi-factor forms of identification, which is kind of what we already do when we log into our bank account. You know, we get a notification on our phone that wants us to verify that it's actually us who's trying to get into the bank account. So there's all sorts of ways that your identity could be verified. And lawyers definitely want to see more of those processes used. If you're a homeowner or if you are looking to buy a home, how do you protect yourself here? So we've already talked about getting title insurance. That seems like an important thing. But what are some of the other things that people should keep in mind in order to, you know, do their best to prevent this from happening to them? Yeah, I think the thing to remember here is that this is happening to homes that are left vacant for a long amount of time. And so one thing that's been suggested is

that you should make it not look like your home is vacant. If you have friends in the area, you can have them going in and out of your house. You can leave a car parked outside of your house. You can have someone occasionally turn on and off the lights. Basically, if it doesn't look like it's been vacant for a long time, it might be a bit harder for fraudsters to find out that it's been vacant.

The other thing that some people have done, and there's a bit of ambiguity about whether this is actually gonna help that much, but is to open a home equity line of credit or some sort of debt that's serviced against your property already. Basically, fraudsters are looking for the easiest target. And if they have to, you know, clear any sort of debt against the home, then that's just one more step that they have to take. So some people have just, you know, gotten a line of credit and left it at zero, so they're not carrying any interest. Those sort of actions kind of just make your home less of a desirable target. And I would imagine too, if you have a line of credit or something,

you must get notified if there's any kind of movement on that, right? So that's, I guess, another check and balance that would be in place there. Absolutely. One of the sides that something weird is going on is if you get, you know, letters from financial institutions about different kinds of debt that you have no involvement in, or about accounts being open that you didn't open yourself, that can be a big red flag that, you know, something is happening, and you should definitely look into that. And just kind of going forward here, you know, from your perspective, could we expect to continue seeing this happening until things change, like until more regulations change? I mean, the government said they're, you know, talking to different industry groups and industry

groups say the same thing, that there is good conversation happening. What the government is doing is basically, you know, changing wording around an act, but what people in the industry really want to see is more resources given to the police to share information and work together kind of across jurisdictions when it comes to fraud to be able to better target and understand exactly what's going on here

with these organized criminal groups. Sal, thank you so much for taking the time to talk to me today. Thank you so much for having me. That's it for today. I'm Mainika Raman-Welms. Michal Stein helped work on this episode. Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin.

David Crosby edits the show. Adrian Chung is our senior producer, and Angela Pachenza is our executive editor. Thanks so much for listening, and I'll talk to you tomorrow.