Schneier on Security
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September 8, 2006
Land Title Fraud
There seems to be a small epidemic of land title fraud in Ontario, Canada.
What happens is someone impersonates the homeowner, and then sells the house out from under him. The former owner is still liable for the mortgage, but can't get in his former house. Cleaning up the problem takes a lot of time and energy.
The problem is one of economic incentives. If banks were held liable for fraudulent mortgages, then the problem would go away really quickly. But as long as they're not, they have no incentive to ensure that this fraud doesn't occur. (They have some incentive, because the fraud costs them money, but as long as the few fraud cases cost less than ensuring the validity of every mortgage, they'll just ignore the problem and eat the losses when fraud occurs.)
EDITED TO ADD (9/8): Another article.
Posted on September 8, 2006 at 6:43 AM
• 46 Comments
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It seems pretty straightforward, the bank that loaned the money should lose that money and pay any legal fees. But like you said, that probably won't happen.
Something else that bothers me -- they were able to sell the house without anyone actually going inside of it?
I can believe that once or twice, but in "epidemic" proportions?
I'm curious that there seems to be so little security used here. In Germany for selling houses you need a civil law notary, which has to check your ids. This makes these attacts impossible (or if they happen, the notary is liable).
Banks have a powerful lobby. Citizens have no lobby. End of argument.
It seems like these kinds of problems are common enough that a legal firm could make a full time practice of suing the banks. The banks don't have a leg to stand on, but the only recourse for the victim is to take the bank to court. That's expensive and the average person won't be able to do it. The banks spin the writeoff as doing the victim a favor and most victims fall for that. Am I really the only person who would go after the banks for damages well in excess of the value of the fraud they committed?
The scam works on rental houses. You rent the house and then you show it and sell it. This approach has the added advantage that you have an address to work the scam from.
Well the *lawyer* certainly should have an incentive not to get fooled into notarizing a fraudulent document. Unless this Caplan fellow can demonstrate why it was not his fault for notarizing the document without sufficient ID he is looking at being disbarred. I wonder how good the fake driver's licence was, or if he even looked at the ID. It's probably a case of someone who notarizes thousands of such documents a year getting a little sloppy.
Erik V.: You're unfamilliar with the tactics? On at least one occasion, I dealt with somebody who 'lost the key' to a place and wanted me to sign a lease sight unseen. I said no, but somebody else took the property later that day, agreeing that it was undamaged without either the lessor or lessee having seen it. The leasing agent constantly played up the statement that a lot of people were interested, better sign now...
I want to know what happens to the lawyer who notorized the power of attorney. IMO, disbarrment is the least of the punishments that they should receive.
Huh. I just bought a house in New York City, and one of the services my lawyer provided was a) a full title and record search to make sure the sellers had clean title to give, and b) title insurance, which will compensate me if any problems turn up with the title. I'm a bit surprised that these services aren't common in Canada, too.
Maybe in Canada it's legal to rent a house and then sell it. We just didn't know that. Some sort of socialized property ownership thing?
If you want to pick up a quick buck, move to Canada, rent a house for a year and then sell it, nobody will do anything about it and you get a fair chunk of money. Just make sure you pay any taxes, or they could put you in prison for tax evasion.
katre: I just bought a house in the UK
My solicitor sorted out almost everything - record searches, title searches, negotiations with the sellers legal advisors etc. It is standard practice here.
There are problems that can come up in a house sale, but this kind of fraud is almost unheard of.
This happens in the US on a regular basis, also. It usually is on older homes, with mortgages that are paid for (the scam often targets senior citizens). There was a excellent series of articles on this in the Chicago Tribune a few months back (subscription required to read, though). One of the main victims was a church.
Even title insurance (though it protects the buyer in the scam) doesn't help the true property owner.
@ Dave. You purchased a house in the UK and the solicitor did all the legwork, sure. But if the lawyer didnt do his job properly and missed something important, you'll find yourself looking at your lawyers disclaimer on the bottom of the paperwork they provided you... usually along the lines of 'all care no responsibility'.
You are then in a position of having to sue your lawyer, and now things are really messy. (you 'own' someone elses house, you have a mortgage, and your lawyer let you down.)
My point is, Lawyers are very careful to not accept the clients risk. It often pays to check the results of their work very carefully. - Did you see copies of the records and titles etc, or did you settle for your lawyers "all the paperwork is in order" comment....?
"Citizens have no lobby."
What an fundamental statement on why American politics is such a crock.
This scam started because Canada passed a law saying that if you bought stolen property in good faith then the rightful owner couldn't reclaim it. This isn't a problem in the UK (and I guess the US) because the purchaser loses the house, good faith purchase or not.
@nzruss. The main reason to use a lawyer for conveyancing in the UK is to ensure that you're not liable if the title isn't good. That's why their fees are so fat. If you have a lawyer who won't accept liability, get another one.
As a previous poster has stated, this sort of thing just doesn't seem to happen in the UK. Traditionally, the seller has to produce the title deeds (which will generally either be held by the seller's bank/mortgage-company or by his/her lawyer in a safe-deposit). Without the title deeds you're pretty much stuck - no purchaser will buy your place and no mortgage-company will give a loan on the property. You'd find it pretty hard to get hold of someone's deeds without them knowing.
(I recently sold one house and bought another: this involved paperwork dating back to 1850 - trustme; there is a _lot_ of paper involved!).
In the last few years a lot of this process has been automated: title deeds relating to all sales are now held electronically by the Land Registry whose electronic copy is considered authoritative. It will take time though before all properties are on the electronic register. personally, I feel the electronic system is if anything more open to fraudulent misrepresentation since it no longer involves applying to financial institutions or lawyers to get the hard-copy documents sent to you.
roy: "Banks have a powerful lobby. Citizens have no lobby. End of argument."
cmills: "What an fundamental statement on why American politics is such a crock."
Come on. *Specious statements like this one* are why American politics are "such a crock".
Citizens have many lobbies. What do you call the EFF? EPIC? There's even a lobbyist group called "Citizens' Lobby", though you might not agree with their aims. You could make an argument that all lobbies are citizens', though many influential ones represent citizens in charge of large corporations.
Okay, so those are lobbies for groups of citizens with a particular interest: the EFF and EPIC lobby on behalf of citizens concerned with electronic freedom and privacy issues, for example.
Maybe we do need a lobby for all citizens in the country! Ooh, I know! We could break up the country into neighborhoods, and then regions ---maybe we can call them "districts" and "states"--- and we'll have each citizen vote on who should represent him. We can have one set of these "representatives" looking out for in-"state" affairs, and one set for the whole country.
We'll need a good name for it, though. How about, oh, I don't know, "congress"? I think it has a nice ring to it.
Sorry, folks, for the tangent. On topic-wise, I'm not sure it's the banks who are responsible, though I don't really know the system. It seems like the seller and buyer are the ones who are responsible, along with any notaries involved. I'd think that's part of why you hire a real-estate agent; they know how to avoid this sort of risk.
Commercial lobbyists heft far more clout. In politics, money talks, b.s. walks.
Citizens vote for the elected representatives that pass the laws. They are their own lobby.
A month or three ago, The Chicago Tribune ran a series of articles about a similar scam ripping off churches.
(as best I recall) If a small church owned some property, and somehow neglected to re-incorporate preiodically, the scammers incorporated in the name of the lapsed corporation, and sold off assets . . .
The victims are well and truly screwed.
this entire discussion misunderstands the issue and overstates the problem. "if banks were held liable for fraudulent mortgages, then the problem would go away really quickly."
what fraudulent mortgage? the original mortgage taken out by the victimized homeowner isn't fraudulent, and is still good. in all likelihood, the bank holding it had nothing to do with the fraud. if the new buyer took out a mortgage, it's the responsibility of his lender to do due diligence regarding the property and its title issues, the failure of which, already under today's law, leaves the bank holding an empty bag.
mortgage fraud is perpetrated by borrowers, not lenders. the bank gives you the paper with the terms/conditions/payment schedule, you read it (hopefully), if you agree, you sign and it's recorded. how is that fraud?
i used to tell my clients "title is a complex concept, and there may be facts bearing on this specific title that i am yet unaware of. that's why we have title insurance, a simple concept that will protect you from the unknown." in california, title insurance companies handle the escrow, and they won't close it until they're sure everything's kosher.
This is not uncommon in the current overheated real estat markets... in fact in the Vancouver and Calgary markets, it is not uncommon for an entire condo building to be sold to "off shore" buyers who never even set foot into the country. The units are purchased as investments or to gain residency points (or more often to launder drug money).
No you cannot rent a house and then sell it in Canada. The problem is that the real estate markets here are overheted, houses are sometimes being flipped within hours of a sale, and the land title offices don't get the necessary updates in time.
Also, there are some really stupid buyers out there.
Another_bruce has most of it right. But the problem is that the second lender (to the fraudulent seller) is _not_ left holding the bag. They're left holding a legitimate title to the property. Recall that a mortgage ("dead pledge") is an actual conveyance of the title from the buyer/borrower to the bank/lender. The bank owns the property. The identity thief uses the victim's (or victim's mortgagee's) clean title to the property to get a mortgage.
When this transaction turns out to be fraudulent, according to Ontario law it looks like the second lender is a "good faith victim" - and retains its title to the stolen goods.
Really, it's the provincial or municipal government that is authorizing these patently fraudulent transactions who is ultimately responsible.
The solution - if we assume that provincial and municipal governments, even in Canada, can't authorize the transactions very well - would appear to be to abandon this "good faith" notion and return title to the property to its actual owner (either the fraud victim or, more likely, his mortgagee). Lending banks would be a lot more careful about inspecting the legitimacy of these transactions if they stood to lose if the transaction was illegitimate, which would help reinforce the checking of transactions.
Of course, the transactions could be better authorized - perhaps local title offices could offer a kind of "title lock" where more stringent conditions would have to be met before a conveyance would be authorized.
Gary in DC: it is in fact you who has got most of it right - all except the bit commending another_bruce. He is conflating two stories, one in which no mortgage is involved, and one in which the *thieves* take out the mortgage. Of course the bank ought to be liable for that but it is not. There have been cases, not mentioned in the story, in which the thieves didn't bother trying to sell the house - they simply claimed ownership and used the house as collateral. The houses in question were not rental properties and there was never any need to show them to prospective buyers (or anyone else.) The banks attempted to hold the victims liable for the mortgages.
The root of the problem is, as you say, that the law favours the banks and buyers over the owners in these situations. This is all the more peculiar as nowadays most people buy title insurance as a matter of course.
Finally, the Land Registry system mentioned by tanuki is the system used by Ontario. All you need to do is to prove that you are tanuki, and if the registry says tanuki owns a property then you do. Obviously, the standard of proof is not high.
@gary in dc:
in california, a bank duped into lending money in a transaction where somebody had stolen the identity of the actual titleholder would not thereby acquire good title. in the sense of looking to the property as collateral, the bank would be holding an empty bag. it would have a title insurance claim, banks always get a lender's policy on these deals (and make the parties to the transaction pay for it).
if the bank failed to reconvey its false title upon demand of the actual titleholder and his account of a forged signature, the actual titleholder could sue the bank for what we call "quiet title" and ultimately get a court judgment quieting title in him, which is then recorded, solving the problem.
i am not "conflating two stories", my initial comment was entirely addressed to part of bruce schneier's post mentioning fraudulent mortgages, which i quoted, and comments subsequent to it which appeared to reflect fuzzy thinking. i don't know what i can do about your fuzzy thinking.
Bruce, one question I have is whether you think tougher privacy laws would help in situations such as this. Do countries with such laws have a lower incidence rate of identity theft (fraud)?
"Bruce, one question I have is whether you think tougher privacy laws would help in situations such as this."
I don't think it's a matter of privacy laws. I think it's a matter of poor authentication on the part of the banks and the mortgage sellers. They're the focal point of the problem, and they're the ones that are going to have to solve it. That's why I think liability is a good idea.
If the article is accurate then Bruce and the posters here have misunderstood what happened.
The house was registered under the Torrens system, a form of land title under which the records of the Land Titles Office (or its equivalent) are indefeasible - that is, they are definitive and determinative. If these records say that you have title to a piece of land then you actually do have title to that land, no matter what chicanery caused your name to be recorded there. This system was introduced nearly two hundred years ago in South Australia and has been adopted by most of the Commonwealth countries because it really is better than the system of deeds (still used in most of the USA) which it replaced.
I'm Australian, not Canadian. I don't know Canadian law so I'll pretend that this Australian law applies here. Under the Torrens system the criminals did in fact have a legal title to the land and the bank was absolutely right to lend them the money. Because Torrens title is indefeasible the fact that the registrar records someone as the holder of title to the property actually determines the ownership of that title. The only way to reclaim title is if you demonstrate fraud on the part of the person who sought the transfer of title, and you do so before anyone else has acquired an interest in the land.
If there is any blame here it should be directed to the Registrar, not the bank. The bank lent the money in good faith to the the holder of title. There is no other record of land ownership that the bank could or should have used to determine the true holder of the land title. It's very hard on the owner, but he is able to seek compensation from the Registrar - which in cases like this will invariably be granted. He could also sue the criminals, but it's likely that they've disappeared.
Incidentally, a mortgage isn't a transfer of title under the Torrens system. It is legally what it always was in equity: a loan secured by a charge against the property.
I found this quote a little strange:
Troister says Ontario's land titles system is a good system, "except in the event of fraud where it breaks down, and leaves innocent owners and innocent buyers and lenders helpless and without speedy and fair relief."
And here I thought that preventing fraud was the primary purpose of a title registration system. How can it be a good system if it fails at that?
Because the alternative system in general use is even worse. There are any number of old law cases about forged deeds, missing deeds, inaccurate deeds and so forth. It makes much more sense to have a central registry where you can guarantee that every person trying to change title to land will have his claim examined. Otherwise you get people arguing about changes to deeds made so long ago that there are now no surviving witnesses.
In this case the system failed - the fraudsters passed off a forged power of attorney. The question isn't whether the system is foolproof, it's whether the system is less fallible. I think it should be obvious that the same people who can forge a power of attorney can also forge a deed of title to property.
It's gotten completely off-topic, but citizens can vote... banks can't. You can bend the ear of a politician all you want, but the citizens can take his job.
Citizens choose not to be informed. That is their choice, and their loss.
I would like to caution everyone to make sure that the title insurance covers all the value of the property. I bought a piece of vacant land in the US, paid for title insurance, and over the next two years proceeded to build a nice home on it. All this time we drove over what looked like a public road to get to our place. Now it turns out that the road crosses private land and that land owner has put up a fence and refuses to let anyone drive on it. As is his right. However, the title insurance covers legal access for me, so they have to pay me, right? Yes, but only for the value of the vacant land, which they insured. We even were reassured by them before we started building that there definitely was no problem. Now we will lose the entire cost of our home, We used all our savings. So we are looking at bankruptcy, which means we will lose our ability to be bonded and insured, which we need for our jobs. So there goes our ability to earn a living in our chosen fields. We have been to a number of lawyers who all say we have a good case for damages, but they all tell us we can't afford to sue, so they won't take the case. So remember everyone, title insurance isn't foolproff. It can cost you your life as you know it.
your comment raises a number of issues which you should discuss with counsel, you might be able to save your ass.
first of all: prescriptive easements. you've been using the road for two years, and the previous owners have been using it for x years. if x+2 equals a sufficient number of years (in california the prescriptive period is 5 years, it's longer in many of the other states), you and your successors may have a right to use it in perpetuity. you might have to file a suit to quiet your title to the easement.
seller disclosure issues: unless it was apparent from an inspection of the property that the access road ran through the property of another, this is something the seller most likely should have included in the disclosure statement.
the title company: "we even were reassured by them before we started building that there definitely was no problem." actionable!
the part where the lawyers told you that you couldn't afford to sue doesn't make any sense. back when i was in the game, i would just tell the client how much it was going to cost and leave the affordability determination to him. in a good damages case, it's probably doable on a contingency basis. absence of affordability seems inconsistent with the represented two-earner couple, maybe this is just a budgetary problem. good luck.
one other thing that frequently comes up in "landlocked" parcel cases: easements by implied grant or reservation.
if your title and your neighbor's title both go back to a common owner who subdivided a larger parcel, and the subdivision was done in a way so that your parcel had no access except for that road, you might be able to establish an easement by implied grant (if your property was sold first) or reservation (if the neighbor's property was sold first). make sure you're talking to a real estate lawyer, lawyers are not fungible across different practice areas.
Title insurance will protect the buyer and thus the lender by extension. But the costs of title insurance are borne completely by the buyer. Lenders have shifted the economic responsibility here. Instead of fixing the problem they just made the buyers pay for it.
My neigboor is trying to get my land away from me , because of some "adverse posession", which is not even registered anywhere !!!!
Any idea what to do ?
Toronto - True story - one townhouse - one owner plus one mortgage for $100,000.00. Owner makes out a phony discharge, goes to registry office and has his mortgage discharged. He now arranges a new mortgage with another financial institution. Once again, he makes out a phony discharge and repeats this process again - making sure the payments are made to all banks, so as to not raise a red flag. He then sells the house and collects once again and quietly leaves town after transaction closes.
Some years ago, it was in the Bank Act that a Certified Appraisal Report had to have been completed before a financial institution could place a mortgage against a subject property. As a result, the appraiser had to physically meet the applicant and personally inspect the subject property. This certainly cut down on this fraud issue. Now this rule has been eliminated and banks only require appraisal reports at their discretion. Also Gov't CMHC will insure a mortgage for the banks - CMHC usually approves the mortgage in 10 minutes right from their desk. Why should they care ?- they are using public funds - the more money they lose, the bigger the heroes they are for contributing to the socialist cause.
I am the owner of commercial real estate that is in chapter 11. I had a manager agreement that allows the managers to have the first right of refusal. I was sued by the managers in the Circuit Court, the Management Agreement was canceled and the Right of First Refusal has been dismissed. The Fedaral Court has ruled I can sell the property Free and Clear of any liens and has given me until 05/10/07 to go to settlement. I have an all cash buyer. However the Managers have filed a Notice of Appeal and a notice of Lis Pendens. To date there has not been a motion for stay or a bond. Does the Federal Judge Order to sell the property free and clear allow the buyer to obtain Title Insurance? If so why do some companies say the Notice of Appeal and Lis Pendens presents a problem. Since 2005 the Managers that are suing have not secured funding to purchase the property, rather they have used the Court to buy time.
The ID theft and sale of another persons house is very common in Canada. You don't even know it has happened until the bank takes your house. Usualy they take out an equity loan without your knowledge and move the money to their home country. They have busted several people in Alberta doing this but the media does not bother to report it very much because of the huge volume of real estate advertising and the realtors don't want people looking too close at houses that have been "flipped" several times in the last few months.
In Calgary the police looked into 396 houses that had changed hands an average of 3.4 times in one month! I never heard any follow up in the news afterwords.
People actually believe the 25 year old house they bought for $500,000 is worth it even though 10 years ago you would not get $115,000.
I AM DOING RESEARCH ON LAND FRAUD, A LAWYER BY PROFESSION. COMMON LAW IS BROUGHT BACK ----SEE THE ONTARIO NEW LEGISLATION, DEED IS VOID IF THERE IS FRAUD. BANKS HAVE TO LOKK AFTER THEM SELVES. TITLE REGISTRATION IN ALL COUNTRIES SHOULD FOLLOW THIS LEGISLATION. TITLE RIGISTRATION SHOULD NOT DEFEAT THE COMMON LAW DO KEEP ME INFORMED
hope you received my e mail my address is all in simple letters
Get the darn lawyers out of the loop. Enough of them have been kicked out for fraud!
I know someone who went through the new process and still one lawyer for the whole deal one pic id. that is a violation of the new law in Ontario,.
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