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December 15, 2008
How to Steal the Empire State Building
A reporter managed to file legal papers, transferring ownership of the Empire State Building to himself. Yes, it's a stunt:
The office of the city register, upon receipt of the phony documents prepared by the newspaper, transferred ownership of the 102-story building from Empire State Land Associates to Nelots Properties, LLC. Nelots is "stolen" spelled backward.
To further enhance the absurdity of the heist, included on the bogus paperwork were original "King Kong" star Fay Wray as witness and Willie Sutton, the notorious bank robber, as the notary.
Still, this sort of thing has been used to commit fraud in the past, and will continue to be a source of fraud in the future. The problem is that there isn't enough integrity checking to ensure that the person who is "selling" the real estate is actually the person who owns it.
Posted on December 15, 2008 at 12:23 PM
• 23 Comments
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Minus funny points for not pulling the scam with the Brooklyn Bridge.
Hmmm ... maybe my friend should have tried to get the Empire State Building instead. She's been working trying to close on an apartment in one of the buroughs for two months. Still homeless and living with relatives due to the paperwork jungle involved. No justice, I tell ya!
Part of the problem is that (at least here in San Diego) the city register's office doesn't consider it to be their job to determine whether the transfer is valid, only whether the paperwork's filled out properly. They don't do any title check to determine whether the seller really holds title and their official position is that it's not their job to do that, it's the job of the buyer to check whether the seller's got valid title.
This results in a real mess, since the register's office *also* considers a recorded transfer to be prima facie evidence of a title transfer, so the real owner has a nightmare of a time getting the title cleared again.
This story is getting too much play. Nothing is stolen by the recording of a fraudulent document. Yes fraud happens in real estate transaction, the same way fraud happens in other transactions, and yes it would be painful to have to prove the negative that you didn't sell or mortgage that property.
Those of us who work in real estate know it's up to the interested parties (buyers and sellers) to search the public records to ascertain the status of the title. Shifting that burden to the register's office would greatly increase the time and expense of handling a closing all for the small benefit of avoiding the rare fraudulent recording. It can take days of searching to accurately determine the title history of a piece of property, and the incentives of the county to get that search correct a less in line with the buyers/sellers who typically have that responsibility.
County registers do simply that - register. Their job is to provide public notice of what's been recorded at what time. Parties are free to review the records and take legal action if it appears they've been defrauded.
Acutally, in some US states, you can do this even without a phony seller, because it's theoretically possible to file a deed without a seller at all, and it's then up to the legitimate owner to say "is not". However, Rob is right that in practice, this falls apart as soon as you try to enforce your supposed property rights. The real-world sanity check makes this impractical as anything other than a stunt.
Real fraud does get committed this way. It is done by selecting the target such that it is not noticed quickly (a vacant property) and then using that the title of the property as security for a (big) loan. The criminal then disappears with the cash and leaves the real owner and the bank to fight it out over who owns the property.
There were several examples of this happening in Australia some years back. The banks may have got more diligent at checking documents and backgrounds since those cases.
The same thing has happened with non-physical property, with domain registrars accepting letterhead as "proof" the transfer is legitimate. Having just had British Telecom cancel my office phoneline and Internet connection without so much as a written notification of their plan to do so, let alone requiring confirmation before doing it, I worry. Worse still, they executed the mistaken cancellation based on a simple phone call - with no proof of ID at all.
I'm almost inclined to write a script which works through the phone book, calling up claiming to be each person listed and asking to cancel the line. The trouble is, I have a nasty feeling I'd get to Z and have half the city unplugged before anyone spotted a problem!
Currently, all burden of managing ownership has been placed on the owner of those properties. Do we really want the government doing this from tax revenues? Or should we raise all recording fees to account for it? Given that title insurance would still be required (it covers more than just the recorded title history), do you propose passing the burden from the few who are victims of fraud to all buyers of real estate?
The fact is, (As Rob indicated) we don't have land "registries" in most of the US. We record documents. This goes back hundreds of years and is confusing as all get out. The State of MA has its own system that they've used that amounts to the government actually tracking ownership. The fact that it hasn't spread suggests that there may be valid reasons to maintain the current "recording" system...
Those responsible need information to solve this problem, but providing the information they need introduces new risks associated with availability, integrity, and disclosure.
Like most problems involving information (or a lack thereof), the solution to the problem will in turn create another problem.
Wasn't this a plot element of the most recent episode of Chuck?
This would have been so much more amusing if they had chosen a bank building instead.
@Rob: it does create a problem. Here in San Diego we're having a problem with a group that goes around recording transfers of foreclosed/vacant properties to them and then renting them out to people. The legitimate owners weren't ever involved, and it's a major legal headache getting that transfer removed and the title cleared so the owner can sell the property. And it usually doesn't show up until the owner goes into escrow on a sale, since they weren't ever notified of the "transfer" (in fact they weren't ever listed as the owner in the transfer paperwork).
As Euph notes, this is normal in the US; in most states, county offices just record deeds, and it's up to a buyer to verify that the recorded deeds are true. This is where title insurance comes in. In other countries (and a few states), the gov't operates a land registry, and that's a lot tougher to fool -- but it costs a lot more to do and puts the burden of liability on the taxpayers (rather than a title company) if there is a mistake or fraud.
I recently sold my car through an auction house. A week or so later, I got a letter from the government saying that the car registration had been transfered, and that if I believed I *hadn't* sold my car, I'd better do something about it.
Sending notification of transfer to the last-owner-of-record is an easy safeguard to implement, and it makes such fraud quite a bit harder (but not impossible.)
There was a big story on this in Chicago last year, where land owned by a church was sold out from under them, and they were not able to reverse the title transfers, and the title companies would not stand up to reverse the title transfers because the original paperwork had the proper names, if not signatures, of church officials.
notaries (and process servers too) are relatively weak links in the authentication chain for assessing objective reality from the perspective of a lawyer advising a client. regarding land titles, prospective bar examinees should know the difference between "race", "notice", "race-notice" and the system used in other countries known as "torrens". i used to tell my clients that title is a complex concept, but title insurance is a simple concept that protects you.
In the UK we historically had title deeds (if you had it you owned the land) however at some time in the past you also had to "register" the change of ownership with the Government via the Land Registry (and pay a big fat lump of tax called Stamp Duty).
Likewise if the property was used to raise funds then the lender would register a "charge" against it at the land registry (again a fee is payable on this).
Due to the property market hotting up several years ago and title deeds lagging behind by as much as a year, the land registry has gone fully electronic and title deeds supposadly have no value now.
However hang onto them, because it has been shown that property details put onto the register are not accurate, and you may well need them if you have to go to court.
The scary thing about the UK land registry (apart from the fact registering a charge against a property appears to have absolutely no checks) is that it is effectively open access and as Solicitors used to put your previous address down on the system. Therefore it is possible to back trace people....
So remember to ask the solicitor not to put your current address down when you buy a new property.
@ Tony, Dec.15 at 2:58pm
That has been a problem in Toronto too.
It's quite bizarre reading all the claims that it would be unacceptably burdensome for the registry office to check the validity of title. I guess some people just side against an idea, and then try to come up with ideas why it couldn't possibly work.
The fact is, in most of the civilised world outside the USA, the usual system is the Torrens title system (or the very similar French cadastral system), where exactly that is done.
And as well as being more resistant to fraud, it is actually faster and cheaper than than the old system, because the Trusted Third Party (title office) has the definitive records right there on file, in alphabetical order and all, so no search process is required; they just flip open a folder, go "Yep!" or "Nope!", and you're done. Title searches can and are done by any reasonably intelligent untrained person, or, if you decide to pay a lawyer to include the title search along with vetting the contract, it adds a couple of hundred bucks and less than a day to the whole process.
Best of all, the registry office actually *guarantees* you against loss caused by an erroneous record of title. This occurs very, very rarely.
Property rights is a subject that cannot be discussed in the 21st century without referring to land fraud. All those who are funding the progress of property rights especially in developing countries do not concentrate on the subject of land fraud. The concentration is on making Cadastral maps and registering them. Land contracts unlike other disciplines of law require third party intervention. Two parties seller and a buyer cannot transact without a third party intervening. Fraud therefore takes place as two parties to the contract are unaware of the actions and ethics of the third party.
Documents are not modernized to include identification rules have hardly progressed to meet the challenges of the 21st century unlike the cadastral plans. The research is extremely poor with regard to documents and the registries register documents without checking.
White collar crimes will increase unless new identification rules including biometric systems come into operation. If any one is interested in the subject and would like to disseminate the knowledge do contact me. I am a research worker on land fraud and insurance methods to compensate with Professor David Stanfield and Professor Joyce Palomar of USA and a member of the Terra Institute USA. We are interested in having a global conference for the global problem, funding has been the major issue.
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