It’s a true nightmare scenario: someone uses publicly available information to create and file a fake title to your house, sells it to someone else (pocketing all your equity), and one day a whole family shows up with a moving van to move into your home, which they now legally own, leaving you homeless and with no recourse.
Let’s slow down for a moment.
First, while someone could take the above steps and temporarily trick various financial and government institutions into believing they were the owners of your house, this would not make them the “legal” owners of your property. Many online articles about title theft say things like, “…and they now legally own your home.”
No, they don’t legally own a thing. It would be like identity theft legally turning another person into you.
Second, the scenario above would rely on a lot of people not performing their due diligence, including that moving van full of usurpers. You don’t just buy a house without making sure you’re dealing with the actual owner of the property first. Their losses would be their own fault. Additionally, a notary public would have had to break the law by not checking anyone’s identification. Title and real estate companies also have a lot of safeguards in place to prevent such things. Remember how much paperwork was involved when you bought the house? It would be extremely unlikely for the fraud to not be noticed at some point. They’re watching for it.
Third, it is very likely that you already have purchased title insurance on your home. The easiest way to find out is by looking at your closing documents. Title insurance protects you from losses due to defects in the title. It doesn’t get much more defective than a fraudulent title.
So why the panicked Internet articles telling you about the thousands of people supposedly rooted out of their homes each year? Most of those articles are written by businesses, and if you guessed that they’re trying to sell you something, you guessed correctly. What they’re selling is a product called “title lock insurance.” Note that this is different from title insurance. Title lock insurance is supposed to alert you to any changes to your title, such as your name being removed and a new owner being attached. The problem with this product is that it only alerts you after someone has attempted to change your title. My guess is, whatever else they promise, not a lot of these companies ever end up paying out very many claims. If any.
However, rare as it is, title theft does exist, and even though the thief doesn’t legally own anything, clearing it up can be a real pain that involves attorneys and boatloads of paperwork. How can you prevent it, or at least catch it early?
The steps are similar to identity theft precautions. If you normally get postal mail from your mortgage company but it suddenly stops, look into that. Mail from your lender with a name other than yours is a sign something is amiss. If you’re set up for automatic mortgage payments and they suddenly stop coming out of your account, follow up. Suddenly getting a bill for a Home Equity Line of Credit you didn’t apply for is another serious warning sign.
Regularly checking your credit reports is already a good idea—make sure your mortgage hasn’t disappeared. Many county recorder’s offices now offer free alerts that tell you when a document has been recorded under your name. Good news—Lake County and Porter County both offer this service! This service is 99% of what many “title lock insurance” companies do.
To summarize: It could happen in theory, but it’s very rare. The worst part is the hassle of fixing it. Take care and be vigilant, but don’t pay for unnecessary services. A much more likely type of mortgage fraud is someone convincing you to sign over ownership of your home in a fraudulent investment scheme. Hackers get all the press, but we ourselves are usually the weakest link in our own security measures.
