When Susan Lawrence went to the bank to arrange a mortgage for a new house she purchased in late 2005, she was told she no longer owned the house she was living in. Her first reaction was disbelief.

“I thought it was a joke or a clerical error,” says Lawrence, who lives in Toronto. “Two weeks later, the bank called me and said, ‘Sit down. You’ve been a victim of mortgage fraud.’ And I said, ‘what the heck is that?’”

Lawrence didn’t have title insurance and was told she was responsible for paying back the fraudulent mortgage – close to $300,000 – which the fraudster obtained by faking her identity, paying off a home equity line of credit and taking out a new mortgage on the home. She decided to fight back. After a long search for a lawyer – she said many didn’t understand the complexity of her case – she made it to court.

“The whole reason why the onus was on me to pay was because there was a precedent-setting court case the year before mine,” she explains. “The government workers and most lawyers I spoke to were not in agreement with that case, so I think that’s why mine was fast-tracked through the courts.”

But despite the attention around it, Lawrence’s case came back with the same disappointing result – she was still responsible for paying back the mortgage to the lender. So she headed to appeals court – and two years after she had found out she was a victim of title fraud, she won her case. The decision prompted a change in Ontario law so that lenders are responsible for swallowing the losses from mortgage fraud (as long as the homeowner can prove their case, often in court). A recent title fraud case in B.C. (the Oehlerking case) resulted in a similar outcome.

Lawrence’s high publicity legal battle proves it wasn’t that long ago that mortgage fraud was the type of crime that flew largely under the public’s radar, especially for people who had been in their homes for a long period of time and weren’t required (or recommended) to buy title insurance on their properties.

For homebuyers, however, title insurance has become a standard – in fact, many lawyers add an owner’s policy into the legal fee for home-related transactions. Lawrence says she only knows one person who has bought a house in the past year whose lawyer hasn’t insisted on getting it. Fortunately, title insurers also offer existing homeowner’s coverage for those who didn’t get it when they purchased their property.

As a standard, lenders are also purchasing title insurance policies as fraud protection, especially because these companies are no longer as protected by the legal system and because fraud is still a relatively common occurrence. For instance, almost a quarter of total claims paid by the insurance company, First Canadian Title, in 2008 were related to title fraud, an increase from 19 per cent the previous year.

“It’s no secret that it’s not difficult to get fake identity documents that appear very legitimate and so once people have those types of documents, they can impersonate people fairly quickly,” says Sandra Thwaites, vice-president of claims and compliance at Stewart Title Guaranty Company.

Title insurance 101
Title refers to the legal ownership of a property, which is registered in the government’s land registration system when ownership of a property is obtained. Registries are open in every province and can be accessed with a modest fee, which is how many fraudsters find out who holds a title and if there are debts (i.e. a mortgage) or issues against it.

“Mortgage fraud is an insider’s crime,” says Susan Leslie, vice-president of claims and underwriting at First Canadian Title. “These people really know how real estate transactions and land registry systems work.”

Title insurance was first introduced in Canada as a replacement for an up-to-date land survey and has gained popularity, particularly in the past few years, because it protects both homeowners and lenders from any loss or damage related to fraud and other title-related issues, such as tax and public utilities arrears (from the previous owner) and encroachment issues. It does not cover title defects that were revealed before a property is purchased, and also excludes things like environmental hazards and zoning bylaw violations.

There are three types of residential policies available across all title insurance companies: policies for new homeowners, existing homeowners and lenders. The homeowner policy and the loan policy (which can also be called a lender policy) are packaged together because the owner’s policy protects the actual title and any liens against it while the loan policy safeguards the mortgage.

“A common misconception is that the owner’s policy only lasts as long as the mortgage is in place, but it actually lasts as long as someone owns a property,” says Leslie, adding that title insurance gives homeowners the help they need if they’re exposed to fraud.

“It’s extremely nerve-wracking for someone to find out they’ve been a victim of mortgage fraud, but if you’re covered with insurance, you call up the title insurer and they take over the process for you, including hiring lawyers and steering you toward getting back your title,” she says.

The three largest title insurance companies in Canada – First Canadian Title, Stewart Title and Title Plus – all provide these policies at one-time premiums ranging from approximately $150 to $350 (for properties up to $500,000). Premiums depend on the location (province), price and type of property and if it is a new home or resale.

Title fraud trends
Although there is more awareness of title fraud today due to coverage of high-profile cases like Susan Lawrence’s, it is still a common occurrence. That is why title insurance companies have implemented systems and teams to help weed out title insurance requests that could be tied to fraud.

For example, First Canadian Title screens every order that comes through using a series of questions developed from experience. If they notice any red flags – including lots of activity on the title, transfers of ownership, multiple mortgages or discharged mortgages – they dig deeper to find out if they have reason to be suspicious. This can mean calling the real estate agent to confirm the purchase transaction, independently verifying contact information and looking at the reasons behind using a power of attorney to transfer title.

Leslie states that some of the types of properties that are more prone to title fraud include properties that are not owner-occupied. Tenants can even be the people trying to take out a fraudulent mortgage.

“We’ve found properties that are tenanted seem to be more vulnerable because the owner is more removed from the property and can’t always pay close attention,” says Leslie. Her tips for landlords, aside from getting title insurance for all properties, include monitoring mail (letters from a new lender, for example, are suspect), making sure tax bills arrive on time and going by the property and checking for irregularities (or having someone do this for you) on a regular basis.

Thwaites says she sees a greater occurrence of mortgage fraud on properties that are mortgage-free because it can be easier for fraudsters to take out new mortgages when they don’t have to discharge any existing ones. She has also seen fraud trends in commercial mortgages – sometimes when an individual is impersonating a corporation – and in private lending situations.

“Institutional lenders have been tightening up their underwriting requirements and, as a result, people who are intent on committing fraud are finding it more difficult to do so,” Thwaites says.

"Private lenders often have different levels of due diligence and it may be easier to de-fraud them rather than an institutional lender.”

This often means there is a small extra title insurance charge (or a different premium) if a borrower is going through a private lender.

With increasingly complex fraud strategies and schemes gaining popularity, it’s important to have the protection of title insurance and talk to a lawyer about all the available options. Insurance companies offer similar premiums, but they can differ based on the experience, coverage and claims policies.

And for homeowners who didn’t get title insurance at the time of purchase, lawyers can help obtain an existing homeowners' policy – something Susan Lawrence wishes she could have been protected by.

“With title insurance, your legal costs are covered if you’re a victim of fraud – that’s what cost me so much money,” says Lawrence, estimating her entire legal process cost her more than $50,000. But after making such a difference in the way fraud victims are treated, she has joined the Consumer’s Council of Canada to tackle more issues.

“I’m working on a lot of causes for consumers,” she says. “We feel one complaint starts the whole ball rolling and brings change and awareness.”

How to make a title insurance claim
Double-check your insurance policy to verify that the title-related problem is covered by your policy. Your insurance company will not provide compensation for an issue that is excluded by your policy.
Submit your claim as soon as possible. Ask your title insurance company or refer to your policy to find out when claims must be submitted.

Make your claim in writing. Write a letter to the title insurance company and include information on the losses you have experienced due to a title-related problem. Make sure you include your policy number, contact information and any relevant documents related to your claim.

Keep a copy of your claim for your records. Your title insurance company will contact you to let you know that the claim was received and they should communicate a decision within a reasonable amount of time.

Source: The Government of Ontario

The cost of security
Here are some cost snapshots for title insurance premiums (owner and loan policies). However, your should consult the insurance company or a lawyer for more specific pricing and details.
First Canadian Title
(Properties costing between $201,000 and $500,000, six units or less)
New property: $150 to $350
Resale property: $229 to $350
New condo: $150 to $200
Resale condo: $150 to $179
For properties over $500,000, the premium is the previous value’s premium plus $1 per every $1,000 over $500,000
Existing homeowner policy: $200 to $250
Stewart Title
(Properties costing between $201,000 and $500,000, six units or less)
New house: $200 to $300
Resale house: $225 to $325
Resale or new condo: $150 to $175
Title Plus
(Properties costing between $200,000 and $500,000, four units or less)
Home purchase: $238 to $348
Condo purchase: $179 to $263
For properties over $500,000, the premium is the previous value’s premium plus $0.90 per every $1,000 over $500,000
Existing homeowner policy: $179 to $262

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