Title Insurance - Did You Know?

I listened to a presentation by Chicago Title Canada a couple of weeks ago & learned a bunch of stuff that I didn't know, so I thought I'd share some of my key takeaways here for you!

First of all, what IS title insurance?

It's an insurance policy that protects residential or commercial property owners & their lenders against losses related to the property's title or ownership. Most purchase the policy through their lawyer (typically when closing on a property) with a one-time premium in the range of $250-$500. You can read a more detailed description & what a policy may include/exclude HERE & the Ontario Government has a good general knowledge booklet HERE as well.

There are 2 types of policies available - a Lender's policy & an Owner's policy - 1 protects the lender's interest in the property & the other, the owner's. Full coverage = 2 policies!

Title insurance is NOT mandatory in Canada but a Lender may require you to purchase a Lender's policy in order to get a mortgage from them.

Chicago Title put on this presentation for our legal forum in light of recent highly publicized vendor fraud cases. They are the policy issuers for the first case that came to light - reminders of the story details HERE & the blog post I wrote about fraud HERE

Chicago Title has been in the business for 70yrs & is one of the top 4 insurers in North America with aprox 20% of the market share. When they looked through their records between the 1960's & 2019 they could only find evidence of 2 frauds having taken place (impacting their clients) during that timeframe. From 2019 to present day there are almost 100! That is just their company!

They are actively lobbying stakeholders like the Land Registry, the Mortgage Industry, the Attorney General, and all the various regulatory bodies involved in real estate & mortgage transactions to improve ID authentication.

ID is garbage. My phone won’t let me in unless it recognizes my face…and that’s just to use my phone. So why then can I buy a house with 2 pieces of plastic that are easily faked? With the amount of technology that is available in 2023, that that is what we are relying on is crazy & we can’t rely on it anymore. -John Rider, SVP, Chicago Title

The title industry is covering all the losses - in the billions of dollars, & it's just not sustainable when they're selling policies at $500 a pop!

Some insurers have stopped doing private lender deals over $500k - it's not that they're bad - the stress test has pushed many buyers from conventional to private lending out of necessity - it's just that their underwriting standards are significantly different & as a result it can often be easier to perpetrate a fraud with private lending than with a conventional lender.

Everyone's afraid right now. And with good reason!

I mentioned email hacking in my FRAUD blog post, but apparently in the US there was recently a case of voice hacking in the course of a real estate transaction – voice hacking is where they make it sound like it’s your voice & give fraudulent information/instructions. They can get your voice from your voice mail greeting or a video you post on social media & then use Deep Fake Voice Cloning to make it seem like a fraudulent message is from a trusted contact or professional – ponder that for a moment! Like is this seriously real life??????

I typically like to include links when I'm writing, to give you, the reader, another credible source for the information that I'm sharing. But on this subject, until recently, no one was talking about it - not consumers who were getting duped & not the Title industry that was covering the losses. But when an industry insider says these things are happening, to a group of industry professionals, I'm going to take their word for it & help get the message out!

Back to the infamous vendor fraud case where Chicago Title is the policy issuer for my next takeaway:

The original owners purchased the home for $600k with a title insurance policy that included a 200% inflationary component to it. With this, $600k becomes $1.2M & caps out there.

The fraudsters sold their home out from under them for $1.7M.

That leaves a $500k shortfall.

If the original owners were not able to get their home back, which they will in this particular case, but there are scenarios where they would not (I'm not going to get into that in this post) then that shortfall would be a pretty big problem.

So how can we protect ourselves from that kind of shortfall?

With something called an Increased Policy Amount Endorsement. You can't buy it after you've experienced a fraud, but you can buy it now to remove that inflationary cap from the policy if you too would have shortfall in the event of a full policy claim

With the way real estate values have gone up exponentially over the last 10-15yrs, there's a very good chance that you would not be fully protected by your title insurance in the case of a similar fraud.

 

This is a newer offering that may not have been available when you purchased your home originally – if you don’t currently have title insurance or you don’t have it for the proper value, you can purchase a policy now to protect yourself

Think of it like full replacement value on your car, but for your home.

If I’m understanding correctly, you don’t necessarily need to get the IPA from the same company that you purchased your original policy with. A good starting point would be to call the lawyer who closed your property purchase or contact the title company that holds your current policy. Or you could try calling a new title company & explain what you want & they will be able to direct you from there.

A quick mention about the Buyers of this fraudulently sold property. They're innocent parties. They bought in good faith, renovated the home & have a contractual obligation for the mortgage on this home. Their own title insurance policy will make them whole. But I bring it up because it's more than just the purchase price. It's all the money they've spent purchasing & renovating & all the expenses they'll incur as a result of no longer legally owning the home, which they will need to be reimbursed for. And if they hadn't purchased title insurance, they would get nothing - but still be on the hook for that mortgage!

But of course it's not just vendor fraud that we need to worry about - most title fraud is actually mortgage fraud. Fraudsters putting mortgages on homes & walking away with the money, leaving homeowners holding the bag. There's big money in these frauds & that's why organized crime has gone all in on it. 

John Rider from Chicago Title thinks that if ID authentication requirements are beefed up across the board that it would stop it in it's tracks. And they've put their money where their mouth is & developed an ID Verification Service. They're not the only ones out there with this type of service of course, but the goal for all of them is the same. Stop the Fraud. 

 

To Re-Cap:

- Protect your identity

- Keep a close eye on your financial affairs - check online statements/summaries regularly

- If you don't already have it, get title insurance

- Check to see if you need an Increased Policy Amount Endorsement on an older policy

- You need BOTH a Lender & Owner policy to be fully protected

- Always confirm information/instructions received via a voice mail or email by contacting the person back at a main number (not the number they've provided in the communication) to ensure that it's valid

Until next time,