Ed note. Real Insight is a periodic feature decoding some of the many mysteries surrounding HomeBuying.
When you purchase your home, you are purchasing ownership of the property, also referred to as title. You may have heard the expression ‘good and marketable title’ or ‘clear title’ and these are set against the concept of ‘bad title’ or having a ‘cloud on title’. Good, marketable and clear title is what you, the HomeBuyer, want from your purchase transaction. Ensuring that this is what you will get is the responsibility of the people who comprise your real estate team - your real estate agent, your home inspector, your appraiser and your lawyer.
Without going into the lengthy yet interesting history of the development of property law in Canada, the take home message - if you will pardon a bad pun - is that you want to be sure that (a) the person selling you a house is legally entitled to do so; (b) that the house you purchase does not have anyone else’s debts attached to it; and (c) that the listed price of the home reflects its true value.
One of the jobs your lawyer has in the real estate transaction is to ensure that you are getting a home with clear title. This involves, among other things, searching the history of the property. A historical review of the property will reveal the previous owners and (generally) whether the person who has listed the house on the market actually has the authority to sell it. Your lawyer will also search to determine whether the property is subject to unpaid taxes or other unsatisfied liens or other violations. This is relevant because these clouds on title are said to ‘run with the land’. This means that the new owner inherits the old problems, and so on until they are rectified or the cloud is cleared. Your lawyer will request that any outstanding matters are cleared before closing.
A serious problem in the real estate industry is fraud. Variously referred to as title fraud or mortgage fraud, consumers need to be alert to warning signs that may signal risk. This has been receiving a great deal of attention in real estate circles due to the sophistication of forgery techniques and the large amounts of money involved.
Title fraud can occur in several ways – one example is where the fraudster commits identity theft and pretends to be the HomeOwner. Fraudster then lists and sells the property to innocent purchaser who just gave hundreds of thousands of dollars to the fraudster who is now hiding in Fiji. In order to come up with that money, innocent purchaser had taken out a mortgage, now registered against this property, and then went ahead and scheduled movers. The true owner sees the moving van pull up and is now stuck (a) defending their right to the property and (b) dealing with the mortgage that is now registered against the land (this is also considered a form of mortgage fraud). Another form of mortgage fraud involves the repeated selling of a house to artificially inflate the value. A group of people or corporations will conspire together and then apply for mortgages based on the increased value. Fraudsters in this kind of a scam can also make minor or cosmetic repairs to structurally unsound buildings and list them to unsuspecting buyers. While this fraud primarily affects institutional lenders, watch out if the house you are looking at seems outrageously priced. There are (sadly) many and varied ways people have contrived to steal from each other - and these are but two examples of how your home and money can be threatened. So HomeBuyers, make sure that what you see is what you get!
With the issue of title fraud or mortgage fraud, the most important thing you can do to protect yourself is to be vigilant. Among other things, be wary of pressure to close the deal quickly. Get a formal appraisal. A formal appraisal will help to combat the kind of fraud where homes are dramatically overvalued - see the Appraisal Institute of Canada for more information. I would absolutely recommend having your own real estate agent. Although Realosophy recommends entering into a Buyer Agency agreement for many reasons, the most important in my mind that goes beyond mere dollars would be the fact that if you have your own agent, it greatly reduces the chances they are part of a fraudulent deal. It would be much easier for one unscrupulous agent to be brought into a fraud than it ever would to bring in two. This is particularly true where you have a relationship with your agent – something we also recommend.
Although there will never be guarantees (and that is where your policy of title insurance will step in to help you defend your claim) your best defence is a good offence! Happy hunting.