Incidents of real estate fraud are increasing in Canada and homeowners and lenders are proving to be irresistible targets for fraud artists. Homeowners and lenders can protect themselves by obtaining a title insurance policy. The coverage provided in residential title insurance policies helps protect both innocent homeowners and lenders who might otherwise face huge financial losses resulting from title fraud.
What is Title Insurance?
The purchase of a home is for most people the most important financial transaction of their life. With an increasing number of fraud claims, more and more homeowners are protecting themselves with Title Insurance.
House Insurance protects homeowners from the physical damage or loss resulting from a fire or break in. Life insurance protects homeowners in the event of a death. Title Insurance protects the owner against losses incurred as a result of undetected or unknown title defects.
What does Title Insurance cover?
A title defect arises in a number of ways, but the defect that causes the most concern is real estate fraud. British Columbia has perhaps the most efficient land title system in the world (a “Torrens” system) but there are an increasing number of situations where fraud is committed. This can happen in a variety of ways.
With identity theft on the rise, it is not difficult for a fraudster to obtain legitimate identification claiming to be the true owner. The fraudster then deals with realtors and lawyers as if they were the owner, and proceeds to sell the property. Since the fraudster has legitimate identification, the realtor and lawyer are unaware of the fraud. Alternatively, the fraudster may work with a lender or mortgage broker, again with identification, to place a new mortgage on the property. In either situation, the true owner is unaware of the fraud and the fraudster absconds with the sale or mortgage funds.
Other typical examples include spousal impersonation and lawyer fraud.
In most cases the Assurance Fund of the Land Title Office may reimburse the true owner, but this may take several months and thousands of dollars in legal fees. Title Insurance may be quicker and less expensive.
In addition to protecting against title fraud, Title Insurance may cover violations of municipal by-laws, encroachments onto an adjoining property, realty tax arrears, existing work orders, lack of legal access to the property and unpaid strata assessments.
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