No real estate investor wants to discover they've been involved in a fraudulent real estate transaction. But unfortunately, forged deeds and fraudulent title transfers happen far more often the people might believe. Deed fraud isn't a new idea. This problem has been around for decades, most commonly with vacant property and especially involving deceased property owners, but is becoming increasingly popular in blighted areas with a large number of vacant, zombie properties leaving property owners and investors at risk.
Learn what deed fraud is, how it can happen, where it's increasing, and how to protect yourself from a wrongful or illegal property transfer.
What is deed fraud?
Deed fraud comes in many shapes and sizes, but in essence it occurs when a property deed or title transfer is executed and recorded illegally without the authorization or knowledge of the true and present owner. This practice is most commonly used with deceased property owners or properties that are vacant and not being monitored or maintained.
The alleged "buyer" takes title to the property by forging the owner's signature on the deed, either using false identification or a counterfeit notary signature and stamp. The new "owner" can then rent the property, move into themselves, or sell the property by transferring title to a legitimate buyer. If the false transfer and sale happen quickly, the property can be sold to a new buyer without the current property owner or heirs knowing it.
Some thieves will even go so far as to create a fictitious name for the original deed transfer and then transfer title into their true name to add a layer of protection from the fraudulent deed to themselves.
Increase in deed fraud
This practice has been popular in several states, including Florida, Pennsylvania, Ohio, Indiana, and Michigan, with the majority of cases happening in areas like South Florida; Philadelphia and Pittsburgh, PA; Cleveland, OH; Detroit, MI; or Lake County, IN, which all have a large number of vacant homes. The increase in title fraud has gotten so bad in some areas that municipalities are adopting new services that automatically alert property owners when a title transfer has been recorded.
As a note investor, I've witnessed deed fraud firsthand when looking at a non-performing mortgage loan for a deceased borrower. The title changed hands years after the borrower passed away. Luckily, from doing due diligence I realized the problem at hand and knew this was a far bigger issue than simply foreclosing on the deceased homeowner to regain title to the property.
How investors can protect themselves
Deed fraud is most common in vacant homes, particularly vacant properties that aren't being regularly maintained or monitored. If you own real estate that's vacant, it's a good idea to have someone go by the property frequently to check on it and, if possible, set up alerts with the county recorder's office to alert you if there's any change in ownership on the property.
If you're in the process of purchasing a vacant property, do your due diligence before entering into a purchase agreement or closing on the property. Look at previous title transfers in public records to see if there was a recent title transfer, especially a quitclaim deed, and request that the title company do a thorough check on the current property owner, verifying multiple forms of identification to prove they are in fact the owner before closing. Most counties and even some states don't allow the recorder's office to verify the legitimacy of the document being recorded, meaning it's up to the closing company or the investor to verify the accuracy and validity of the document.
If you're a victim of deed fraud and your property has been wrongfully transferred to an illegal owner, the first thing you should do is alert the county recorder's office of the issue and file a report with the local authorities. If significant time has passed since the transfer and the property has been resold, it can be difficult to locate the thief, especially if they used a fictitious name. This means the most important thing a property owner or investor can do is monitor and maintain any property they own or have interest in, especially if it's vacant.