Daily Archives: February 18, 2009

By: Valerie Logaridis

Few people are aware of the possibility of fraud against their home. But people with substantial equity in their homes or who spend more time out of their home become easy prey for sophisticated fraudsters who have the means to perpetrate this kind of crime.

Susan Lawrence is a Toronto victim of real estate fraud. Her home was mortgaged for almost $300,000 by fraudsters who forged her signature and walked away with the money early in 2005. She says, “Until I was defrauded, I was not aware that if I had title insurance, I would have been protected.”

The Ontario government plans to introduce legislation this fall to enhance existing protection from real estate fraud. If passed, the proposed legislation would ensure that ownership of a property couldn’t be lost as a result of the registration of a falsified mortgage, fraudulent sale or a counterfeit power of attorney. Instead, innocent homeowners will have their titles restored to them and the fraudulent document will be nullified, the government says.

Minister of Government Services Gerry Phillips said, “While individual cases are of concern to me and are upsetting, I can reassure homeowners that real estate fraud is limited in comparison to the more than two million real estate transactions that occur each year in this province. However, we will continue to build on today’s proposals because even one case of fraud is too many.”

Title insurance is one inexpensive way that homeowners can protect themselves from mortgage fraud.

Fraud protection

For many buyers, the fraud coverage provided by title insurance is particularly reassuring. Title insurance can protect homeowners if they are the victim of fraud, and may also pay the costs involved in defending their ownership in the property and restoring their title to the home.

Title insurance provides protection against title-related problems; it is not home warranty insurance, and will not protect homebuyers if the fridge breaks down or the furnace gets old. As with any insurance purchase, the homebuyer should consult the policy for full details of the actual terms and conditions and seek advice from a real estate lawyer. A real estate lawyer can help a buyer or a homeowner sort out the various protections offered by different title insurance companies in order to get an idea of which risks are covered and which are excluded.

One company that sells title insurance, commissioned a survey that found nearly half of homeowners over the age of 45 said they do not have title insurance or are unaware if they do. The survey also found that 63 per cent of Canadian homeowners without title protection had “absolutely no understanding of title insurance – a number that rose to 66 per cent for those over the age of 60,” says the company.

Court of Appeal Decision Protects the Homeowner-victim

In February, the Ontario Court of Appeal reversed a decision that held defrauded home owners on the hook for a fraudulent sale. In a unanimous 5-0 ruling, the court’s decision said that banks and lending institutions had “to be vigilant when making mortgages, and places the burden of fraud on the party that has the opportunity to avoid it – rather than on the innocent homeowner who played no role in the perpetration of the fraud.”

In this Court of Appeal decision, Lawrence v. Maple Trust Company, the homeowner won, was able to keep her home, and was not required to repay the illegally-obtained mortgage.

The Court of Appeal decision is a reversal of a lower court decision made in the fall of 2005, which held that fraudulent mortgages are binding once registered.

Valerie Logaridis is a Sales Representative with Royal LePage R.E.S./JOHNSTON & DANIEL DIVISION. Val is a regular blogger with Muddy York.