Avoiding Title Pirates: What Every Homebuyer Needs to Know

As if buying a home wasn’t stressful enough, there’s a new danger you might not have heard of: title pirates. These are criminals who file phony documents claiming to own property that actually belongs to someone else. The real owner might not be aware of the fraud until they go to sell the home—at which point the bogus title can create problems for buyer and seller alike. Here’s how you can protect yourself.

How Title Pirates Work

Title pirates create fake deeds and other documents asserting their property ownership, which they then file with the relevant authorities, such as the local county clerk. After that, they may try to sell the property, use it as collateral to borrow money, rent it out, or even move in.

Fortunately, these crimes are still relatively rare, especially compared with other forms of identity theft. Unfortunately, some real estate industry experts say they are on the rise.

How Buyers Can Protect Themselves

First, it pays to know who you’re dealing with. Ask your real estate agent what they know about the people you buy from. If the sellers live in the home and are longtime community members, you’re on safer ground than with someone in a far-off state that your agent doesn’t know and can’t vouch for. It’s also wise to insist on a closing that’s in person, the National Association of Realtors notes.

If you’re financing your home purchase with a mortgage, your lender will require a title search, showing that the seller owns the home free and clear. You will also be required to buy title insurance, which protects the lender from financial liability if the title search fails to detect a forgery or other complications, such as liens or unpaid taxes. This is often referred to as lender’s title insurance or loan title insurance.

You can also purchase a second type of title insurance, called owner’s title insurance, which provides similar protections for you personally.

“Owner’s title insurance represents a step up for property owners concerned about title theft because it protects the owner’s interest in the property as well as the lender’s interest,” says Eric Dunning, director of the State of Nebraska’s Department of Insurance and chair of the National Association of Insurance Commissioners’ title insurance task force. “Lender’s coverage only protects up to the value of the loan, and beyond that, the owner is at risk.”

The Bottom Line

Bear in mind that even if you’re off the hook financially, should there be a problem with your home’s title, your closing could be delayed, and you could face other hassles, such as rescheduling when you move out of your current residence. So it pays to get this nailed down as early as possible in the home-buying process—and keep those title pirates at bay.