Land fraud explained: How properties are being sold out from under people.
- Data from the FBI indicates real-estate scams increased by 64% from 2020 to 2021.
- Identity verification is a weak point in real-estate transactions that can open the door to fraud.
- The safeguards aren't necessarily the problem, experts say. It's people not stressing the details in documents.
In May, Dr. Daniel Kenigsberg returned to his property in Fairfield, Connecticut, to discover a $1.5 million, 4,000-square-foot house under construction. The issue? As far as he knew, he still owned the land.
Kenigsberg and the LLC building the house on the formerly vacant property said they were both victims of title fraud. Add to the list William Gordon, who said the Tucson, Arizona land he planned to build his retirement home on was sold without his knowledge.
In both instances, the red flags were there but went unnoticed. Kenigsberg's family trust name was misspelled on a deed transferring ownership to him decades ago — which should have been flagged during the buying process and could have thwarted the fraudulent sale in 2022. Gordon's Social Security number and mailing address were incorrect on his congratulatory note of sale.
Fraudulent sales like these are on the rise. The Federal Bureau of Investigation's Boston division found 11,578 people nationwide reported losses of $350,328,166 due to real-estate-related scams, including title fraud, in 2021 — up 64% from 2020.
Home title theft, or seller-impersonation fraud — a crime where someone steals a homeowner's identity to sell or take ownership of a property — leaves property owners grasping for answers and without many options for quick resolution. Kenigsberg filed a lawsuit against the LLC that purchased his land, seeking up to $2 million, only to learn they too were claiming fraud. Gordon has splashed out thousands just to recoup his property from a fraudulent seller who has yet to be identified.
Victims of title fraud, such as Kenigsberg and Gordon, point to the various systems — such as title companies or notaries — that have failed them, when in reality the problem is broader: human error.
Honing in on the problem with land transactions
Some real-estate brokers, such as Eric Gibbs, the designated broker for Realty ONE Group Integrity in Arizona, who has encountered a number of fraudulent attempts, have said fraudulent sales are happening with more frequency than before.
"These people that are doing the fraud have gotten very, very good," Gibbs told Insider in August. "They're doing a lot of things that make it very hard for a realtor to go in and ensure that the seller is the seller."
Fraudsters today have the ability to fake driver's licenses, change records in databases, and more easily pinpoint properties that are ripe for the taking. Spotting a vacant property is fairly effortless when perusing online databases — they're taxed differently, they may not have a mortgage attached to them, and the owner's address may be states away, real-estate experts consulted by Insider said. Those factors make it harder to detect foul play.
Fraudulent land sales may be increasing in regularity, but this isn't a new problem. Nick Larson, a senior director at LexisNexis Risk Solutions, said they had been going on at least since the 1980s. He said one reason there had been a recent uptick could be an eagerness to grasp onto the red-hot market of the past few years.
"Any opportunity out there to buy a property at a good value or in a good area is going to get snapped up," Larson told Insider. He said this year, as existing home sales slowed down nationwide, real-estate agents were eager to close deals and might have overlooked the details. "When you have a contracting market and you have enthusiasm to get deals done, those are weaknesses that can help offset the well-intentioned processes," he said.
Nick Larson, a senior director at LexisNexis Risk Solutions. LexisNexis Risk Solutions
The associate counsel of the National Association of Realtors, Deanne Rymarowicz, also believes the downturn in the market played a role in the increase of fraudulent sales. With fewer homes available for sale, criminals are now targeting empty plots of land.
Wire fraud, where criminals redirect funds to a different account, was a popular tactic in real estate for years, but now title fraud has taken over, she said.
"With a decrease in home sales, now they're looking for other ways to leverage real property into fraud," Rymarowicz told Insider. "This type of scheme has existed before this sharp increase that we've seen, it's just becoming more popular."
The safeguards aren't failing, the people are
Title companies, real-estate brokerages, and state agencies, such as the Nevada Real Estate Division, have all been putting advisory notes out on fraud as cases become more common. They demonstrate how criminals are doing it — forging signatures, recording fraudulent documents, and selling homes — but don't always detail how they're getting away with it.
"I don't know if you can truly put any safeguards in," David Zawadzki, the vice president of business development at Proper Title LLC, a Chicago-based title company, told Insider. "I think the biggest safeguard is education and getting it out there because I don't think any one person, any one title company, or anyone throughout the transaction is at fault."
Zawadzki, Larson, and Rymarowicz agree there are safeguards already in place that, in theory, should stop this from happening. They said the problems arise, however, when people aren't as careful as they should be.
David Zawadzki, the vice president of business development at the Chicago-based company Proper Title. Proper Title LLC
Whether it be the misspelling of the property owner's name or having the wrong Social Security number on a document, mistakes happen. But in real-estate transactions, there are multiple steps and people involved to identify and fix those mistakes.
For most notaries, who act as a witness to the signing of documents such as a deed, a driver's license will suffice for identification. If a buyer is out of state, oftentimes, a photocopied version is sent to a notary or held up during a video call. For Pat Kinsel, that's not enough.
Kinsel is the founder and CEO of Notarize, a remote electronic-notary service that allows documents — such as deeds — to be notarized online. He believes that technology can step in where humans are falling short.
"We think we can uplevel RON (Remote Online Notarization) and do a higher level of online notarization," Kinsel told Insider. "We think we can add that same higher level of security to e-signature and then ultimately to transactions that don't even require a document."
Migrating to new systems, such as Notarize, or simply tightening up and educating those in the industry on how to identify red flags could deaden the effectiveness of title fraud. But criminals always adapt, and property owners have to keep an eye out for the next scam.
"Fraud is like water," Larson said. "It's going to find the weaknesses and the holes and it's going to go through there.
Link: https://www.businessinsider.com/land-fraud-explained-how-properties-being-sold-from-under-people-2023-9
