How does this real estate scam work?

Factual Questions
1

I was listening to SiriusXM POTUS channel this afternoon. A commercial came on for a company that offers to “lock” my house title. The said that a criminal can access my title online, print it, forge my signature, and then sell my house without my knowledge. Then, they say, victims don’t even know this has happened until the “eviction” notice shows up.

I have questions:

  1. How can someone sell my house without my participation?
  2. I have a mortgage. The mortgage company owns about a 45% stake in my house. How can someone sell my house without their participation?
  3. Since I haven’t actually sold my house, how can the transaction be considered legitimate?
  4. I think the word “eviction” is incorrect. The correct term should be “foreclosure”. But, the bank would have to show a judge that I haven’t made the agreed payments and I have resisted attempts to make up the shortage. Since I have made payments, why would I be foreclosed, evicted, or whatever?
  5. Wouldn’t the bank contact me if some unknown person attempted to pay off my mortgage with no evidence that I had authorized the transaction (such as selling)?
  6. How does this scam benefit the criminal?

I live in Texas if that matters.

So, is the scam the shenanigans with the title, or with the company offering to “lock” my title?

2

The scam rarely involves trying to sell the house - that would run into all sorts of obstacles as you spelled out. The idea is that if they can present a few fraudulent documents to a bank that isn’t thorough about verifying everything, they can get a home equity loan against the value of the house. When they default on it, you and one or more banks are left to sort out the mess while the criminal has a bunch of free money.

In theory what you are paying for is for the service to monitor public records and let you know if anyone attempts to transfer or alter the deed. In reality this isn’t hard to do on your own. If the service provides a real insurance policy that helps you with the legal costs of dealing with the fraud should it occur, or if you own 25 properties and it makes sense to pay someone else to do the monitoring, then maybe it’s a good thing to have. If you just own the house you live in like most people and they’re only claiming to provide information and not back you financially if there is a problem, then it’s likely not worth it.

3

So, it sounds like just an ordinary identity theft operation with an unusually high-value asset. It’s still someone pretending to be someone else in order to use that identity for fraudulent activity. Sounds the same as someone applying for a credit card or a car loan in my name without my knowledge. They’re just using my house rather than a less valuable asset.

4

Just to nitpick, that isn’t an accurate description of the mortgage company’s stake. You own the house entirely. The mortgage company has a lien on the house, meaning they have some legal remedies related to it if you stop paying the mortgage. In particular, they can foreclose on it and auction it off to cover their losses from the loan.

The distinction is important because thinking of it as a “45% ownership stake” might make one think you can walk away from the house and mortgage and still have 55% of the fair market value of the house in your pocket. (I’m assuming by 45% you meant the outstanding principal is 45% of what you’d expect to sell the house for on the open market).

As far as I know (fortunately not from experience) the outcome is significantly less favorable to the foreclosed upon, and the mortgage company is neither incentivized nor required to auction it off for more than they need to cover their costs and the remaining principal. So I think if your house is worth $100k they’d be cool with just auctioning it off for $65k (the outstanding balance plus $10k in foreclosure expenses) to cover themselves, leaving you with nothing.

I’m not sure if there are state specific regulations that limit this. I think some states prevent them from coming after you for additional money if the foreclosure auction doesn’t cover their costs …

5

This article (in French) shows a few cases in Québec (Canada) where a house was sold without the owner’s knowledge. Generally these were houses that were already fully paid, so that there was no bank involved on the seller’s side. Deeds and mortgages are public records, so it’s possible for someone to determine the name of the current owner (say, Alice) and to check if there’s already a mortgage on the property.
Then, they select a person with good credit who they’ll designate as buyer (say, Bob) and make up some false identity papers with the names of Alice and Bob (but with the pictures of the fraudsters). They open a bank account in the name of Alice, obtain a mortgage using Bob’s name, and go through the process of a sale without an agent. Real estate sales in Québec are recorded by a notary (real estate lawyer), who checks that the persons have proper ID with pictures and then records the deed and the mortgage, notifies the city that the property has changed hands, keeps the mortgage cheque in escrow for a few days, then disburses it to the person claiming to be Alice. The fraudsters then cash out that money and disappear.
It can take several months for the real Alice and Bob to find out that they’ve been had. The courts can acknowledge the identity thefts and reverse the transaction (leaving the mortgage lender out a few hundred grand), but it’s a hassle for everyone.

6

The other half of the question is what does it mean to “lock” the title, and how would it prevent these false ID scams (especially if it also has to allow you yourself to sell it should you ever want to).

7

One possibility is they file something called a “Lis Pendens” on the house. It states that there is a pending legal issue on the property. The bank will typically file it when they are foreclosing on the house, but it can be filed for other reasons. A bank doing a title search will find the document and it will likely prevent a loan being taken out on it.

8

But that would also prevent the owner themselves from selling or mortgaging it.

9

Is it possible to put a lien on your own property?

10

If your state allows homestead exemptions that would be a pretty close analogue to a lien, far as I can see.

11

This story is behind a paywall, so you may not be able to read it, but here are excerpts.

Rohina Husseini had no idea someone could steal a house, but the first small clue that the home she owned for nearly a decade was no longer hers was…the mortgage refinancing offers that began arriving over the summer in the trash, but one detail bugged her: The letters were addressed to another woman. Curious, Husseini said she finally opened one.

“You bought a new house, congratulations,” read the letter addressed to Masooda Persia Hashimi.

In the frantic hours that followed, Husseini discovered the total stranger was now the legal owner of the brick Colonial worth about $525,000 that forms the center of her life with her husband and daughter.

Husseini, who owns a home health-care business, was the victim of…house stealing or deed theft… Scammers gain control of a deed to a home and then attempt to resell the property or to open a line of credit on it.

It’s easier than you might think to steal a home.

Husseini’s ex-boyfriend [Hamid] walked into a Fairfax City law firm and passed himself off as Husseini…The lawsuit claims the attorney failed to check their identities, a basic step that could have headed off the fraud, before transferring the title to Hashimi.

(The story is oddly silent about how Hamid got a deed from an attorney rather than from the County.)

On May 9, Hamid presented the phony deed to the Fairfax County land records office, and Hashimi became the official owner of Husseini’s home…

Husseini hopes to persuade a Fairfax County judge to return her deed by the end of the year.

Blair said the best safeguard against deed fraud is title insurance that protects against deed problems…

12

It doesn’t appear that the ex-boyfriend got the deed from the attorney. The ex-boyfriend claimed to be Husseini ( a claim made easier by her uncommon name) and wanted to deed the property to his wife. There wouldn’t have been a new mortgage or a title insurance company, so all the attorney did was file the paperwork to transfer the property*. It’s possible that Hamid somehow got a copy of the deed when he and Husseini were involved or maybe the attorney relied on county records that showed Husseini owned the house. Because remember, Hamid was impersonating her. Although I think the attorney was more involved than just neglecting to check their IDs- I would think the legitimate mortgage company should have been notified.

*which is actually what the “deed” is, the document that transfers property and is then filed with whatever office keeps land records, When I bought my house, the sellers signed a deed transferring the property to me but I never saw the one that transferred ownership to them. At least where I live, it’s not like a car title where the seller signs it over to the buyer and the government issues a new document. There are just record kept that say A transferred the property to B in 1985 and B transferred it to C in 1988 and so on ( including records of any mortgages)

13

Oh and about the best way to protect yourself- I just saw when I looked up my property records there’s a new service here that will alert you anytime a document is recorded against your property. It was specifically set up to combat deed fraud.

14

This was a scam in Ontario about 15 years ago. Someone finds a house owned free and clear, manages to persuade a bank they are the owner and want to re-mortgage it. The bank does the paperwork, provids the amount of the mortgage, and the perp disappears with that money.

A while later, the homeowner starts getting notices from the bank about missing payments, and the mess starts to unravel. Notice the clanliness of this transaction. The fraudster provides contact details, so as long as mail is not sent to the address, the crime is unnoticed until payments are long overdue. Unlike selling a property, there’s no risk someone might want a walk-thru or inspection. IIRC there was some question whether the bank branch (in another community) was overeager or if some personnel might be complicit.

Normally, the bank would be SOL for being stupid. But at the time, Ontario had just switched to a computerized title registry and the legislators in their infinite wisdom, has written the law that the registry was the final word on titles and liens. As a result, the lien was enforced regardless of fraud - the appeal court said if the law intended to make an exception for fraud it would have said so. A number of victims were left owing on their houses.

Since then the law has been fixed. Also, the onus is on those processing transactions to ensure the persons they deal with are who they say they are. I know when I bought and sold houses a decade ago when all this was fresh, the lawyers doing the transaction and the banks required solid proof of identity (in my case, drivers licenses and passport).

15

One of my brothers brokers a lot of hard money loans. One time a guy came in with a property which was jointly owned by him and his ex-wife (or ex-girlfriend possibly). When it came time to deal with the title agency people, he attempted to have his current girlfriend pass herself off as the ex.

My brother scoffed at the notion that the guy could have gotten away with it, and he told me a story in the context of describing the type of simple-minded fools that he has to deal with sometimes. But I suppose there could be cases where it works.

16

Something about this tale really smells.

If Husseini had a mortgage on the place, the mortgage company would have had to release their lien on the place to have the title transferred in its entirety to the “spouse” - especially if the spouse was then the sole owner. It should have triggered a “due on sale” clause.

I don’t know if it’s possible to add a spouse to a property while still remaining on it yourself - e.g. if I owned a house with a mortgage, then added my husband in addition to myself.

This all occurred not that far from where I live - same county. I did some searching and the property appears to be in the true owner’s name again. No news reports aside from the original, but evidently the owner prevailed.