If you have ever had a sleepless night or an early morning wake-up, then you have undoubtedly seen the ads on the TV for title protection and monitoring companies like Home Title Lock promising home fraud prevention. So, what’s the deal? Is this a quick title solution?
The first thing to know is that these companies do not “lock your title” such that a transfer could never occur. That is impossible. Rather, these companies claim to protect you from title fraud. So, what is title fraud? Title fraud is when someone fraudulently conveys real property owned by someone else to a third party, thereby divesting the real property owner of their ownership interest in the property. Sounds scary, right?
The scare tactics employed by these companies are seemingly effective because some buyers subscribe to a title monitoring service instead of purchasing an owner’s title insurance policy because they believe the title monitoring service affords them better protection than an owner’s title insurance policy. Unfortunately, that is not the case. The misconception is so pervasive that in June 2022, the Office of the Maryland Attorney General issued a Consumer Advisory telling consumers that title lock is, basically, a waste of money (Maryland Office of the Attorney General, 2022). But, of course, buyers should always seek to safeguard themselves and their most significant investment: their property. So, how best can a buyer do that?
The answer lies in the distinction between what these title monitoring services offer versus what coverages an owner’s title policy affords. Title monitoring is typically a monthly subscription-based service that monitors online records and databases for any mortgages placed or transfers of the title (i.e., the deed) to a homeowner’s property. Owner’s title insurance is a one-time expense and protects a homeowner against others who may claim to have an interest in your property. In a fraud scenario, title monitoring services notify a homeowner if the fraud occurs, while an owner’s title insurance policy protects and defends a homeowner against it.
Imagine this scenario:
When Harry Homeowner bought his home, he decided to use a title monitoring service rather than purchase an owner’s title insurance. Later, Sam Scammer, purporting to be Harry, fraudulently sells Harry’s property to another person and forges Harry’s name on the deed. Harry’s title monitoring service catches it and notifies him of the fraudulent transfer. Now what?
How is Harry going to fix this problem?
Harry’s title monitoring service does not provide any assistance in defending him against this illegal transfer.
On the other hand, if Harry had an owner’s title insurance policy, Harry would make a claim to his insurance provider, and they would assume the responsibility and expense of restoring the title to the property in Harry’s name. Harry’s problem would be fixed at no expense to himself. Instead, Harry is left to resolve this problem and pay for it on his own.
Don’t let your buyers end up like Harry. While title monitoring services make big promises and sound like a great idea, once buyers understand what they are getting from these services, they will realize they don’t get much protection. If a buyer truly wants to be protected against fraud, the only way to do that is to purchase an owner’s title insurance policy.
This article originally ran in the December 2022 Chesapeake Real Producers.