During a purchase transaction for real estate, there are often many parties involved. The buyer and seller, of course, are the principal players. But real estate agents, escrow officers, home appraisers, and inspectors, and closing lawyers also play important roles. So too does the title company, and while the buyer or seller may not have a very good idea of what the title company actually does in a purchase transaction, as a real estate professional you know very well how important the role of the title company actually is.
More Than Just a Purveyor of the Title
To the initiated, the title company appear simply to present the title for the purpose of closing on a home or piece of property. But there is actually much more involved. Essentially, it is the role of the title company to carefully and thoroughly research that a title to a piece of property has been legally obtained, and subsequently legally transferred to the buyer upon the closing of the purchase transaction.
This means that quite often, the title company is in the position to discover and prevent title fraud, an all too common occurrence in the real estate industry.
What is Real Estate Title Fraud?
There are many types of fraud and scams cyber criminals attempt against the real estate industry, and thanks to ever-advancing technology, incidents of title fraud have increased exponentially, costing the real estate industry, buyer, and sellers over a billion dollars collectively each year.
Also known as home title fraud, this scheme involves the illegal transfer of a property without the actual owner’s knowledge or consent. The fraud is typically facilitated by an incident of identity theft, where the cyber criminal has managed to successfully steal sensitive information pertaining to one of the individuals in the real estate transaction. They then use that information to forge a deed, and once they are granted the property, they can then sell the home or borrow against it.
The Difference Between a Deed and Title
The deed is the legally binding document that is used to transfer the property from one person to another. But the title is the document that actually proves ownership of the property. So when a forged deed illegally grants the property to a new owner, the new owner is then recorded on the title, which is also recorded in public county records.
It is the role of the title company to perform due diligence and ensure that no attempts of fraud have taken place, and that the property can legally and properly be transferred between willing and knowing parties.
Performing a Title Search
The first role of a title company in a purchase transaction is to conduct a title search. This provides the title company with a history of the property pertaining to any transactions, as well as other concerns such as demands, liens, or unpaid taxes pertaining to the property.
The title search will also report if there are easements or other restrictions that the buyer would need to know about. At the title company’s discretion, a survey can be ordered at this point to confirm property lines.
Lenders will also wait for all of this information, for they will not grant a mortgage to the buyer until the title company issues their report and states whether or not the title is legally valid.
Issuing Title Insurance
The title company will also issue title insurance if the future homeowner desires it. It is not mandatory but often recommended because there are often hidden problems that could not be discovered during a title search. These include incidents and situations such as a forgotten will bequeathing the property to someone else, a defective deed, or land mineral rights that are discovered in the future.
Title insurance protects the home buyer from the above possibilities and others, including fraudulent claims of ownership.
Serving as the Escrow Officer and Closing Agent
In many cases, it is the role of the title company to serve as both the escrow officer and the closing agent during a purchase transaction. That means that the title company will hold all funds transferred during the mortgage process, such as earnest money payments, pre-payments of homeowner’s insurance and property taxes, and other fees.
During closing, the title company in the role of the closing agent will also ensure that all closing costs are properly paid and disbursed to the correct parties. Once again, this is a very important role, because the title company is in a position to detect and prevent additional attempts at real estate fraud.
As mentioned above, title fraud is just one of the many types of real estate fraud committed by cyber criminals. Earnest money fraud or the theft of closing funds are also committed often, and also facilitated by identity theft.
Cyber criminals who manage to obtain banking information or real estate agent credentials from one of the parties involved in a purchase transaction can then impersonate the individual. They will send legitimate-appearing emails with instructions for the transfer of funds such as earnest money or closing costs. However, the instructions will provide bank account details that belong to the criminal, and if this attempt at fraud is not detected, it could seriously and financially affect all parties involved.
Reducing the Risk of Fraud
Because cyber criminals are increasing their attacks against the real estate industry, many title companies have sought ways to improve their network defenses and significantly reduce the risk of fraud. One of they ways in which they have achieved this is through the use of an electronic money transfer platform.
ACH transfers through a safe, secure, and compliant money transfer platform such as paymints.io helps to prevent fraud by ensuring the parties involved in a purchase transaction are exactly who they say they are. The bank-level security and encryption protects and tracks money transfers, making it much safer than using bank transfers or paper checks.
Paymints.io is easy to use for all parties involved in the purchase transaction, and much more convenient as well. To learn more about how paymints.io can help prevent fraud and improve the real estate mortgage process, visit paymints.io today to schedule a demo.