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Diminished Capacity and Title Fraud

How Title Fraud affects Divorcing Parties

At times there are cases where a person's need assistance either in the form of a Conservatorship or in a Power of Attorney. We discuss here how that is impacted by title fraud.


Sometimes a party has diminished mental capacity when they begin the divorce process and other times during the case their mental or cognitive abilities decline. In either scenario, assistance is needed for this party. 


Of course, there are remedies available when clients need a guardian or a responsible person to handle their affairs and make decisions when they cannot. Often, a power of attorney (POA) or a conservatorship are put into place. 


It is important to note, however, when the transfer of real estate is involved and title insurance is purchased (either through a sale, a buy-out, or a deed transferring title from one spouse to another), there are title insurance underwriting guidelines that must be met before they will insure it


Why? Because title fraud is a big business for fraudsters and it is growing at a rapid rate since the pandemic. 

Title fraud occurs when a bad actor steals a homeowner’s identity, forges documents that allow them to register the deed in the fraudster’s name, and then takes a mortgage out on the property. When someone other than the titled owner signs the deed, such as a conservator or a power of attorney, title companies see this as a red flag and look at it with more scrutiny. 


If there is a power of attorney in place, the attorney-in-fact should be prepared to answer some questions from the title company. The title company will usually want to know why there is a need for a power of attorney and will sometimes want a letter from a doctor indicating the principal was of sound mind when they executed it. Also, there is specific terminology that title underwriters are looking for that many POAs are missing. 


If there is a conservatorship, the title company will want all the legal paperwork to review and may have questions or require additional documentation.


While this can be annoying, it’s important to remember the title company’s risk: They could be left holding the bag for the entire value of the house — or more — should they underwrite a policy on a fraudulent or clouded chain of title without having done their due diligence. 


When there is a case where anyone other than the titled owner(s) are signing the deed, including an elisor or clerk, it is advisable to run the situation or document by a title officer before finalizing the paperwork. Otherwise, if it is not compliant, the client could be looking at an eleventh-hour torpedo of a real estate sale days or minutes before they get to the closing table. 


I can help with this. The easiest thing to do is to give me a call, send me the information, and I will run it past my title company for their input and approval. There is no cost, of course, and you’ll have peace of mind that the real estate transaction will be solid.

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