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Stealing the home from under you:  the growing problem of title fraud

Imagine this. A Canadian homeowner – a successful professional with a lovely home in a nice neighbourhood – arrives home after work one day to find a “For Sale” sign on his lawn. Imagining that it may be a practical joke, he asks his wife if she’s unhappy with the house! But his wife has no idea why the sign is there, or who put it up. It turns out that the couple are the victims of title fraud – a crime that’s on a worrisome rise here in Canada.

How is it possible? While there are several variations on the crime, the basics are usually the same. The fraudster will target a home and falsify legal documents to create a convincing paper trail to “prove” their ownership of the home. They then proceed to mortgage the home and disappear with the money. Often, the rightful owners will have no idea what’s going on until a financial institution tracks them down to demand payments on a loan they never knew existed. In some cases, the fraudsters have actually stolen their identity: an especially difficult twist for the homeowner, who must also clear his/her name.

The easy access to electronic data -- on both people and property -- may be contributing to the rise in title fraud, which is costing homeowners and financial institutions millions of dollars each year. And though it’s a serious challenge to the lenders,  it can be financially devastating to the homeowner.

Fortunately, Canadians have access to some protection against title fraud. A growing number of Canadian homeowners are purchasing “title insurance”: a product which offers some specific protections against title fraud and other potential pitfalls:

·        A new survey shows a minor zoning violation that will require a variance – a process which will delay the close of the sale. Title insurance may allow the sale to close on time.

·        Several months after moving in, a new owner discovers that the heating ducts were cut off in an amateur renovation, done without permits. Title insurance could cover the cost of the repair and related expenses.

·        An older property has the lenders worried: though there’s no evidence of any problem, there is no survey for the property, and no record of permits for water or septic. Title insurance may provide lenders with the confidence to proceed with the mortgage.

Not surprising, title insurance is gaining support among both lenders and lawyers, who see the value of this kind of increased homeowner protection. Although some protection exists through your lawyer’s “errors and omissions” insurance – and the Land Registry has an assurance fund in place that may be helpful – homeowners have learned the hard way that accessing these monies can take time, legal hire, and money (potentially a lot) on their part.

On the other hand, title insurance – available at a modest, one-time cost – gives you immediate payout on a wide range of title problems. Best of all, title protection insurance is not limited to new purchasers only – it’s now available to current homeowners as well.

In case you’re wondering, the couple in the story above – which is based on one of the case files of Canada’s leading title insurance company – did eventually regain title to their house. But it’s a cautionary tale. Next time  you talk to your broker or lender, ask about title insurance.

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“Ready for winter?” We love to ask that question when the weather starts to chill each autumn. But this year, getting ready for winter means preparing yourself for heating costs that are running at all-time highs. It’s time to get serious about saving energy in your home.  The good news is that, what’s good for the wallet, is also good for your health. Here are some top tips:

• Keep it cooler. Turn down your thermostat if you do not have elderly or infant residents.  Adopt the “après ski” look at home; a high thermostat can dry out our nasal passages, and make us more susceptible to colds and flu.

• Program your thermostat. If your home is unoccupied during the day, a programmable thermostat will keep your home cool during your absence, and then kick in with welcoming heat just before you return.  You can also keep the heat low during your sleeping hours, but still wake up to a warm house in the morning. 

• Maintain your furnace. Regular maintenance of your heating unit will help keep your energy bill down too.  Make sure that you have your furnace professionally checked at the beginning of the heating season.  Late summer or early autumn is the best time to book your appointment, so keep this in mind for next year.  Try to change furnace filters often.

• Keep the cold out. Good storm doors and windows are a necessity in most of Canada. But they’re only as good as their installation.  Invest in superior quality products, have them professionally installed, and you will recoup your investment monies in no time. 

• Insulate, insulate, and insulate! Especially in your attic.  Heat rises, so just as a good hat keeps in our body heat, so a well-insulated attic holds in your home’s warm air.

• Get out the caulking gun. There are many hidden places where your expensive warm air escapes out into the cold.  Walk around with a lit candle to check for drafts. Caulk around sill plates, doorframes, window frames, attic entrances, chimney flashing, and anywhere that any wiring, ducting, plumbing, or flues penetrate your exterior walls.  Remember to insulate all of your exterior electrical outlets too.

• Watch those kitchen and bathroom fans.  Your fans are blowing out your expensive warm air, so use them wisely. You don’t want mould, but you may want some extra humidity. Clean and reverse your ceiling fans – they’ll help keep the warm air down where you need it.

• Warm the floor. You may love hardwood, stone or tile, but you need cozy carpets underfoot during the winter months. Many people roll their rugs up again when the weather warms.

• Use the snow. Snow is a great insulator. Some homeowners swear by the practice of banking snow around the foundation, especially in regions where the “basement” is an unheated crawlspace.  Be sure not to block any furnace or dryer vents.

• Keep a blanket box or basket. Have some cozy throws available where people gather.   Invest in down duvets for your bedrooms – nothing else provides such instant comfort.   Smaller down-filled throws are new on the market, and are great for snuggling under during those evening hours spent in front of a book or a movie.

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The real cost of your cash-back mortgage option

If you look at the most stressful events in a person’s life, buying a home is on the top ten list. After all,

it’s a big decision – both emotionally and financially.  Many home buyers go through an anxious period after they’ve arranged for their mortgage and get ready to move into their new home. Knowing you’ll get a pocketful of cash would sure help, wouldn’t it?

That’s a big part of the attraction of cash-back mortgages. A plump cheque is a psychological boost to home buyers who have just made one of the biggest financial commitments of their lives. As mortgage brokers, we like to work with our clients to ensure that they look beyond the temporary “feel good” of the cash, and weigh their options wisely.

Remember that the cash-back option comes with a trade-off: if you choose not to take the cash back,

you can get a lower interest rate. Over time, you could see substantial savings in interest payments.

So, start with the most important question: What will the cash be used for? Is this purchase a priority,

and is it worth the difference in the rate? Perhaps you have a plan to take advantage of the cash-back to purchase the household appliances for your new home. The extra $3,000 for new kitchen or laundry appliances may be an urgent immediate need and a higher priority overall than the lower interest rate for your mortgage term.

But here is the second question to discuss with your mortgage broker: What will be the impact of the

rate difference over time?  You’ll need real-life figures to work out the details for your personal situation,

but let’s look at an example*:

Let’s say that your cash-back option pays 1% of the mortgage amount on a two-year deal, 3% on five years, and 5% cash back on a ten-year closed mortgage. And let’s assume that you’re looking at borrowing $100,000 for a 5-year term, amortized over 25 years. Not long ago, you might be looking at the difference between cash back and a rate of 6.60%, or a discounted interest rate of 5.29%.

So what’s the bottom line? 

Your cash-back option would give you $3,000 up-front, but over your 5-year term, you would pay a little over $6,300 more in interest costs than you would have with the discounted rate. The exact cost of the cash-back option in this example is $3,330.44 – paid out over 5 years. 

Is that a good deal? It depends. Did you get the much-needed appliances for your home… or use the funds to manage a high-priority expense? Then you probably got good value from the option. If – five years later – you can’t remember where the money went, then perhaps you didn’t make the best trade-off.

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In the rush to buy, don’t skip the house inspection

What a ride! We’ve had one of the longest, hottest housing markets in memory – with keen competition for homes in all price brackets. Everyone has a story about a home that has sold for considerably more than the original asking price. It’s a seller’s market. And anxious buyers – worried about losing a bidding war on a property that seems perfect – may feel pressured to make an unconditional offer – which often means skipping the professional house inspection.

Traditionally, home inspection was one of the common, accepted “conditions” on any offer. Home buyers had a specified period of time to conduct a home inspection, and the deal was dependent on a satisfactory outcome. But in a seller’s market like the one we’re experiencing, many vendors have the luxury of insisting on unconditional offers. Those who want to pause long enough for a house inspection can be left behind.

But a professional house inspection is an important step in the purchase process. Serious buyers will sometimes hire a “pre-offer inspection” to check the condition of a home. Armed with that knowledge, the buyer may have the confidence to make an informed, unconditional offer.

Most house inspectors will encourage you to accompany them on their visual inspection of the home. Do it! It will be the most valuable house tour you’ll ever take. Every inspection, of course, should also include a written report.  In general, inspections are visual and look at the house both inside and out: a great reason why the inspection should take place in daylight.

Outdoors, expect a close examination of exterior features like roofing, flashing, chimneys, gutters, downspouts, decks, walls, and foundations – including grading and drainage away from the house. Inside, the inspector will be looking at all the house systems, including electrical, heating and cooling systems, ventilation and plumbing. The inspection should also include a close examination of structural features, floors, ceiling and wall finishes, and the condition of windows and doors.

If the home has a swimming pool, a septic system, or significant landscaping features, you may want to either look for an inspector with specific expertise, or bring in an additional specialist. Also, if you have a wood-burning fireplace or stove, look for a house inspector who is certified by WETT (Wood Energy Technology Training).

A professional house inspector will be formally trained, experienced and impartial: that is, he or she will not have a stake in the outcome of the inspection. For example, under their professional code of ethics, home inspectors are not allowed to be associated with any other construction or house related trade. Many inspectors, of course, have valuable backgrounds in civil engineering, the construction trades, or even specialized areas like heating systems.

How do you find a good house inspector? Referrals are a great way to begin. Or, you can look up an accredited member of the new Canadian Association of Home and Property Inspectors at www.cahpi.ca. The initials “RHI” denote the highest accreditation of the association.

When the inspection goes well – as they generally do – you get some important information about your home, and you can feel assured that you’re moving into a home that’s in good condition. In the worst cases, buyers may want to re-negotiate or back out of the deal based on the inspection’s findings. Follow your instincts; if you’re worried about the condition of the roof, for example, be wary about making an unconditional offer without a prior house inspection.

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