Imagine making monthly mortgage payments to the bank for years – decades, even – and then discovering that your property had been stolen on paper, without your knowledge.
Criminology expert Nathan Innocente with U of T Mississauga’s sociology department, studies how the very systems meant to support real estate deals can create new opportunities for mortgage fraud and identity theft.
In his research, Innocente investigates how different parties involved in a typical real estate deal interact with each other, following the transaction process from title insurance companies to mortgage brokers and lending institutions, and the lawyers who help to finalize a sale.
Transactions can be impacted by factors that include changes in the way the state handles land title information, shifts in technology, or even in the way various players communicate with each other as they provide loans, execute conveyancing or finalize a deal.
“I’m interested in how these changes impact security or create loopholes that outsiders can potentially exploit to perpetuate a crime,” Innocente says.
One such change is the introduction of electronic land title searches.
“About 20 years ago, Ontario became one of the first jurisdictions to switch to an electronic land registration system,” Innocente says. “All the files that had been on paper at a registry office became available electronically. Along with the introduction of title insurance, transactions suddenly became much faster.”
While the system is secure, Innocente notes that high volumes of transactions are the most profitable business model for lenders.
“People want to do things over the phone or through a broker because it’s more convenient and faster,” he says. “Banks now have the ability to do more business, but that expedited system creates anonymity. A transaction can become corrupt and never get caught.
“Unlike white collar crime, which might involve a corrupt broker or lawyer, identity fraud is committed by people from the outside of the system,” Innocente says. ”Someone who understands a little of the system and can sufficiently mask an identity can exploit that.”
A typical identity theft scam might feature people posing as renters. They pay advance rent in cash, obtain fake identification, pretend to be the owner and sell the house.
“They understand how the system works, and what to say. Within a week, they can pocket several hundred thousand dollars and disappear,” Innocente says.
“Other real estate-related crimes include forging financial statements to secure a loan or misrepresenting the value of a property to a potential buyer.
“They are fascinating crimes but are not widely known about because the companies who have the best data, like lenders or title insurers, don’t release the [data],” Innocente says. “We simply don’t know the exact numbers on how often this happens. There are very few claims to title insurance and lenders are reluctant to release this data because it impacts their institutional reputation.”
Innocente’s research reveals that changing the system to prevent fraud is equally tricky.
“There is no incentive to make the system better,” he says. “In the past if a fraud occurred, the home owner was on the hook for the lost money. But the advent of title insurance in the 1990s ensures that the homeowner recovers those financial losses.”
Other levels of insurance protect the lenders, title insurers and lawyers when a deal goes wrong.
“If you’re insured, what’s the loss? There’s a real disincentive to exercise tight diligence, which means these cases will go through the system because the checks and balances aren’t there, or because they are viewed as too difficult and impractical to implement.”