Part 1 of 2: ByWayneS.Bell(Chief Counsel) andSummerB.Bakotich(Special Investigator) – California Department of Real Estate.
I came across this article and felt every homeowner needed to be aware of this, so I am re-blogging and sending this article to you. This week I will alert you to what this scam involves, and next week I will identify the various scams and what you can do to protect yourself.
In the current economic climate, criminal fraud related to real property deeds appears to be on the rise. In that regard, the California Department of Real Estate (DRE) has received and continues to take reports of such fraud where forged, false and/or fraudulently induced deeds are recorded against properties in California without the knowledge or consent of the owners.
The purpose of this alert is to briefly educate the public about the document recordation process, highlight some of the different types of deed scams which are being perpetrated against property owners involving the legal title to their homes1, provide a checklist of warning signs that suggest or signify fraud, and to inform victims of actions they should take, including the immediate reporting of such fraud and criminal activity, and the “quieting” or “cleansing” of title and ownership records.
While this alert focuses on the issue of fraudulent deeds recorded against real property in general, most of the cases being brought to the attention of the DRE involve the personal residences (or homes) of victims.
Document Recording in California
Before identifying some of the different types of fraudulent deed scams that are prevalent today, it is important for property owners to understand the basics of the recording system and how real property deeds and other mortgage-related title documents are recorded.
In California, the recording system allows owners, purchasers, sellers, creditors, and others who are interested in a particular property to determine the legal rights, title and interests in that property.
The process for recordation of documents that affect title to real property is achieved through the offices of the “recorder” in each county, and it commences when a duly executed and properly acknowledged document is submitted for recording to the recorder’s office in the county where the property is located.
The recorder’s office, upon payment of the proper fees and taxes, must accept and record any document that conforms to certain California legal requirements. In the case of a deed, recorders will typically ensure that the deed is properly acknowledged by a notary (unless some exemption applies), is compliant with the general recording requirements set forth by law, and photographically reproducible. The deed must usually contain original signatures unless it is a certified copy issued by the lawful custodian of record.
Each county recorder has fairly similar recording requirements, but the requirements are not identical; there are variations among the counties. If you are interested in your county’s specific recording requirements, please refer to your local county recorder’s office and/or website.
***What is important to understand here, and not always generally known, is that the county recorder is not responsible for verifying the validity, authenticity or legitimacyof the document that is recorded. In other words, the recorder is not responsible for detecting a fraudulent document, and the recorder does not look beyond the document itself. If the document meets the essential recording requirements, and the proper fees are submitted, the county recorder is obligated to and will record the document.
Because of the composition and operation of the recordation system, which is designed to smoothly facilitate the recording of many documents, anyone can go down to a county recorder’s office and present a document for recording against a particular property, whether that document is legitimate or fraudulent.
Therefore, there is no true safeguard or deterrent against the recording of illegitimate deeds (forged, fictitious and/or fraudulent) on any property and the prevention of the same is nearly impossible.
Recorder’s Anti-Fraud Efforts; Fraud Notification Programs; and “Clouds” on Title Affecting Sales, Financing, and Probates/Estates.
While county recorder’s offices do not verify the validity and legitimacy of documents presented for recording, some recorders have protective measures in place to try to contain deed fraud.
For instance, some recorders require signers of real property deeds to provide a thumb print, in addition to a signature, in the journal of the notary public who acknowledged the deed for recordation. This should have a deterrent effect respecting forgeries since an imposter will not likely want to leave a thumb print which can later be used as evidence linking him or her to a felony crime(s).
Other recorders have fraud notification programs in place. Such notification programs require the county recorder’s office to send a notice and copy of the recorded document to the property owner of record whenever a document which transfers title or ownership in the property or portion thereof has been recorded on a property. This notification is also usually triggered by the recording of a deed of trust, which is the recorded document which reflects a “security interest” in a property as collateral for a loan.
If you, as the owner of real property, initiated the transfer of title, change of ownership, or loan, you have nothing to worry about. However, if you were unaware of any such title transfer or loan, the notice from the recorder may be the only opportunity for you (as the homeowner) to learn about a fraudulent deed(s).
The notification will also typically provide the homeowner with a phone number to call (usually the local district attorney’s office) in the event of suspected or actual real estate fraud.
Prior to the advent of such notification programs, or in counties where there is not such a program, a property owner may not find out about a fraudulent deed until he or she goes to sell or refinance the property. With regard to sales, a fraudulent deed will actually “cloud” the property title and prevent a homeowner from selling his or her property until title is cleared or cleansed, or until the other “lienholders” are satisfied. The cleansing of title will be discussed below. Regarding refinancing’s, it is both interesting and sad to note that a number of fraudulent deeds on a property may not preclude a refinancing if there is sufficient equity in the property. The DRE is aware of one matter where a “reverse mortgage” was approved and taken out by a senior homeowner where there were a number of fraudulent deeds recorded against her property.
Surprisingly, without a notification program, a property owner may not discover fraudulent deeds (where the owner still maintains some ownership interest) during his or her lifetime, especially if the owner does not endeavor to sell, finance, or refinance the property. In such a case, the property will pass to the heirs of the homeowner with the fraudulent deeds intact. This can have a serious impact on the heirs to the property owner, and can interfere with the decedent’s probate or administration of the estate.
The notification programs discussed above allow property owners to react swiftly to unwind, invalidate and clear the fraudulent deeds, and any improper transfers and loans, and to contact the appropriate authorities right away.
Please check with your local county recorder’s office to determine if a notification program exists and which type of recorded documents trigger the notification.
Next week we will look at various scams, and what you can do to help prevent this from happening to you.
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