Real Estate Fraud by Identity Theft


August 22, 2019 Real Estate and Construction

Did you know that recent cases of stolen and leaked personal data have increased the risk of real estate fraud by identity theft? Le Journal de Québec recently published an article entitled « Les infos volées chez Desjardins pourraient servir à des fraudes immobilières », which discusses the increased risk of real estate fraud by identity theft following the recent cases of personal information theft that have recently made headlines in the past weeks. This article explains what real estate fraud by identity theft is and how you can protect yourself from this real and growing risk by purchasing real estate title insurance.

What exactly is real estate fraud by identity theft?

Real estate fraud by identity theft is a situation where a fraudster impersonates the real owner of an immovable usually free of hypothecs to obtain a loan on said immovable.

The fraudster will show up at the financial institution and then to the notary with fake identity cards, posing as the real owner of the immovable.

The fraudster will then cash the loan and disappear. The fraudster will default on the loan and the hypothecary creditor will undertake a recourse against the immovable and the real owner. The real owner will realize that his immovable was hypothecated without his knowledge and that he is now subject to a hypothecary recourse for the defaulted payment of a loan he never took.

What are the consequences of real estate fraud by identity theft for the owner of an immovable and the hypothecary creditor?

An owner who is a victim of fraud will find himself in a situation where he will have to undertake costly legal proceedings to obtain the nullity of the hypothecary loan falsely contracted in his name by the fraudster and to have the hypothec on his immovable cancelled.

The owner must prove that he never signed the loan contract, nor the hypothec put in place on his behalf by the fraudster. In addition to the stress and inconveniences, the victim of the fraud will generally have to spend significant legal fees to release his title from the fraudulently published hypothec on his immovable and to have the loan declared null.

In order to be indemnified for the losses he will have suffered, it may be difficult for the victim to sue the fraudster for damages. In fact, the latter is usually nowhere to be found, or insolvent, which greatly compromises the chances for a potential judgment to be executed against the fraudster.

It is important to specify that the hypothecary creditor, who has granted the fraudster a loan, will in principle have his loan declared null and his hypothec on the victim’s immovable cancelled. The hypothecary creditor will then find himself with no hypothecary guarantee and will have to hope to be able to retrace the fraudster and find him to be solvent in order to recover the amount of his loan.

While the real owner could, in principle, be able to obtain the nullity of the loan contract and the cancellation of the hypothec, the hypothecary creditor often risks being the biggest loser in this story, as it can be very difficult for him to recover his loan from the fraudster.

What is the notary’s liability?

In terms of the notary’s potential liability, he could be exempted of all liability for damages suffered by the victim if he demonstrates that he did not commit any fault in the context of his due diligence, including his verification of the borrower’s identity, which the jurisprudence has already confirmed.

Title insurance: the best way to protect oneself against real estate fraud by identity theft

Beyond prevention, title insurance constitutes, in our opinion, the best way for an owner of an immovable and a hypothecary creditor to protect themselves against financial losses caused by real estate fraud.

In fact, the real estate title insurance assume the defence and the legal fees resulting from the instituted proceedings. The main advantage to real estate title insurance in the context of real estate fraud by identity theft is that the victim does not have to incur substantial legal fees to take legal action against the fraudster in order to be indemnified for the loss suffered. The title insurer takes up the case for its insured and is obliged to indemnify the victim for any loss covered by the policy.

Ultimately, we would like to point out that in certain cases, standard home insurance policies cover, in a very limited manner, the damages caused by identity theft, and the protection offered against real estate fraud in certain home insurance policies is often inferior to that of title insurance policy.

For this reason alone and without counting the other protections that title insurance offers, subscription to such insurance at the time of a real estate transaction, even in the absence of apparent title problems, is to be recommended.

This bulletin provides general comments on recent developments in the law. It does not constitute and should not viewed as legal advice. No legal action should be taken on the basis of the information contained herein.

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