By Clarissa Hartono, CFP®

Have you seen advertisements for title lock insurance and felt scared about having your home title stolen? We have had clients ask us about whether they should purchase title lock insurance and where one might purchase it.

First, let us clarify that “title lock insurance” is not the same as “title insurance.” Homeowners usually purchase title insurance when they first buy their property. This title insurance protects you from having other people challenge your title, with matters like unpaid taxes, liens, or property disputes.

On the other hand, title lock insurance is less of an insurance and more of a service that occasionally monitors your title/deed to protect against title fraud. The name title lock insurance seems deceiving because the service only notifies you after fraud happens, not before. Having title lock insurance would not prevent a thief from transferring your property deed to someone else.

While title lock insurance has been marketed as a precautionary measure against title fraud, for homeowners in Orange County, California, it is often an unnecessary expense. A few factors make this form of insurance worthless, including the infrequency of title fraud, protections that the government has in place regarding existing title insurance, and a secure property recording system.

Title Fraud is Extremely Rare

While title fraud is concerning, it is an uncommon occurrence. Thieves must first use identity theft to forge documents and then transfer ownership of a property. FBI reports show that title fraud is extremely rare, especially in Orange County, California. (1)

If title fraud was as common as the title insurance companies advertised, why don’t we constantly hear it in the news or know a lot of people that have been affected by it? Other government agencies are tracking title fraud crimes and their data shows that this is not a significant issue.

Existing Title Insurance Provides Protection

As we mentioned in the beginning, most homeowners purchased title insurance at the time of closing. This insurance already covers what matters by ensuring that your ownership is authentic and clear of any prior disputes. While title insurance doesn’t cover fraud, most policies may include legal defense if title fraud were to happen. (2)

Secure Property Recording System

Title lock is an expensive notification service that probably uses the same system we could use ourselves, for free! Orange County’s public records system keeps detailed records of every property transaction. Homeowners can easily access this information and regularly check these records.

Legal Protections for Homeowners

Let’s say against all odds, that someone does fraudulently transfer your property title, what happens then? California law states that property obtained through fraudulent actions is not legally binding and cannot be retained. (3) This means that you would not lose your home. The court would eventually resolve the issue and return your title back to the rightful owner.

It may help to know that the penalties for title fraud are severe, which makes this a high-risk and low-reward act. The process is over complicated, and the paper trail is too clear for a criminal trying to stay in the dark.

Below are a few steps you can take to protect your property from fraud and they won’t cost you anything:

- Check your credit report

- Check Orange County’s public records system

- Review your bills regularly

To conclude, title fraud is not as concerning as it may seem. While this is not a common type of fraud, there are other types of fraud you should be aware of. Here’s an article that references the other types of fraud.

If you ever find yourself in a situation similar to any of these, or you think that someone is targeting you with a scam or fraud in any way, please feel free to schedule a complimentary phone call or meeting with one of our fee-only financial advisors. We would be happy to act as a sounding board as you navigate through your own unique scenario.

Footnotes:

1) FBI Internet Crime Report, Federal Bureau of Investigation. Available at: FBI Internet Crime Report

2) American Land Title Association, "What is Title Insurance?" Available at: ALTA

3) California Civil Code §1214-1221, "Title Transfer Fraud and Remedies." Available at: California Legislative Information