Property pirates: how lawyers can protect their clients from title scams

This article was originally published by Cat Woods for LSJ Online (16 January 2025).

Property title theft is not common, but it is devastating for homeowners and home buyers when they are the victims of a scam. In the US, scammers are referred to as “property pirates”, while in Australia we refer to it a property title theft, deed fraud, or real estate fraud.

Simultaneously, a rise in property title insurance has been met with scepticism over how genuinely effective it is, with Forbes magazine suggesting this potentially expensive insurance is, like property title theft itself, a scam.

Property title theft can be safeguarded against via verification of the identity of the person claiming to be the owner of the property, working with an experienced property lawyer, and checking the property certificate, which is a title search from the NSW Land Registry Services (LRS). The certificate includes:

• The full name of the current owner

• Any notifications, including details of any mortgagee, or any caveats on the property.

Anecdotally, home buyers who purchased in the 1980s and 1990s recall a system of photocopied documents and a more laborious process of verifying identity of buyers and sellers.

Andrew Grima is a partner at Bartier Perry Lawyers in Sydney. He has more 30 years’ experience in property law across retail, commercial, and industrial sectors.

He tells LSJ, “Registration and ownership of property has become much more protected through the introduction of electronic titles and the electronic system of registration through the PEXA platform – of course combined with the strict guidelines which are in place on identification, registration and ownership of property.”

“One of the key motivating factors behind these systems was to attempt to address concerns of fraud as well as to increase efficiencies. For example, registration of the majority of dealings in NSW cannot take place unless through the PEXA platform, though there are some exceptions.

“Before a person’s representative can register a dealing on their behalf or attend a settlement for them, their representative needs to officially certify that they are authorised to do so on behalf of their client and have carried out a verification of identity.”

PEXA is a property exchange platform founded in 2010, popular with lawyers, conveyancers, and property developers amongst others.

Grima says, “In relation to verification of identity, there are specific requirements around this. Prior to the introduction of (followed by the gradual adoption of) PEXA, it was far easier for fraud to take place. For example, in land dealings, a party needed to produce the hard copy Certificate of Title. Fraudsters who were able to get their hands on the Certificate of Title – usually where the title wasn’t held by a mortgagee – could easily forge a signature on a transfer or other dealing.”

Scammers have their work cut out, but fraud is still possible

Grima says, “There is always a concern [following major hacking events like Optus or Medibank]. However, given the requirements in place to verify the identity of a party, it is much more difficult these days. For example, the fraudulent party would need to have false forms of ID to start with.”

He adds, “Even where organisations are hacked and sensitive, identifying information is stolen, that information still needs to be translated into forms of recognised identification, and then verified by a lawyer in accordance with requirements. While it would not be easy, it cannot be ruled out. That is why organisations, particularly law firms and banks, are going to such great efforts to invest in, and continually update, their IT security systems. They are also continually training staff to remain vigilant and aware of potential scams and instances of fraud.”

The Torrens Assurance Fund (TAF) is a statutory compensation scheme designed to compensate people who, through no fault of their own, suffer loss or damage as a result of the operation of the Real Property Act 1900 (RPA).

If an owner experiences loss or damage as a result of property title theft, they may have recourse to make a claim for compensation from the TAF. In NSW, the victim can also refer the matter to the Law Society of NSW if the loss or damage was caused by a solicitor, or to the NSW Department of Fair Trading if it was caused by a licensed conveyancer.

Those seeking compensation must apply within six years of the error or omission leading to the loss or damage, or within six years of experiencing the actual loss.

According to the NSW Registrar General, the following circumstances provide reason for seeking compensation from the TAF:

• an act or omission of the Registrar General;

• the registration of someone else as the owner of land/an estate or interest in land;

• an error, misdescription or omission in the Register;

• the land being converted to Torrens Title;

• fraud;

• an error or omission in an official search; or

• an error in recording details supplied in a Notice of Sale.

In the event that someone does attempt to sell a property title they do not own and a buyer does fall for the scam, Grima says, “There would be various legal implications arising out of this scenario. While every case is different, there would likely be both criminal liability, where a crime is likely to have been committed, together with an action by the party aggrieved against the party committing the fraud. Unfortunately, such actions are costly and it is always difficult to estimate the cost depending on the extent of forensic accounting required, expert witnesses, barristers as well as solicitor costs. This scenario would very likely turn into a dispute very quickly.”

The US property pirates

In 2022, the FBI’s Internet Crime Complaint Center (IC3)  received 11,727 reports of real estate fraud. In 2023, the IC3 reported 9,521 real estate-based fraud complaints, resulting in losses of over $US145 million (approximately $AUD227.6 million).

Forbes published an article in 2022 titled “The Home Title Theft Baloney” in response to a wave of radio and television ads warning people to buy property title insurance to avoid having their homes stolen or being scammed in buying a home.

The expert quoted in the piece, Rick Kahler from Kahler Financial Group, said, “Lenders, title companies, and real estate firms have so many safeguards in place that there is almost no chance a fraudulent transfer won’t be discovered. The required credit reports, employment and income verifications, back tax returns, appraisals, and title insurance are bound to alert you and the lender that something is wrong.”

Kahler added, “Even with a cash buyer, a thief’s chances of success are small. Only the most naïve buyer will fail to obtain title insurance. Title insurance protects buyers against defects in the title, including liens, fraud and forgery. It will alert the buyer or lender to any defects prior to closing. If a title company misses a defect, they must pay for any damages. No legitimate attorney or real estate firm will allow you to buy a property without this insurance.”

Contract clauses to safeguard clients

Grima says, “In terms of contract clauses, there are various safeguards within contracts to protect a client from future fraud. For example, a purchaser may have rights to compensation for an error or misdescription in the contract as to title, in limited circumstances. Additionally, there are specific requirements within contracts to govern and oblige the vendor to cause legal title to pass to the purchaser free of any charge, mortgage etc. Furthermore, there are specific prescribed documents which must be included within the contract which relate to title. Additionally, the contract itself must be signed by the vendor.”

He adds, “As part of the usual conveyancing process, a purchaser will raise requisitions on title which essentially are enquiries as to the title of the property. These requisitions come in various forms but generally will cover items such as whether there have been claims for adverse possession, protected tenancies, whether there are any proceedings pending in relation to the title, [or] any encumbrances over any fixtures or chattels. It is quite common in in the marketplace to see prospective purchasers asking these questions even prior to exchange of contracts. If the answers are found to be incorrect, depending on the particular circumstances, there may be consequences for the party providing incorrect answers.

“Another inexpensive strategy for a person to protect their property title is to lodge a caveat on their own property. By doing this, another party cannot register any interest or dealing without the owner’s knowledge and will be notified in the event of any lodgement of dealings affecting the title of that property. This may be a simple way to reduce the instance of fraudulent land dealings.”