Buying a house is extremely exciting and the deed by which it transfers to you is extremely important. Unlikely as it may seem, there is a chance that the deed you are obtaining, through an official transaction, may be void and you could end up short thousands of dollars with no right to the property. There are instances where a Seller has actually fraudulently created a deed that for all intents and purposes with the Recorder’s office, transferred title to their name without giving them an actual right to title. A search of the property records would show that the Seller does have the right to the property, not raising any questions as to title on the face of the transaction.
One way that someone could commit this fraud is by transferring title (that they don’t even own) into the name of an LLC, pretending that they are the real owner transferring and forging the real owners on the deed transferring to their LLC with a quitclaim deed. They could also pretend to be a member of an LLC that they are not a part of if the party drafting the deed or signing the deed does not ask for verification that they are a member. This is of course highly illegal, but unfortunately, it does occur.
There are a couple things you can do to make sure this does not happen to you.
The first is to ensure the deed is notarized properly. A deed must be signed in the presence of a notary public. Notary publics are required to verify that the person signing the deed is who they say they are, but some notary publics are not in the habit of asking for identification and may notarize without actually confirming that the person is who they say there are. It is also important that they ask for proof that the Seller is a Member of the LLC when the Owner of the property is an LLC.
An unsuspecting law firm or an educated fraudster could create a quitclaim deed that transfers this property from the real owner (signed by the fraudster) to the fraudster’s entity, with a deed that is acceptable to the Recorder’s office. Once filed and recorded, it effectively “transfers” the property – even though never truly owned by them. The fraudster may now sell to you, with the chain of title seemingly showing that they are the accurate owner of the property, and conveniently disappear before you find out that the property was never truly owned by them. Subsequent action by the real owner of the property would take the property away from you, as the deed would be void, obtained by fraud. In other situations, a subsequent purchaser who purchased the property for value would have a right to keep the property. The law prevents such from occurring in the case of fraud; your best plan of action would be to go after the fraudster for the money you paid out, assuming they can be found.
The second step you can take to prevent this from occurring would be to obtain title insurance when you purchase the property. Title insurance protects the buyer and lenders in the event a problem such as this is found with the title. You, as the Buyer, would be entitled to receive your money back from the purchase.
From the seller side, if you want to sell property that you own in an LLC, but do not have documents that show you are a member of an LLC, this could create an issue, as firms handling a closing should, using best practices, ask for proof that you are truly a member of the LLC. When forming an LLC, the State does not require that the LLC members identify themselves in their Articles of Organization. Thus, the Articles of Organization would not necessarily be evidence that you are a member of an LLC. An Operating Agreement signed by you as a member, or by-laws, or similar documentation, would need to be used.
In summary, it is important to make sure (1) the notary public signing the deed asks for identification from the seller, (2) if the seller is an LLC, the notary public asks for identification that they are a Member of the LLC, and (3) that the buyer obtains title insurance to cover any defects in title.
This kind of fraud, of course, does not happen every day, however, it is something that can occur, which you should be aware of. If you have questions regarding title insurance or transferring real estate, contact Walnut Ridge Title, where we would be happy to make sure you are protected during a real estate transaction.