Diminished Mental Capacity & Title Fraud

Dated: December 8 2022

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Perhaps you have had a case with a client who had diminished mental capacity when they hired you. Or, you’ve had a client’s mental or cognitive abilities decline during your representation of them. 

Of course, there are remedies available when clients need a guardian or a responsible person to handle their affairs and make decisions when they cannot. Often, a power of attorney (POA) or a conservatorship are put into place. 

It is important to note, however, when the transfer of real estate is involved and title insurance is purchased (either through a sale, a buy-out, or a deed transferring title from one spouse to another), there are title insurance underwriting guidelines that must be met before they will insure it

Why? Because title fraud is a big business for fraudsters and it is growing at a rapid rate since the pandemic. 

Title fraud occurs when a bad actor steals a homeowner’s identity, forges documents that allow them to register the deed in the fraudster’s name, and then takes a mortgage out on the property. When someone other than the titled owner signs the deed, such as a conservator or a power of attorney, title companies see this as a red flag and look at it with more scrutiny. 

If there is a power of attorney in place, the attorney-in-fact should be prepared to answer some questions from the title company. The title company will usually want to know why there is a need for a power of attorney and will sometimes want a letter from a doctor indicating the principal was of sound mind when they executed it. Also, there is specific terminology that title underwriters are looking for that many POAs are missing. 

If there is a conservatorship, the title company will want all the legal paperwork to review and may have questions or require additional documentation.

While this can be annoying, it’s important to remember the title company’s risk: They could be left holding the bag for the entire value of the house — or more — should they underwrite a policy on a fraudulent or clouded chain of title without having done their due diligence. 

When you have a case where anyone other than the titled owner(s) are signing the deed, including an elisor or clerk, it is advisable to run the situation or document by a title officer before finalizing the paperwork. Otherwise, if it is not compliant, your client could be looking at an eleventh-hour torpedo of a real estate sale days before they get to the closing table. 

I can help with this. The easiest thing to do is to give me a call, send me the information, and I will run it past my title company for their input and approval. There is no cost, of course, and you’ll have peace of mind that the real estate transaction will be solid.

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Portland Oregon Divorce Realtor, Laura Rumford CDRE®

Laura Rumford is a Principal Broker and she has also earned the prestigious CDRE™ - Certified Divorce Real Estate Expert - along with a multitude of other designations, setting her apart as a li....

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Diminished Mental Capacity & Title Fraud

Perhaps you have had a case with a client who had diminished mental capacity when they hired you. Or, you’ve had a client’s mental or cognitive abilities decline during your

Read More