AI Roundup: House-Fishing, Enhanced Documents, and AI-Drafted Deeds

Has artificial intelligence begun to make a mockery of a home seller’s duty to disclose? If so, we’d better be aware. And perhaps it’s time for the law to step in.

Here’s the latest.

House-Fishing

D.C. is considering a new law to protect residents from AI “house-fishing” schemes. House-fishing is like catfishing, only it’s for homes. Using artificial intelligence tools, sellers and promoters can lure would-be buyers with enhanced images. Buyers report feeling bait-and-switched. Why would sellers, agents, or brokers want to engage in this?

Yet the practice is becoming rampant. These days, visually enhancing a room’s interior is as easy as touching up your Zoom background. And a lot of real estate listings have become extremely fanciful. A Philly row house with the New York City skyline in the background, or a home with a perfect garden that was just made up? And it gets worse. Imagine a seller covering up signs of exterior stormwater runoff, or interior water damage, with AI-driven enhancements. In some cases, fakery along these lines is seeping into real estate listings.

And so it is that multiple D.C. councilmembers have introduced a bill to require real estate listings to disclose “digitally altered or AI-generated photos.” Anyone posting an enhanced picture would also have to post the original image.

Councilmember Christina Henderson says using AI to virtually stage listings will still be permitted. But if an agent uses AI just to show the potential of a property after upgrades, that needs to be clearly explained. In some cases, unbuilt lots have been listed with pictures of homes that do not exist. It’s bad enough that these misleading images are wasting the buyers’ time. And misrepresentation in listings can be all the more harmful when the buyer is shopping from a remote location.

The industry already has instructions that rule out misrepresentation. (If you see misleading alterations, you can call the Multiple Listing Service and ask for the listing agent to correct the listing.) The new D.C. law would go a step further by positioning the District’s attorney general in charge of actual enforcement.

The proposed law follows in the footsteps of others in New York City and in California. From a consumer-protection standpoint, these laws are timely examples for other states and cities to follow. And they will.

Wild Deeds

We’re seeing warnings about individuals using AI to draft their home deeds. One of these warnings comes from the Kistemaker Business Law Group. Kistemaker shines a spotlight on AI’s potential to create “wild deeds.” In other words, deeds that rupture the legal chain of title.

Could AI derail a deed holder’s title history? It’s quite possible. Every state sets forth statutes that direct deed creators to follow the law. Machine learning can pick up outdated material to populate a document. (This is called data drift.) A small misstep can wind up producing a wild deed.

Moreover, AI isn’t a legal advisor. Telling an AI chatbot to create a deed is not the same as having a nuanced understanding of what type of vesting or title assurances the parties want or need. It may stumble with its choice of the type of deed best suited for a given transaction. AI generating the wrong type of deed is yet another troublesome scenario.

One wild deed can cloud a chain of title for the rest of its existence. Under the law of some states, an erroneous deed eventually becomes part of the chain of title that later purchasers and lenders rely on. As Kistemaker points out, waiting to see if an error becomes a problem is “rarely a sound strategy.”

The upshot? It’s best to have an attorney review a new deed before signing, notarizing, and recording. This step will resolve the risk of a tech-induced mistake in a deed.

Avoid AI-Drafted Deeds: Here’s Why

Deeds are legal instruments. A valid deed requires specific elements, and those requirements are written into laws.  

Generative AI can inject risk into several of the deed’s elements:

• The signature of the creator (“grantor”).

• The witnesses, where required under state law.

• The notary public’s acknowledgment.

• Rules on whether the notary can also be a witness.

• The legal description of the property being transferred.

An AI tool can create what appears to be an element of a deed without verifying that what’s generated matches the real estate the parties are agreeing to transfer.

“AI models are also trained on a mix of documents from many states,” notes the Kistemaker Business Law Group. This brings in risk. For example, a tool could create a deed that adheres to notary rules from a distant jurisdiction. The smallest missed detail can result in huge consequences down the road.

Important note: AI cannot legally replace a human notary public.

AI-Altered Loan Documents Form “Emerging Shadow”

The recent annual report from Cotality has exposed the “emerging shadow” of loan applicant documents manipulated by generative AI.

Document fraud has evolved from the old method of whiting out typewritten text to PDF and screenshot manipulation, and then to generative AI. The telltale signs underwriters once found are no longer detectable in an altered portable document. So, traditional document checks are failing to catch changes at this point. And high-tech checks aren’t moving as quickly as machine learning is.

Lenders are having to take second looks at these red flags:  

• Batches of self-employed applicants that may not all be legitimate borrowers.

• Repeated transactions in the name of one seller.

• Investor-buyers with other properties who aren’t disclosing their other mortgage loan obligations.

Unfortunately, fraud makes underwriters create more hoops for all applicants to jump through. Deed seekers, expect extra scrutiny for this reason. Last year, Fannie Mae started working with Palantir. It was an indicator of the mortgage industry’s interest in fraud detection tech. (Fannie Mae backs one in every four individual borrowers’ mortgages.)

Famously Imperfect…Still

Artificial intelligence can be used for just about any level of communication in business. It can be directed to look at certain aspects of a transaction and account for them. It can adopt a legal style of presenting any information.

That said, the technology is still flawed. When AI business leaders themselves call for brakes on their own advancements, we should take note.

Important note: The articles written for this site are designed to get you oriented on matters involving deeds. We do not provide financial or legal advice. Nor can the bots! So, do consult a real estate lawyer to review your documents.