Borrowing Against Your Title to Ward Off Deed Theft: A Smart Idea?

Some deed holders deliberately get a lien recorded on their properties to make it harder for anyone to commit deed theft and take their homes. Is there anything to this?

First, it’s music to our ears when homeowners ask how to keep their deeds safe and sound. Borrowing against home equity to get a voluntary lien can be helpful, but its protective power will be limited. To get an idea of whether the effort could be worthwhile, let’s walk through potential scenarios.

What’s the Idea?

Often, people consider applying for a home equity line of credit as their safety strategy. What’s a home equity line of credit all about? A HELOC, as it’s commonly called, is a revolving credit account. Deed holders can use the line of credit as they would use a credit card — withdrawing only what they need, and paying interest only on the amount they don’t promptly pay off.

This convenient, all-purpose credit line might have a term of ten years.

OK, so imagine you receive a HELOC. Although you need not touch the funds at all, your HELOC lender will record a lien against your home. If you go to sell your home, you’ll close your HELOC account so that the bank releases the lien.

Some people decide to establish these accounts not to actually use, but so the lending banks will be notified if anyone attempts to tamper with their titles. And some leave these lines of credit (or even their original mortgages) open as long as possible — just so a bank has a stake in the title and reacts protectively against apparent fraud.

It’s not an absurd idea. The lien you voluntarily seek could make your home less attractive to swindlers than a home with a clear title. But is it worthwhile to actually open a new credit account, just to hopefully add a degree of title protection? Or will it be more of a hassle than it’s really worth? Are there better alternatives?

First, let’s look at potential drawbacks.

Check the Fees

First, note the fees that come along with a HELOC. Check on charges for applying, appraisals, closing on the HELOC, and, finally, fees for things like ending the line of credit. Some lines of credit have annual fees or transaction fees. Some even charge fees for inactivity!

Granted, with some lenders, the fees are low. And some deed holders might find the HELOC funds useful and the borrowing rates relatively good — in which case the idea won’t be an inconvenience. There are even some credit unions that offer HELOCS — again, like credit cards — with zero fees. Some home equity loans are zero-fee as well.

The point is to check into the rate and fees for the credit line when deciding whether the method is worth the effort.

But the possible costs of a credit line aren’t everything. What you really need to know is this. Will the method actually work to prevent deed theft?

Effective or Not?

If you borrowed from your equity and had a lien placed on your home, would that stop a swindler from exploiting your deed?

You’ll want to be mindful of these possible scenarios:

• Someone could potentially commit a deed theft with a quitclaim deed without resolving the lien. If so, the recipient of the transfer would take title subject to encumbrances of record — encumbrances such as the lien you’ve had placed on the home. In this case the lien holding lender might be unaware of the suspicious transaction.

• A swindler with no qualms about fraudulently taking your deed would likely be fine with recording a falsified satisfaction and release of the lien while they’re at it. We have seen deed fraud that included fraudulent releases.

In short, a lien would only get in the way if the conveyance were going to a buyer or through a lender who insists on title insurance.  Otherwise, you could still be targeted, and be forced to try recovering your title by getting a court to set aside the wrongful deed transfer.

Swindlers often take the rights of homeownership away from rightful owners using quitclaim deeds. Learn more about quitclaim deeds used for fraudulent conveyances.

Speaking of title insurance, let’s talk briefly about how important it is to today’s question.

Got Title Insurance?

If you are concerned about deed theft, it’s worth a call to the professionals who worked with your title when you first acquired it. Lenders have title insurance to protect their collateral (the home). If you still have a regular mortgage on your home, ask the mortgage company if the lender can advise on your situation.

There’s also owner’s title insurance, and perhaps you have it. When you acquired a deed, a title insurance premium was one of those extra costs you might have paid. Owner’s title insurance is optional. You do need to pay for coverage of the lender’s interest in your title — but you won’t be listed as a beneficiary of that policy. And once you pay off the mortgage, the lender’s policy ends.

So, bite the bullet. Pay a one-time premium, and get owner’s title coverage. An extended policy covers issues occurring after you buy your home. If you bought coverage at closing, your home might already be protected.

At closing, you can purchase a policy for yourself that’s bundled with the lender’s policy. But you can pick any title insurer to issue your policy. Picking an enhanced owner’s policy gives you the most protection. As a matter of fact, you can get one of these from the American Land Title Association which protects you from bad actors taking HELOCS out against your home! Ask any title company you might use about post-closing deed fraud coverage in its policy.

Don’t Forget to Set Your Alerts

A growing number of counties have alert systems. Deed holders can sign up to get messages telling them whenever someone records a claim against their homes.

These are important services, and deed holders should use them.

That said, county alert messages are not uniformly effective. Most notify the deed holder right away. Some lag. Some only alert the homeowner about claims made on deeds recorded after they sign up for the service.

Even the best alert systems only inform the deed holder of activity against the deed after that activity already happened. But this at least prompts the deed holder to call law enforcement quickly. Speed is key to recovering a fraudulently conveyed deed.

On the subject of reminders, do review your credit profile from time to time. You’ll want to spot any odd actions in your credit report. And read up on fraud by impersonation.

The Long and the Short of It

Placing a voluntary lien on a home might get in the way of a fraudulent deed transfer — if a title company gets involved with the conveyance. But this is far from foolproof.

Some homeowners place their deeds in companies or trusts for protection. If you’re looking for the strongest options, speak with a local real estate lawyer. For more general guidance, ask a title expert with familiarity with the law of your home’s state.