Whether it’s a homeowner’s title insurance policy, or a home/condo owner’s policy, no homeowner wants to be involved with apparent fraud.
The potential consequences are serious. Although most criminal and real estate laws are established by the states, insurance fraud can implicate federal charges, like wire fraud, mail fraud, forgery, impersonation, and conspiracy.
Let’s look at how fraud plays out. You might be surprised at how nervy some people can be.
First Up, What Is Title Insurance Fraud?
Home buyers can optionally buy title insurance policies. These address the risk of problems in the deed transactions, or the risk of unknown title defects.
Title insurance fraud could involve a rogue attorney or title professional. It’s not unheard of for people to leave their employment at title companies and find improper ways to keep collecting customers’ money. This is a federal, white-collar crime. It’s typically investigated by the FBI and charged as mail or wire fraud.
How Does Someone Commit Title Insurance Fraud?
- Offer a bogus title insurance policy for direct profit or to steal a homebuyer’s personal data.
- Fail to actually issue the policy a customer paid for.
- Produce fake or misleading documents related to the home title coverage.
- Mislead customers about an agent’s or company’s standing and credentials.
- Overcharge for coverage, or charge inappropriate fees.
- Deny title insurance benefits that should be rightfully paid to a policy holder.
- Rush a customer into buying coverage they might not otherwise want.
If indicted, a bad actor could face many years in prison together with large fines, and the responsibility to pay back the victims. Professionals who mess with title insurance can lose their credentials, not to mention their connections with the title companies they work with.
☛ The Real Estate Settlement Procedures Act bars home sales from being tied to specific title insurance policies. This is to protect consumers from having to buy products involving kickbacks to corporations.
Now, the Lowdown on Homeowner’s Insurance Fraud
This one’s very common. The homeowner knowingly makes a claim on a policy for more than the real value of the property that’s damaged, destroyed, or stolen.
The typical homeowner’s or condo owner’s policy fraud might look like something here. Whether these are fraud or not depends on the interplay of the facts and the law:
- A condo owner replaces a water-damaged bathroom cabinet. Although there is no need to do this, the homeowner has the entire bathroom redone along with the cabinet replacement, and submits all the expenses in the damage claim.
- A homeowner says an entertainment system was taken in a burglary, but in fact the homeowner placed the system in a walk-in closet so the insurance adjuster won’t see it.
- A homeowner decides to falsify damages for a burglary that never even occurred.
- A homeowner asks a worker to inflate a quote in order to cover the insurance policy’s deductible for the bill.
- A homeowner collaborates with an insurance adjuster to inflate quotes, to consolidate unrelated claims to avoid multiple deductibles, or to hide business use of the property.
- When the home gets struck by a fallen tree in a storm, the homeowner says a leak formed — while knowing that the leak started well before the tree fell.
- Someone buys homeowner’s insurance for a senior housing unit. (Yep. Common.)
- A homeowner files with two successive companies for the same incident.
- A roofing specialist purposely pries shingles off roofs to create insurance claims.
Like title insurance fraud, homeowners’ insurance fraud can lead to prosecution, fines, loss of professional licensing, potential prison time, and large legal fees.
Case in Point: Homeowner’s Insurance Fraud Surges in Storm-Prone Florida
Florida homeowners have seen their insurance premiums rise in recent years, as fraud interacts with severe weather incidents. The state has found fraud prosecutions difficult. Successfully prosecuted cases are rare. So Florida is carrying on a public education campaign, offering information on fraud prevention and detection.
In one recent case, Florida-owned Citizens Property Insurance Corp. reported the arrest of an insurance adjuster. The adjuster secretly filed a $13K claim for damage to elderly owner’s (perfectly fine) kitchen sink.
And here’s another true story for you. Citizens Corp. received a $75,000 burglary claim. The insurer found that the personal belongings had actually been sold off at Facebook Marketplace.
How Fraud Means Everybody Loses
Citizens Corp. has a fraud investigation unit. Its contractors track down fraud in the wake of hurricanes and other catastrophes. And Florida now has a Bureau of Insurance Fraud to investigate thousands of real estate insurance fraud cases annually.
Who pays? Mostly, the Florida taxpayers.
How many of these expensive investigations end up with successful prosecutions? Last year, 39.
What about this year? Florida’s insurance fraud unit has so far followed up on more than 3,000 reports of possible fraud in 2023. Out of all those cases, just 113 cases have come to the prosecution stage.
Sixty-three people have been arrested, and 40 convicted.
Needless to say, the financial impact of these cases hurts all policy holders. And fraud cases have led the Florida lawmakers to let insurers to cap payouts for frequently misused claim types.
Suspect Fraud? Here’s What to Do
Homeowner’s insurance fraud rises after severe weather events. And as for title insurance fraud, it could be stimulated to some extent by the use of electronic documents — although electronic transfers are becoming progressively safer with the rise of state-vetted online platforms.
If you believe you have been the target of manipulation, check your state’s law for guidance. Consumers typically file complaints with their state insurance department, and state and local law enforcement.
In some cases, it’s appropriate to file a legal action against an insurer. The first step? Consult with a reputable lawyer who’s admitted to the bar in your state.
Some insurance fraud cases turn into class action lawsuits, as many people could be impacted by a particular business practice. In a class-action suit, the payout is divided up over a large number of affected people, so the payment each person gets may be small.
The Best Takeaways We Can Offer
Home buyers and owners should know about insurance fraud, and take care to avoid any actions that raise the appearance of bad faith or questionable dealings.
Buying a home? Don’t let yourself be rushed. Keep calm, carry on, but don’t let the paper chase overwhelm you. Ask questions and know your options. Research the buying, borrowing, and insuring processes online.
Consult an experienced attorney if you have concerns that your policies were — or could be — implicated in improper handling.
Press release from the U.S. Attorney’s Office, Middle District of Pennsylvania, via the U.S. Department of Justice at Justice.gov: Clarks Summit Attorney Indicted For Title Insurance Fraud (Oct. 9, 2014; updated April 16, 2015).
System 2 Thinking via System2Thinking.org: Title Insurance Fraud and What to do About It.
Jaclyn Wishnia for LegalMatch.com: Law Library – Title Insurance Fraud (updated: Apr. 28, 2021).
Michigan Department of Insurance and Financial Services via Michigan.gov: What Is Homeowner’s Insurance Fraud?
Ron Hurtibise for the South Florida Sun Sentinel via Yahoo News: Property Insurance Fraud Investigations and Arrests Are Up But They’re Still a Drop in the Bucket (Jun. 27, 2023).
And as linked.