Buying a Home in NY? New Bill Could Leave You Unprotected from Deed Fraud

A new proposal in the New York State Senate could change how title insurance works especially in cases involving fraudulent property deeds. If passed, this bill would prevent title insurance companies from covering losses when ownership of a property is challenged due to fraud. This move could have major implications for homeowners, buyers, lenders, and the real estate industry as a whole.

What Is the Purpose of the New Bill?

The proposed legislation is designed to stop title insurance companies from paying out claims when a property was obtained through a fraudulent deed transfer.

In simple terms:

If someone steals a property by forging documents or using identity theft and later sells it. The buyer may be left without insurance coverage if the original owner reclaims the property.

Why Is This Happening?

The bill stems from a growing number of deed fraud cases, especially in cities like New York where real estate values are high. Scammers often:

• Forge documents to transfer ownership of homes
• Use stolen identities
• Sell or mortgage the property illegally

In many of these cases, title insurance ends up covering the buyer’s losses. But now, lawmakers are considering whether insurance should stop absorbing these costs, arguing that it enables fraudsters to continue targeting vulnerable homeowners.

What the Bill Says

The bill, introduced in the New York Senate proposes that:

Title insurance policies should not pay claims in situations where the deed used to transfer ownership was fraudulent or forged.

If passed, the bill would shift more responsibility to buyers and their legal teams to verify that the deed is legitimate before closing a deal.

Key Points of the Bill

• No Title Insurance Coverage for Fraudulent Deeds
  The bill proposes that title insurance policies should not provide compensation if a property deed is found to be forged or obtained through fraudulent means.
• Increased Responsibility for Buyers
  Buyers would need to take extra steps to verify the authenticity of a property’s deed before completing a purchase, placing more legal and investigative responsibility on their end.
• Legislative Goal to Curb Fraud
  Lawmakers believe that by removing financial protections in these cases, the bill could help deter scammers and reduce incidents of deed fraud across the state.

What This Means for Homebuyers and Lenders

If this bill becomes law, it could significantly increase the risk for buyers, especially in cities where deed fraud is more common.

For Buyers:

• You may not be protected if a fraudulent deed is later uncovered.
• Hiring a real estate attorney becomes even more important.
• Extra steps may be needed to confirm a property’s title is clear.

For Lenders:

• Mortgage companies could be reluctant to finance properties without stronger deed verification processes.
• Title insurance may lose its value as a protective tool.
  

Industry Response

Real estate professionals, attorneys, and title insurance companies have expressed concern over the bill. Many argue that:

• Buyers shouldn’t be punished for fraud they didn’t commit.
• Title insurance exists to protect buyers and lenders from exactly this kind of risk.
• The bill could undermine trust in the home-buying process.

Some also fear the bill could make homes harder to sell and slow down transactions due to added legal hurdles.

Why It Matters

Deed fraud is a serious and growing problem. But changing title insurance coverage may shift the burden to innocent buyers, which could create more harm than good. It also raises big questions about who should be held responsible when fraud occurs.

Final Thoughts

The New York Senate’s proposal to block title insurance payouts in fraudulent deed cases is stirring debate across the real estate world. While the goal is to reduce property fraud, critics argue it could expose buyers and lenders to greater risk and weaken protections that many rely on.