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Grand Jury Report: Faulty Notarizations Facilitated Deed Fraud Epidemic

Mortgage-fraud-resized.jpgDeed fraud, mortgage fraud and similar forms of residential real estate crime have become fairly commonplace in recent years. While Notaries are seldom the sole driving force behind these crimes, a recent grand jury report highlights the fact that improper notarizations are a crucial element of real estate crimes.

The report, issued in December 2018 by a grand jury in New York City, states: “In every case before this grand jury, a Notary Public was a willing or unwitting facilitator in the crime… In virtually every fraudulent transfer described to this grand jury, a faulty notarization was essential to the successful completion of the crime.”

Even innocent Notaries who have nothing to do with a particular scheme could be victims of fraudsters who forge their seals — an act akin to Notary identity theft.

The report describes deed fraud as an “epidemic,” with law enforcement officials in New York City receiving 2,000 complaints between 2014 and 2018. As a result, the grand jury recommended a number of reforms, and top of the list was a series of sweeping changes to the state’s Notary laws.

Though the grand jury concerned itself with crimes in New York City, it’s findings and recommendations are applicable to communities across the country.

Philadelphia, Kansas City, Chicago, Detroit and San Diego among other cities, have been plagued with similar waves of deed fraud, according to media reports and government announcements. California, Florida and Nevada are among the states hardest hit by mortgage fraud, which often involves a bad notarization.

How The Fraud Works

Deed fraud schemes are fairly simple. They start with scammers looking for vulnerable properties. Often they are properties whose owners are deceased, or are empty for some reason.

The scammers then forge the owner’s signature on a deed, transferring ownership to a straw buyer, bogus company or fictitious person. This is where the Notary plays a role. According to the report, improper notarizations fall into several categories:

  • The signature on the deed was notarized without the signer being present.
  • The Notary affixed their seal and signature to unsigned documents.
  • The Notary failed to spot a fake ID.
  • The scammers stole or forged a Notary’s seal.

The scammers then have the deed recorded, which allows them to take out a mortgage or sell the property to an unsuspecting buyer.

Recommended Notary Reforms
 

The grand jury sees Notary reforms as a way to “prevent fraudsters from manipulating the system to obtain ownership of others’ properties illegally.”

The grand jury recommended a number of specific reforms. They include the following:

  • Require Notary applicants to submit their fingerprints to help the Secretary of State’s office to verify the applicant’s true identity and ensure that they have not committed a disqualifying crime.
  • Require education to obtain or renew a Notary commission.
  • Require Notaries to maintain a chronological record of all their notarizations.
  • Increase criminal sanctions for Notary misconduct.

The reforms are needed because, as the grand jury noted, Notaries are the “first line of defense for combatting real estate fraud.”

The reforms are necessary because the stakes are so high. “While it can take as little as a forged deed to transfer ownership of real property, it is extremely challenging, and sometimes impossible, to undo a fraudulent transfer,” the report noted. Victims often are ill-equipped or lack the means to pursue the legal steps necessary to undo the fraudulent transfer.

While the grand jury’s recommendations apply only to New York state, they can be applied to many other states. Only a few jurisdictions, for example, require fingerprinting and background screenings for Notary applicants. And most states do not require any education for Notaries.

Michael Lewis is Managing Editor of member publications for the National Notary Association.

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4 Comments

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Monica Voloshin

14 Jan 2019

All the above are necessary to close that gap with notaries. However the remote notarization puts the notary clearly in the middle of this? I can't believe that you can check an ID online by holding it in front of the camera, scanning the ID is also not free of fraud (ask your local law enforcement agencies) so what can we do when we are forced to embrace this new technology?

Linda

14 Jan 2019

After passing the Notary exam and receiving my Notary license in California, I felt poorly prepared to actually act as a notary. The exam is mostly about the penalties for misconduct and negligence. The only training on the actual process of performing a notarial act was how to fill out the forms correctly. There was absolutely nothing about how to spot fake ID's or practice on how to fill out some of the more common types of forms, how to identify fake ID's or the many things a notary may actually be faced with during the course of serving a client. Most learning comes from experience, although it is very beneficial to have the NNA hotline available. In a nutshell, a lot of expected of a notary public and they are basically thrown out to sink or swim. No wonder there are so many errors. I am sure that the majority are done by notaries who are doing the very best they know how.

Lavinia Fitzpatrick

14 Jan 2019

I agree with Monica V-Remote notarizations are a “welcome mat” for this type of fraud! Not EVERYTHING should be done remotely! Then the burden of proof gets dumped on the Notaries. And the time it takes to get an unlawfully transferred property back to its rightful owner is something akin to Guilty until proven Innocent. Shouldn’t it be the other way around???? Just sayin....... -_-

Imelda Donaldson

14 Jan 2019

Texas remote notaries may not rely on ID verification for notarizations. We are required to use a KBA (knowledge based authentication) in which the person requesting the notarization must answer correctly at least 4 out of 5 personal questions that only he or she would know, similar to the questions you are asked when applying for your credit score. Aside from that, I was appalled at the ignorance of most notaries locally here that I have had contact with. Texas doesn't require any education at all. It is so frustrating. have thought about teaching notary training classes here in my city. It is sorely needed.

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