ALTA Report Highlights Elevated Fraud Risks in Title Insurance for Refinances

A recent report by the American Land Title Association (ALTA), based on ten years of claims data ending in 2023, reveals that refinance transactions present significantly higher title insurance risks compared to purchase loans. Fraud and forgery are responsible for approximately 40% of the total claim costs in refinance transactions, a proportion more than double that observed for purchase loans. These fraudulent claims also tend to be more costly, averaging about $207,000 per incident, nearly seven times higher than other types of claims. In addition to the high claim costs, defense expenses for fraud and forgery claims in refinance cases average nearly $70,000, contributing substantially to the overall financial burden. These defense costs represent more than one-third of the total expenses across most categories of title insurance claims. The report highlights that many of these risks in refinance transactions cannot be detected through standard public records searches, underscoring the value of professional scrutiny in title insurance processes. The findings emphasize that routine title checks may be insufficient for detecting fraud and forgery in refinance deals, which constitute a significant portion of losses. The report underlines the critical role played by title professionals and title insurance in protecting homeowners and lenders from potentially catastrophic financial losses arising from undisclosed fraudulent activities. ALTA CEO Chris Morton stated that despite common perceptions, refinance transactions are not free from risk. Title professionals utilize specialized technology and expertise to mitigate these risks, ensuring market confidence and financial security in real estate transactions involving refinances. The study supports the continued importance of title insurance and professional diligence in an environment where fraud-related losses are both frequent and financially substantial. Overall, this report highlights the need for enhanced vigilance in refinancing transactions within the U.S. real estate market. It suggests that insurance providers, regulators, and stakeholders should consider specific risk management strategies focused on fraud and forgery detection to better safeguard all parties involved. The insights from this study inform industry best practices and regulatory considerations concerning title insurance underwriting for refinance loans.