Deed Fraud: Forgery, Damages & Remedies

Under Florida law, a deed is a written instrument that creates, makes, grants, transfers, or releases an estate, a freehold interest, or an interest for a term of more than one year in, of, or out of any messuages, lands, tenements, or hereditaments.[1] Deeds must be signed by the vendor, or their agent, in the presence of two subscribing witnesses.[2]

A deed that follows the form for warranty deeds as prescribed in the Florida Statutes is “held to be a warranty deed with full common-law convenants . . . .”[3] This refers, among others, to the covenant of seisin, the covenant of quiet enjoyment against encumbrances, and the covenant of warranty and defense.[4]

The covenant of seisin is an assurance by the seller that the property they are claiming to be selling is in fact their property.[5]

The covenant against encumbrances is the right to be the only one with a claim to the property, with no other claims that may diminish the value of that property being valid.[6] In other words, the covenant against encumbrances is a guarantee that there are no other claims on a property currently existing.[7]

The covenant of quiet enjoyment applies the guarantee of the covenant against encumbrances to future possible claims.[8]

The covenant of warranty and defense is a guarantee by the seller of the legitimacy of the ownership over the property which they are transferring to the purchaser.[9]

Deeds which follow the form prescribed by law are deemed to be warranty deeds with “full common-law covenants” as though they explicitly enumerated those covenants.[10]

These covenants help determine what kind of rights a purchaser may have if there are problems with title after closing, including some of those founded in fraud.

Quitclaim Deeds

A quitclaim deed is a deed conveying ownership rights like with a warranty deed, but without any guarantees by the seller that their ownership of the property is exactly as they have claimed it to be.[11] A quitclaim deed transfers the actual ownership stake seller has in the land only and not the stake they claim they have.[12] This presents a challenge in remedying a transfer involving fraud. If the seller of a property is merely offering to give up any rights they have in the property, but makes no promises as to quality of title and the seller didn’t actually own the property, then the purchaser has a difficult battle to recover what she paid. The buyer must prove not only that she didn’t receive what she bargained for, she must also prove that the seller met the element of intent in fraud, rather than mere ignorance as to the state of title.

Bona Fide Purchasers

A bona fide purchaser is an individual who paid to obtain title to a property with no knowledge of another individual’s claim against the same property.[13] Individuals who purchase a property but do not record the deed could have their claim to that property extinguished if a second buyer purchases it without notice or knowledge of the first buyer’s existing title claim.[14] There are three forms of notice: actual, implied, and constructive.[15] Florida courts have described each as follows:

”Actual notice” stems from actual knowledge of the fact in question. “Implied notice” is factual inference of such knowledge, inferred from the availability of a means of acquiring such knowledge when the party charged therewith had the duty of inquiry. “Constructive” notice is the inference of such knowledge by operation of law, as under a recording statute.[16]

In essence, actual notice is when someone saw, was told about, or had some kind of first-hand knowledge of the existence of a claim. Implied notice is often found when someone could have discovered the existence of a claim upon a reasonable inquiry, such as driving by a recently purchased home and seeing cars in the driveway and someone mowing the lawn. The most common type of constructive notice is when a claim, such as a mortgage, is recorded in the official records and would have been easily discovered simply by looking in the records. A more difficult claim for constructive notice is when there is an error in the legal description so that the claim wouldn’t be easily discovered.

It was once the case that purchasers of property through a quitclaim deed could not claim to be bona fide purchasers,[17] but this has since been changed by statute.[18]

Wild Deeds and the Marketable Record Title Act

Title to a property is an abstract concept that stands for the rights that one or more individuals have to a particular piece of property. Those rights are given to them by others who had title themselves, often with a long chain going back hundreds of years. This is referred to as the “chain of title.” The chain of title can prove or disprove rightful ownership interest in a property and is frequently at the center of fraudulent deeds. A wild deed is a deed which exists outside this chain of title.[19] A wild deed is a deed that grants rights over or interest in property from an individual who does not appear to have had an ownership interest at the time the deed was executed; it does not fit within the chain. Sometimes, wild deeds arise out of forgeries or were based on fraud or even mistake, but can eventually cause problems for future property owners.

Title companies and real estate attorneys, those who are charged with researching this chain of title and discovering defects such as wild deeds would have a much more difficult job if they were required to research the chain of title for all eternity. Thus, states enacted laws that helped to ease that burden by cutting off certain claims and interests beyond a set time period. Florida’s version of this law is known as the Marketable Record Title Act or “MRTA” and is found in Chapter 712 of the Florida Statutes.[20]

MRTA provides that all claims and interests to a property are extinguished if the claim or interest arose before the effective date of the root of title.[21] “Root of title” refers to “ . . . any title transaction purporting to create or transfer the estate claimed by any person which is the last title transaction to have been recorded at least 30 years before the time when marketability is being determined.”[22] In practical terms, wild deeds, if left recorded and then relied upon later by subsequent purchasers (effectively creating a second chain of title) may become valid deeds; likewise, wild deeds that are recorded but never relied upon by subsequent purchasers may have a 30 year expiration date and can then be disregarded. 

The Supreme Court of Florida has held that wild deeds can serve as the legitimate root of title under the Marketable Record Title Act.[23] Thus, the possession of title to a property through a wild deed may become legitimate when thirty years passes from the date the wild deed is recorded.[24]

Fraud

When a seller lies about a “material fact” about the property to a purchaser to the purchaser’s detriment, the seller committed fraud.[25] For a fact to be material, it “must affect the value of the property or cause loss to the purchaser.”[26]

For example, if a seller and purchaser sign a purchase agreement and then the seller later lies to the purchaser, the seller can still be liable for fraud, but only on the contract if the lie was made before the execution of the agreement and the purchaser reasonably relied on that lie to execute the contract.[27]

In Florida, Sections 540 and 541 of the Restatement (Second) of Torts sets the standard for when purchasers can rely on the word of sellers and still be able to hold them liable for any fraud they commit .[28] Section 540 provides that a purchaser is justified in relying on a seller’s word about a property even if they could have learned the truth by investigating; section 541 provides that a purchaser is not justified in relying on a seller’s word if he knows they are false, or such falsity is obvious.[29]

Further, the Florida Supreme Court adopted the comments which are appended to the sections of the Restatement, one of which clarifies that under section 541, a purchaser “cannot recover if he blindly relies upon a misrepresentation the falsity of which would be patent to him if he had utilized his opportunity to make a cursory examination or investigation.”[30]

If a purchaser has the opportunity to inspect and discover a defect in the property, but chooses not to, the purchaser cannot then claim to have been misled by the seller.[31] If the purchaser does attempt to conduct an inspection, but the seller actively tries to conceal any defects, the seller cannot shield themselves from liability.[32]

Caveat Emptor

Caveat emptor is the doctrine that buyers are expected to trust but verify the word of the seller, and, absent reasonable attempts to make this verification, the seller is generally not liable for any defects in the property.[33]

The Supreme Court of Florida has held that this doctrine does not apply to residential real estate transactions but continues to apply for commercial real estate transactions.[34] Thus, for residential real estate transactions, if there is a defect in the property that materially affects its value, there is a duty to disclose.[35] Conversely, in commercial real estate transactions, there is, at the moment, no such duty.[36]

Caveat emptor also does not apply as a shield in situations where trickery is used to prevent the purchaser from making an independent inquiry, where one party does not have equal opportunity to learn the truth, and where one party discloses some facts but not all of them.[37]

Forgery

The Florida Statutes require that a deed be signed by the grantor and subscribed to by two witnesses.[38] Though forging a signature on a deed is a kind of fraud, it is subject to legal standards that are distinct from fraud.[39] While fraud may be proven on the basis of clear and convincing evidence, forgery must be proven based on a preponderance of the evidence.[40]

Under the Marketable Record Title Act (MRTA), a forged deed can serve as the legitimate root of title to a property, as is the case with a wild deed, but only if it met the requirements under MRTA.[41]

Remedies

Voiding the Deed

A deed that is proven to be forged is automatically void, rather than voidable, and completely fails to pass title.[42] Thus, any subsequent conveyances on the basis of the forged deed also are void.[43] In other words, if a bona fide purchaser for value, someone who has no knowledge of the forgery, pays full purchase price for a property in reliance of the deed’s validity, the conveyance is still void and they will have no rights to the property.

When a deed is made with all the proper requisites, but the deed was based on fraudulent inducement, the deed is voidable.[44] A voidable deed is one that can be voided at the option of one or more parties, depending on the circumstances. Fraudulent inducement is when a party to a contract is induced to execute that contract on the basis of fraud. The individual who was defrauded may then void the contract on that basis.

Ratification

If the purchaser uncovers information that warrants cancellation of the contract, the purchaser, assuming she is under no fraud or duress, can still elect to ratify the contract.[45] This is true for property conveyances as well.[46] To ratify the contract, the purchaser need only act in such a manner that recognizes the contract as subsisting, or in a manner inconsistent with the intent of avoiding it.[47] Individuals electing to ratify a contract cannot later attempt to have it rescinded.[48]

Damages & Rescission

In the event of a fraudulent transaction, the purchaser is entitled to recover all the funds they paid and to have their purchase money notes and mortgages cancelled.[49] Generally, a contract will not, however, be rescinded if it is not possible to return the opposing party to their position before the contract was made, even in the event of fraud.[50]

Misrepresentation is only grounds for rescission by the purchaser if that misrepresentation served to induce them to contract.[51]

Punitive Damages

In addition to other remedies, when a seller commits fraud to induce the sale of property, punitive damages may be awarded to the purchaser in addition to the other remedies discussed above.[52]

Evidence

The standard of proof in a case involving deed fraud is clear and convincing evidence.[53] However, an allegation that a deed’s signatures have been forged is judged based on the preponderance of the evidence.[54]

Clear and convincing evidence, the standard for fraud, means evidence “. . . sufficient to convince ordinarily prudent minded people . . . .”[55] Preponderance of the evidence, the standard for deed forgery, refers to the “greater weight of the evidence” for a certain proposition.[56] The clear and convincing evidence standard is an “intermediate” level standard,[57] meaning it is more rigorous than the preponderance of the evidence standard and requires more proof.

The Florida Statutes require that, by default, only the original copy of a writing or recording can be admitted as evidence of that writing or recording’s contents.[58] “Writing” in this context means “letters, words, or numbers, or their equivalent, set down by handwriting, typewriting, printing . . . upon paper . . . or other materials.”[59] This requirement applies to deeds.[60]

Thus, there are additional hurdles to overcome when attempting to prove fraud or forgery when the original deed is lost, destroyed, stolen or otherwise unavailable.

Title Insurance

Title insurance is a type of insurance policy that may help purchasers and lenders protect themselves when there is a defect in title, such as wild deeds, forgeries, and fraud.

Key Takeaways

Fraud is a serious issue in real estate transactions, but there are rules in place that protect purchasers. If a purchaser is the victim of fraud, they may be able to recover damages, void the deed, and rescind the contract to be made whole again. They may also be able to make a claim on their title insurance policy, if purchased.