Title Pirates AI transcript and summary - episode of podcast Planet Money

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Episode: Title Pirates

Author: NPR
Duration: 00:25:30

Episode Shownotes

A couple years ago, Gina Leto, a real estate developer, bought a property with her business partner. The process went like it usually did: Lots of paperwork; a virtual closing. Pretty cut-and-dry. Gina and her partner started building a house on the property.But $800,000 into the construction process, Gina got

a troubling call from her lawyer. There was something wrong. At first, Gina thought the house had burned down. It turned out that the situation was... maybe worse.On today's show: Buying land seems pretty secure, right? There's so much paperwork and verification along the way. But a messy system of how titles are sold, transferred and documented makes a perfect entry point for a new kind of criminal: Title Pirates.Today's episode was hosted by Erika Beras and Jeff Guo. It was produced by Sam Yellowhorse Kesler. It was edited by Liza Yeager. Fact-checking by Sarah McClure. Engineering by Valentina Rodríguez Sánchez. Planet Money's executive producer is Alex Goldmark.Help support Planet Money and hear our bonus episodes by subscribing to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Summary

In this episode of Planet Money titled 'Title Pirates,' hosts Erika Beras and Jeff Guo explore the alarming vulnerabilities within the U.S. real estate system through the experience of Gina Leto, a developer who unknowingly purchased a property with a fraudulent title. This unsettling incident reveals significant risks in property transactions, where decentralized registries do not certify ownership, and title insurance, while intended to protect buyers, failed to prevent fraud. As the term 'Title Pirates' emerges to describe criminals exploiting these system weaknesses, the episode underscores the complexities and dangers inherent in the real estate market.

Go to PodExtra AI's episode page (Title Pirates) to play and view complete AI-processed content: summary, mindmap, topics, takeaways, transcript, keywords and highlights.

Full Transcript

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00:00:45 Speaker_03
This is Planet Money from NPR.

00:00:50 Speaker_02
Gina Leto is a real estate developer. She buys properties, builds houses on them, sells them. And she's pretty hands-off about all the paperwork. She has her lawyer handle that stuff.

00:01:00 Speaker_03
The lawyer comes, I give him the money, and he will close and he will call me and say, it's closed, it's yours.

00:01:09 Speaker_02
So impersonal.

00:01:10 Speaker_03
Yeah, it is. I've never met any of the sellers of the properties we have bought.

00:01:16 Speaker_07
Gina and her business partner have bought eight properties in Connecticut where they live. And then two years ago, she found her ninth.

00:01:24 Speaker_03
A realtor came to us and said, there is a piece of land for sale. It's been in the same family for many years. Did you go see the property? So I drove by, but it was just an overgrown lot at the time. an overgrown lot.

00:01:40 Speaker_02
Now, even though she's pretty hands off, every time Gina buys property, she does her due diligence. Like, is the land flat? Are there any wetlands? She and her partner look at zoning, boundaries, that kind of thing.

00:01:52 Speaker_02
And of course, with this new property, she checked out the owner. She wanted to have an idea of who she was doing business with.

00:01:58 Speaker_03
It's more out of curiosity than anything. But obviously, if you found out, you know, the person was, I don't know, a gangster or something. I don't know if I'd want to buy a property from them. So silly things like that.

00:02:11 Speaker_03
And when I Googled, I found the name on the documents. The correct address was there. He seemed like a normal man and everything seemed fine. That was it.

00:02:24 Speaker_07
So they do all the paperwork, use their real estate agent, an attorney. They close the deal the way they always do, totally virtually. They paid $350,000 and got to work building a very nice house.

00:02:39 Speaker_02
What kind of investment are we talking about?

00:02:41 Speaker_03
I think we were We were already over $800,000 or something like that into the house.

00:02:49 Speaker_02
Okay, that's a lot of money.

00:02:50 Speaker_03
We just had put the windows in, all the mechanicals, meaning electric, plumbing, was all done, and the house was insulated.

00:02:58 Speaker_02
Oh, wow. They already had buyers lined up, this nice young couple. And Gina, as the work was getting done, went on vacation to Turkey, where she got a phone call from her lawyer.

00:03:11 Speaker_03
And by the tone of his voice, I knew something happened with the house. And my first fear was I thought the house burned down.

00:03:22 Speaker_07
Okay, the house had not burned down. It was actually something that was maybe worse.

00:03:28 Speaker_03
Our lawyer told us that the person that sold the property to us was not the owner. This was a fraudulent sale. The real owner never sold this property and was unaware that the property was sold.

00:03:45 Speaker_03
You know, right away you think, well, how can this happen?

00:03:47 Speaker_02
Hello and welcome to Planet Muddy. I'm Erika Barris.

00:03:54 Speaker_07
And I'm Jeff Guo. property, how we buy it, how we sell it. It seems so secure. All that money, all that paperwork, all the dotted lines to sign, and so many people checking to make sure that it is all airtight.

00:04:09 Speaker_02
But there's this one part of that system that is a bit more hodgepodge than you'd really want it to be. the way we track who owns a property, who has a title to it, and there's a whole new kind of villain trying to exploit that system.

00:04:26 Speaker_02
Today on the show, the wild world of title insurance, weird proprietary land ownership maps, disconnected registry systems, the tragic loss of historic apple trees, and title pirates.

00:04:49 Speaker_00
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00:05:34 Speaker_01
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00:05:38 Speaker_02
So, Gene Alito had paid $350,000 for a piece of land. Then she spent nearly a million dollars constructing a brand new house on that piece of land.

00:05:50 Speaker_02
And now she had gotten a phone call that the person she had bought that lot from was not actually the owner. She and her business partner had to stop construction of the house. Technically, they were trespassing.

00:06:04 Speaker_03
I was very nervous. I was scared. I had a very sick feeling in my stomach. I just kept saying, so what, what happens now?

00:06:11 Speaker_07
And we're just going to pause Gina's story here. because we need to tell you a story about the same parcel of land from another perspective.

00:06:20 Speaker_02
Now, this other story is about a guy named Daniel Koenigsberg. Nowadays, he's a super successful doctor, but way back in 1953, he was just a baby.

00:06:30 Speaker_02
And in those post-World War II suburban boom years, his dad built a house in a Connecticut suburb where Daniel and his brothers grew up.

00:06:38 Speaker_05
We were all kind of running in and out of each other's houses across the lawns. The dogs were running free. We were playing baseball on the street and so forth. Very idyllic. It was very idyllic. That's really what it was like.

00:06:50 Speaker_07
Daniel's dad also bought a half acre lot next door to their home. It was full of grasses and critters and some straggler trees from when this new suburb had once been a fruit orchard.

00:07:03 Speaker_05
There was an apple tree on this land, which was still producing apples, and we had our tree fort in this apple tree.

00:07:11 Speaker_02
So they had a tree fort, but that's pretty much all they ever did with that lot.

00:07:15 Speaker_07
Daniel grew up in this lovely house with this huge yard next door and that apple tree.

00:07:21 Speaker_07
Eventually, he moved to New York, started to practice as a doctor, and then, around 15 years ago, after his parents and brothers had died, he inherited the family home.

00:07:31 Speaker_07
Eventually, he sold the home, but he kept the vacant lot next door, paid taxes on it, and he regularly fielded offers.

00:07:39 Speaker_05
A couple times a year, somebody would call me up about this land, usually wanting to buy it.

00:07:45 Speaker_02
And what did you say?

00:07:48 Speaker_05
No. You know, sometimes I would ask how much, but if I'd wanted to sell the land, I would have put the land on the market.

00:07:55 Speaker_02
Even though the property was 25 miles from where Daniel lived on Long Island, it was a tie to his hometown and an asset he figured he'd leave to his kids. Plus, by then, he says, the lot was like this mini forest. A whole ecosystem had grown.

00:08:10 Speaker_05
It just looked like this patch of woods in the middle of a neighborhood.

00:08:13 Speaker_07
And then, one day, two years ago, he was on the phone with a childhood friend.

00:08:18 Speaker_05
In the course of this phone call, he said, by the way, I noticed that they're building a house next to your old house, finally, after all these years.

00:08:26 Speaker_02
A house on Daniel's lot.

00:08:28 Speaker_05
And I said, well, that's like pretty crazy because I own that land and I never sold it to anybody. Daniel had to go see for himself. I just took a five o'clock ferry or whatever it was. Oh, that very day? Oh yeah, that very day.

00:08:42 Speaker_02
Oh, okay.

00:08:42 Speaker_05
Yeah, so I just hopped on the ferry and drove through the old neighborhood and saw this house.

00:08:48 Speaker_02
So there was a house there?

00:08:49 Speaker_05
There was a house that was almost completely built and the land that it was on which, you know, the last time I'd seen it had been a dense forest, was completely like scorched earth.

00:09:01 Speaker_02
That dense forest Daniel described, that was now scorched earth, that's the property Gina Leto had purchased, the quote-unquote overgrown lot. Gina and Daniel may have different ways of describing the property, but they were both flummoxed.

00:09:19 Speaker_03
There was just so many questions that just couldn't even be answered at that point.

00:09:25 Speaker_05
How could this happen? That's my land. How did we get to this reality?

00:09:31 Speaker_07
Yeah. How did this happen? How did Gina seemingly buy a property that Daniel seemingly still owned?

00:09:39 Speaker_02
To answer some of Gina and Daniel's questions, I called Stuart Stark.

00:09:45 Speaker_07
He goes by... Stu, Stuart, whatever you want. It's fine. Stu teaches at Cardozo Law School. His specialty is property and land use.

00:09:53 Speaker_07
Our first question was, before poor Gina with her half-finished house bought that property, couldn't she have just looked at some kind of big map of the United States to see who owns what?

00:10:05 Speaker_06
The answer to that is no. We in the United States don't have a system where you can go up and look at an official owner of a particular property.

00:10:14 Speaker_06
Instead, we just have a registry recording system in which any time there's a transfer, the transfer is recorded.

00:10:22 Speaker_02
So instead of a national master list that says, this plot of land is owned by Jeff, that plot of land is owned by Erica, and so on and so on. All the records that actually exist are just records of real estate transactions.

00:10:37 Speaker_02
That plot A was sold in 1984 to someone named Judy. And before that, it was sold in 1970 to Darlene and Bob, who inherited it from Harry. And before that, it was sold to someone else. You get the idea.

00:10:49 Speaker_02
Every township or borough or county might have their own registry of those types of transactions.

00:10:55 Speaker_06
But those registries are not any certification of ownership. There is just an ability to look at deeds to particular parcels of land.

00:11:06 Speaker_07
In fact, that's what a deed really is. Having a deed to a piece of land doesn't prove that you own it. It just proves that you got the land from somebody else at some point in time.

00:11:16 Speaker_02
And all towns and counties keep track of these transactions differently. In one town, you physically go to a building and look through a big stack of papers. Somewhere else, you might be able to search the records online on your phone.

00:11:29 Speaker_02
And all those different systems of registering land transactions, they're not really communicating with each other. There's no cohesive system.

00:11:38 Speaker_07
And, you know, technically, a regular person could piece together all this information themselves.

00:11:44 Speaker_02
Like, can any of us do it?

00:11:46 Speaker_06
It's not as easy as it sounds. It's not as if you look up your parcel of land and see who owns it. What you have to do is look to see, all right, when did my seller acquire title? From whom? Did that person acquire title from somebody else?

00:12:01 Speaker_06
Maybe there was a death and you'd have to look at probate records. You have to make sure that there are no outstanding mortgages. And that's a lot of searching. It's a lot of work for an ordinary person to do.

00:12:13 Speaker_02
And all this stuff is really high stakes. Like, if there's a partial owner to the property, that person may come knocking on your door and they're gonna have rights.

00:12:21 Speaker_02
Or if a seller actually took a loan out on that property they sold you and then never paid it off, that bank is gonna come find you. Or the lot you purchased for your community garden actually has years of unpaid taxes on it. Oops, that's on you now.

00:12:37 Speaker_07
So essentially, in the United States, the only way to know who really owns what is to piece together a bunch of receipts. And all of those receipts are held in different places that are organizing them differently.

00:12:52 Speaker_07
And if you don't have complete information about the property you're buying, there can be huge consequences.

00:12:58 Speaker_02
This seems like a little bit of a, for lack of a better word, a janky system, what you just described.

00:13:05 Speaker_06
Well, it is to some extent, but it's a system that we've had for a couple of hundred years.

00:13:11 Speaker_07
This is a very American problem. A bunch of decentralized systems that are kind of messy. And it creates a bunch of risk for anyone trying to buy a property. But there is also a very American fix for this problem. A market solution.

00:13:29 Speaker_02
Title insurance. Title insurance. It's called insurance, but it operates more like a warranty. It's a fee you pay to a company when you close on a property.

00:13:38 Speaker_02
They're supposed to guarantee that the title to the property you just bought is clean, meaning there aren't unpaid taxes or loans on it, and that you're buying it from the 100% real owner.

00:13:48 Speaker_02
If you've ever bought a house, it is most likely that you also bought a title insurance policy. Lenders require them.

00:13:55 Speaker_02
And these companies, there are only like four of them in the whole country, have these separately maintained, comprehensive, highly efficient, proprietary records of land ownership called title plants, their own system.

00:14:08 Speaker_02
And when someone buys title insurance on a property, the company looks in those records. which maybe takes them like a couple hours, since they already have the information on hand.

00:14:18 Speaker_02
So once they've compiled those super secret records, title insurance is a very good business.

00:14:26 Speaker_06
They've done all the work. Right?

00:14:28 Speaker_02
Right. Right. They've done. There's no more to do. Exactly.

00:14:31 Speaker_06
So anything they can get out of the homeowner is basically gravy.

00:14:35 Speaker_02
Huh. And what they can get out of the homeowner is significant, up to 2% of the cost of a property for a couple hours of work.

00:14:44 Speaker_02
But homeowners pay it because it's often required and because that fee, it's just one more closing cost in the midst of a huge purchase with a ton of paperwork and all kinds of fees. So people stomach it.

00:14:58 Speaker_07
And it's in the company's best interest to do a good job because if something goes wrong, they are on the hook. When Gina Leto and her business partner purchased that overgrown lot in Connecticut, they paid for title insurance.

00:15:12 Speaker_07
And when she learned that it had been a fraudulent sale, her lawyer had the answer.

00:15:17 Speaker_03
Our lawyer was extremely good at keeping my husband and I calm and said, you know, we're going to find a solution. Don't worry. And at the end of the day, you have title insurance.

00:15:30 Speaker_02
Gina and her partner had $350,000 of title insurance on the property, so her lawyer told her no matter what, she would get back that $350,000. However, we had a house on that land. A nearly million-dollar house.

00:15:47 Speaker_03
And while the land clearly belonged to the man who owned the property, who did not sell the property, who did the house belong to?

00:15:59 Speaker_02
And how did the land get sold if Apple Tree Daniel didn't sell it? That's after the break.

00:16:15 Speaker_01
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00:17:42 Speaker_02
So to tell you what actually happened, we're going to tell you a third side of this story, the story of the person who actually sold the land.

00:17:53 Speaker_02
Some months before all of this went down, Anthony Minelli, a lawyer in Connecticut who does real estate transactions, got a phone call.

00:18:02 Speaker_04
I got a referral from a real estate agent. Hey, can you represent this guy? He's selling some property that he inherited. And by the way, he's an expatriate.

00:18:11 Speaker_02
Ooh, an expat.

00:18:14 Speaker_07
Anthony actually does hundreds of real estate transactions a year, and he regularly works with overseas clients.

00:18:20 Speaker_02
I mean, do you just do a Google search on your clients or anything?

00:18:23 Speaker_04
Usually we don't, but that is now one of the practices that we teach now, including me.

00:18:30 Speaker_07
So Anthony starts talking to his new client, a guy who calls himself Daniel, Daniel Koenigsberg, but who apparently lives in South Africa.

00:18:41 Speaker_02
You talked to him over the phone, actually?

00:18:43 Speaker_04
Yes, I talked to him over the phone. Yeah, there was the country code was South African country code.

00:18:48 Speaker_07
He says they had all the typical conversations. He got a scanned copy of Daniel's passport, emailed back and forth with him. Daniel filled out all the paperwork Anthony asked for.

00:18:58 Speaker_02
Was there anything that seemed like suspicious or different or whatever?

00:19:04 Speaker_07
It didn't really raise a hair. And before the closing, the title insurance company did its thing.

00:19:10 Speaker_02
And so what they find?

00:19:14 Speaker_04
They found that a gentleman by the name of Daniel Koenigsberg owned this piece of property and that is what we expected. And so you closed? And we closed.

00:19:25 Speaker_02
Gina and her partner gave Anthony a bank check and he wired the total cost for the land to a Wells Fargo bank account. Anthony took his fee and he moved on with his life.

00:19:37 Speaker_04
Several months later, I had received a call from another local attorney who said, hey, remember that closing you did? Yeah, kind of. Well, it was not real. It was a fraudulent situation.

00:19:53 Speaker_04
And the person who was selling the property wasn't who they claimed to be. And the real owner had his land stolen, basically. And I said, wow.

00:20:04 Speaker_07
This guy Anthony had been talking to all along, as you might have guessed, was not our Daniel. He wasn't apple tree Daniel. This guy was a fake Daniel.

00:20:14 Speaker_02
Who found this unattended piece of land and looked up who owned it? That passport Anthony had scanned? Fake. The email, danielkenningsberg at yahoo.com, made up. The DocuSign signature. It wasn't really Daniel.

00:20:28 Speaker_02
This fake Daniel is what we now call a title pirate. Someone who by fraudulent means steals a title to someone else's land.

00:20:39 Speaker_07
And this kind of theft is increasingly common. The FBI says they've seen more than a thousand of these cases all over the country in the past few years, as more real estate transactions happen online.

00:20:51 Speaker_07
Someone owns a piece of land that they're not keeping close tabs on, someone else impersonates them, and no one involved in the sale even notices.

00:20:59 Speaker_04
Did I miss things that caused this bad situation to happen?

00:21:08 Speaker_02
Did you?

00:21:14 Speaker_04
That's a good question, because at the end of the day, based on the facts, the answer has to be yes, because it happened, right?

00:21:27 Speaker_02
There are all kinds of things Anthony could have done. He could have video verified that Daniel was Daniel. He could have caught a typo in the fake passport. He could have made reference calls on his client.

00:21:43 Speaker_07
But he didn't, and neither did the realtor who made the listing. They kinda left all that responsibility to the title insurance company, the one that Gina paid $1,398 to check the title. But was fake Daniel their responsibility?

00:22:00 Speaker_07
We called the title insurance company and they said, no, they were looking for defects in the title. Identity fraud, that wasn't something they were scanning for. So when they searched, there weren't any problems with the title itself.

00:22:14 Speaker_03
I mean, I've asked myself the question a million times, could I have done anything to see that this did not happen? And could you have? Without overstepping my role and stepping on toes of the professionals involved, I don't really think so.

00:22:41 Speaker_07
The title system is clearly messy. And wherever there is mess, and a lot at stake, that creates opportunities for fraudsters.

00:22:50 Speaker_02
The title insurance company is the professional entity assuming the risk of our tacked-together, receipt-by-receipt property records system.

00:23:00 Speaker_02
And the entire real estate industry, from the listing agents, the real estate lawyers, to the banks running transactions, to the people recording those transactions in county offices, relies on these private title insurers, which serve as a de facto centralized registry to catch any and all problems.

00:23:20 Speaker_07
And there's actually an economics concept here. It's the idea of moral hazard. Basically, if you're buying title insurance, then you get to be lazy, right? The nitty gritty research on the title, that's not on you.

00:23:33 Speaker_07
You maybe don't need to worry so much about why a random South African dude is selling you a patch of land in Connecticut, because title insurance will take care of all of that.

00:23:44 Speaker_02
Now, in lots of other insurance markets, moral hazard, it's bad. You don't want people with auto insurance to take more risks on the road just because insurance will cover the cost of their accidents.

00:23:56 Speaker_02
But in the world of real estate, you could say the system works better. It's more profitable, more efficient. If buyers aren't so worried about risk, then they can just focus on buying the house and not have to sit around doing detective work.

00:24:11 Speaker_02
But flagging problems before they happen is only part of the responsibility of a title insurance company. The other part is when something goes wrong, they pay out. They absorb the cost of the risk.

00:24:26 Speaker_07
And side note, something you should really know about title insurance is that almost never happens. Title insurance only pays out about 3% of all the money they bring in from title insurance policies because it's rare for things to go wrong.

00:24:41 Speaker_07
Compare that to, say, car insurance. They pay out 70 percent of what they bring in. Or health insurance, that's like 80 percent.

00:24:49 Speaker_02
But in the case of the overgrown lot slash apple tree forest, it's one of the rare times things did go wrong and the title insurance company did pay. as did a few other responsible parties. Here's how it all played out.

00:25:04 Speaker_02
Did you sue anybody or did anybody sue you? Yes, both. Pretty much everyone involved ended up suing everyone else. In this case, every single party, Gina, Daniel, Anthony, was a victim. They were all defrauded. The case ended up in federal court.

00:25:24 Speaker_02
Real Daniel, who has never even been to South Africa, wanted one thing.

00:25:30 Speaker_05
My starting position was you could really make everything go back to the time when this had never happened.

00:25:36 Speaker_05
You could tear down the house, and you could replant the land, and you could pay me for my expenses, and I would be restored to where I was before this ever happened.

00:25:52 Speaker_02
Is that what you actually wanted?

00:25:53 Speaker_05
Yeah, that's what I was willing to accept. It's not like somebody lost an arm and you can't put their arm back on. I mean, this could be remedied.

00:26:02 Speaker_07
Obviously, that would not be a great situation for Gina, to have that million-dollar house get torn down. Her idea was to figure out a way to keep the land.

00:26:13 Speaker_03
We thought initially that we would be paid out $350,000 and that we would have to use that money to try to figure out how to maybe buy the property from the owner, but it was a complicated situation.

00:26:27 Speaker_02
In the end, all parties ended up settling. As part of the settlement, Daniel, the real Daniel, ended up selling the land to Gina and her partner. They couldn't tell me for how much, but I looked it up for $965,000.

00:26:40 Speaker_02
Did you then end up buying the property twice? Yeah.

00:26:50 Speaker_03
Yes, theoretically, yes, we did, because we did have, we had to go through closing statements again.

00:26:57 Speaker_02
And if you're thinking, man, these people, they all seem so kind and so gracious about this whole thing, that too was part of the settlement. None of them can disparage each other.

00:27:12 Speaker_07
These days, when Gina buys property from someone, she's doing a little bit more than just a cursory Google search.

00:27:19 Speaker_03
Obviously I'm a crazy loon now. Every time, you know, we did buy a property while this was going on and, you know, but the builder knew the person, but it was a family estate. So I was asking a million questions.

00:27:35 Speaker_03
I wanted to make sure everyone that was involved had signed. So, you know, everyone was sort of taking deep breaths with me because I think I was irritating everyone.

00:27:44 Speaker_02
Real Daniel, he has made his peace with all of this. And as for fake Daniel, he still has his money and he's still out there.

00:27:59 Speaker_07
Today's episode was produced by Sam Yellow Horse Kessler. It was edited by Liza Yeager and fact-checked by Sarah McClure. Engineering by Valentina Rodriguez Sanchez. Planet Money's executive producer is Alex Goldmark. I'm Jeff Guo.

00:28:13 Speaker_02
I'm Erika Barris. This is NPR. Thanks for listening.

00:28:43 Speaker_01
This message comes from NPR sponsor Merrill. Whatever your financial goals are, you want a straightforward path there. But the real world doesn't usually work that way. Merrill understands that.

00:28:53 Speaker_01
That's why, with a dedicated Merrill advisor, you get a personalized plan and a clear path forward. Go to ml.com slash bullish to learn more. Merrill, a Bank of America company. What would you like the power to do? Investing involves risk.

00:29:06 Speaker_01
Merrill Lynch, Pierce, Fenner, and Smith Incorporated, registered broker dealer, registered investment advisor, member SIPC.

00:29:13 Speaker_00
Support for NPR and the following message come from Edward Jones. What is rich? Maybe it's less about reaching a magic number and more about discovering the magic in life.

00:29:24 Speaker_00
Edward Jones Financial Advisors are people you can count on for financial strategies that help support a life you love. Edward Jones, member SIPC.