We break down a complicated process by describing the five main components of the Digital Closing Process.
Remote Online Notarization (RON) started making headlines
several years ago but was slow to catch on because, frankly, it didn’t really seem
necessary. Then, we could all gather in the closing office and sign with paper
and pen, and the technology was new and a little scary. It was like a “big
black box.” Few understood how the technology worked, and most approached RON as
a convenience for the few people who perhaps couldn’t easily get to the closing
office. Articles were written, webinars were presented, legislation moved
forward piecemeal, but since RON was considered only a “nice to have” option,
there was no widespread incentive to embrace it. It would be understood and
adopted over time.
Well, “TIMES” HAVE CHANGED!
We are NOW in the
midst of a national pandemic. States are issuing “shelter in place” orders; the
federal government is urging people to stay at home; and we’re afraid of getting
too close to one another lest we expose ourselves or someone else to the COVID-19
virus. The nation is at home and unable to conduct business as usual.
The real estate, title, and financial industries are a
cornerstone of our economy. Our businesses are essential to our country’s entire
system of trade, exchange, and consumption of resources. So how do we continue with
our business without the need for physical contact? In states where we can, one
way is to turn to RON, which enables us to conduct closings remotely. Consumers
can go online and execute documents electronically while the closer and notary
are located elsewhere.
Many states have recognized RON’s potential as a solution
and enacted legislation. There is currently extensive, ongoing efforts to
legalize RON across the nation through federal legislation. However, legalizing
RON is not enough because RON requires the efforts of many stakeholders to be
successful. We all have to work together and be “on the same page.” Do you know
what happens before or after you do your part in the Digital Closing Process?
Alliant National’s new Components of a Digital Closing
series was created to give people a common understanding of both in-person
electronic closings and remote digital closings facilitated by RON. We produced
this series of handbooks to demystify the process – eliminate that “black box” –
and provide readers with the “big picture” of how it all works. There are a lot
of moving pieces and a lot of players who must come together (hence the
“eCollaboration” component of the series) to create the infrastructure needed
for the successful adoption and implementation of Digital Closings. Our series
of handbooks shows how the Digital Closing Process works from beginning to end.
To break down a complicated process, we’ve described five
main components of the Digital Closing Process in these series of articles as:
- eSign = electronic signing or electronic
- eNotary = electronic notary or electronic
- eRecording = electronic recording
- eVault/eNote = electronic vault and electronic
- eCollaboration = electronic collaboration
It all begins with eSign and expands from there. The advent
of recognizing an electronic signature as legally enforceable led to electronic
notarization – after all, an electronic notary (and the principals and
witnesses) must be able to electronically sign documents. Then, that
electronically executed and notarized digital deed, mortgage or deed of trust
must be recorded in the public records, so electronic recording (or the
acceptance of “papering out” as discussed in the article on eRecording) must be
available, or all is for naught! And what about the electronic note? Well,
there is a system set up to facilitate the creation, transfer and sale of
eNotes through the use of an electronic vault.
Within each article, we explain what the component is or does;
we discuss its history or describe its legal evolution; we provide links to
other articles or resources on the subject; and we provide a technological
The current health crisis presents many challenges for our
industry, but it also represents a unique opportunity to implement technologies
that will ultimately make the real estate transaction safer and more efficient
than it has been in the past.
It is our hope that you will find Alliant National’s Components of a Digital Closing series
be a comprehensive, ready reference as the industry transitions toward the
digital closing environment.
Interest in digital closings is surging, and Alliant National is committed to making sure you stay ahead of the curve.
Today, we’re releasing to our
agents a new series of handbooks exploring the elements and principles of
Extensively researched and
content-rich, Alliant National’s Components
of a Digital Closing series demystifies the Digital Closing Process and its
five major components: eSign, eNotary, eNote/eVault, eRecording and
eCollaboration. Each handbook in this series explores one component. The
purpose of the component is briefly described and placed within the context of
the broader Digital Closing Process. Laws, regulations, technological
requirements and specific technologies are discussed where appropriate.
This collection is designed to be a comprehensive, ready reference as the industry transitions toward the digital closing environment.
It may seem like “Title Insurance 101” – but small mistakes can be signs of fraud or misuse of funds or outright intentional undoing of a clear road to closing on a real estate deal.
It may seem like
“Title Insurance 101” – but small mistakes can be signs of fraud or
misuse of funds or outright intentional undoing of a clear road to closing on a
real estate deal.
Not everyone knows everything
all of the time; a thousand items have to fall into place and “add
up” in order to make the process smooth and completely unencumbered.
Our Fraud Detection Guide for Agents
A power of attorney
showing up in the middle of a transaction (or at the end) should be
scrutinized. So should cashier’s checks drawn from geographical areas that
don’t coincide with the seller’s, buyer’s or property’s locale.
Take a look at the
potential red flags below; being aware is half the battle.
Red flags” involving the preliminary title report and title search may include:
by, prepared for, or mailed to a party other than the lender.
seller is not in title (possible purchase disguised as a refinance or improper
owned property for a short time with a cash-out on the sale.
of default is recorded (possible cash-out purchase with a straw buyer or
indicates delinquent property taxes.
indicates modification agreement on existing loan(s).
documents show the borrower or Seller on a purchase is not the owner of record.
- For a purchase transaction, the seller
should be the owner of record.
- For a refinance transaction, the
borrower on the loan application should match the owner of record on the title
“Red flags” involving escrow
and closing instructions may include:
in the blank” or generic escrow instructions.
of sales prices to “fit” the appraisal.
amounts paid as a deposit/down payment.
or unusual buyer credits or fees.
amendments to the original transaction.
on Closing Disclosure different than seller on preliminary title report.
of “white-outs” or alterations without initials.
to third parties whose lien was not listed on the preliminary title report.
to another escrow.
payment is paid into escrow upon opening.
is paid outside of escrow to property seller.
is “subject to” property seller acquiring title.
acting as the property seller is controlled by, affiliated with, or related to
the applicant or another party to the transaction.
is required to use a specific broker/lender.
of subject property is not subject to inspection.
of attorney used with no explanation.
of attorney is not properly documented/recorded.
Funds to Close
“Red flags” involving funds
to close may include:
- Remitter on cashier’s check or source of the wire is not the borrower.
- Cashier’s check issued from a bank that is inconsistent with the depository information on application.
- Cashier’s check issued from a bank branch that is out of the buyer’s geographic area.
- Dollar amount is incorrectly encoded on check.
- Sources of funds are questionable
Closing Disclosure/Settlement Statement
“Red flags” involving the
closing disclosure or settlement statement may include:
and addresses of property seller and buyer vary from other loan documentation.
mailing address is the same as another party to the transaction.
real estate agent commissions paid.
estate commission paid, but no realtors listed on the purchase contract.
price differs from sales contract.
is made to undisclosed secondary financing or double escrow.
prorated on owner-occupied transactions.
amount due to/from buyer.
Disclosure or escrow instructions contain unusual credits, disbursements,
related parties, delinquent loans paid off, or multiple mortgages paid off.
for items not consistent with liens listed on title commitment.
seller paid marketing, administrative, assignment or trust fees.
to unknown parties.
of the closed mortgage differ from the terms approved by the underwriter.
of settlement is delayed without explanation.
Our Fraud Detection Guide for Agents
one wants to learn that fraud or misuse of funds or fraudulent transfers
happened once a closing is complete, yet those events can be part of real
estate closing worlds.
can also prove to be undependable, as parties involved can have
Download Our Fraud
Detection Guide for Agents
wants to learn of a crooked contract – that’s already been signed, notarized
one. Below, we take a look at what agents can do regarding all of the above and
how to avoid pitfalls before they happen.
What Agents Should Do If Wire Fraud is Suspected
After the Exchange of Funds (regardless of the dollar amount of the loss)
- Contact your
- Speak with someone who has authority to
reverse or “recall” the wire. This contact may be in your bank’s fraud
department. Note: A best practice is
to identify this contact and establish a relationship with him or her before a
wire fraud incident occurs.
- Make sure the bank understands you have been
the victim of a Business Email Compromise (BEC) scheme.
- Request a Wire Recall or SWIFT Recall
- Ask your bank to fully cooperate with law
- Contact your
local FBI office (https://www.fbi.gov/contact-us/field-offices). The FBI has a number of protocols aimed at
freezing and retrieving funds. They will activate appropriate protocols based
upon the circumstances of the loss. The American Land Title Association has more information on the FBI’s protocol for reversing
fraudulent international wires.
- Complete and
submit a Complaint Referral Form to the FBI’s Internet Crime Complaint Center (IC3). Be prepared to
provide all details related to the transaction including date, amount, the name
of your bank and the beneficiary bank, account numbers, contact information,
- Contact the fraud
department at the beneficiary bank to notify them about the wire-recall request
due to the fraud. Provide details and request that the account be frozen.
local law enforcement (https://www.policeone.com/law-enforcement-directory/)
- Contact your
Secret Service field office (https://www.secretservice.gov/contact/field-offices/)
- Contact the
Alliant National Claims Department by first calling the Claims Manager at (303)
682-9800, ext. 425, and then follow up by emailing applicable information to Claims@alliantnational.com.
When the Money Goes Out, Minutes Count
The 48-hour period following a fraudulent
wire transfer is critical; immediately contacting your bank, the local FBI
office and submitting a complaint to IC3 as described above will increase your
chances of recovering the funds.
Special Handling of International Wires
Since international wire
fraud has a very low chance of recovery or reversal of the wire, special
precautions are advisable, such as requiring “in-person authorization” from
only those authorized signers on an out-going international wire, and having
such precautionary requirements agreed upon with your bank.
Appraisals and appraisal reports may contain “red flags” indicating
potential fraud. “Red flags” may include, but are not limited to:
- Owner of
record listed is inconsistent with other information disclosed in the loan
- Occupant is
identified as a tenant on an owner-occupied refinance application.
refinance transaction, but the property is vacant.
- Occupant of
subject property is listed as “unknown.”
- Appraiser uses
public record, exterior inspections, or property seller/builder as sole data
- Illegal zoning
is checked on first page of the appraisal.
deficiencies or adverse conditions that affect the livability, soundness, or
structural integrity box” is checked “Yes” on the first page of the appraisal.
property has increased in value in a stable or declining market.
- Land value is
atypically high for the area.
adjustments in urban or suburban area where marketing time is under six months.
- Timeframe between
sales does not allow enough time for reported renovations made to property.
- Loan file
contains a note with a predetermined value.
Condition (C5, C6) or Quality (Q6) ratings.
- Blank spaces
on the form (borrower, client, occupant, etc.).
- Missing photos
- Photos do not
match description of property.
- House number
in photo does not match property address.
- Photos do not
match the floor plan sketch (i.e. location of garage, fireplace, etc.).
- Photos of
subject property taken from odd angles or with no depth of field, or have been
cropped or otherwise altered.
- Photos reveal
items not disclosed in appraisal (e.g., commercial property next door, railroad
tracks, another structure on premises, etc.).
conditions in photo of property are not appropriate for the date of the
appraisal (i.e., July photo shows snow on the ground for a property in
- “For rent” or
“for sale” sign in photo of subject property on owner-occupant refinance application.
- Most recent
sale(s) and/or listing information on subject property and/or comparable
properties are missing.
- Use of
unverified comparable sales (i.e., not verified through traditional data
sources such as MLS, sales office, Closing Disclosure, real estate agent,
- Use of
inappropriate comparable properties (e.g., that are not similar to the subject
property when comparable properties are present).
distance between comparable properties and subject property.
- All comparable
properties are from different town(s) than the subject property.
- Lack of
bracketing with comparable sales used (e.g., all sales are significantly larger
in living area than the subject).
- Appraisal is
ordered and/or prepared prior to date of sales contract or loan application.
Appraiser is located
outside of the county in which the property is located.
Sales contract “Red flags” indicating potential fraud may include, but
are not limited to:
- Multiple sales
- Sales contract
is dated after the appraisal date.
- Sales contract
is subject to an existing lease on an owner-occupied transaction.
- Sales contract
includes personal property or prohibited sales concessions.
- Sales price is
significantly above or below market value.
contract addenda adjusts the sales price.
- Applicant is
not shown as purchaser.
- No real estate
- Real estate
agent(s) used, but not paid a fee; or no real estate agent(s) involved at all.
- Seller is a
corporation or LLC and the subject property is not new construction.
- Seller is an
affiliated real estate agent, trust, relative or employer.
- The parties to
the transaction are related by family or commercial enterprise.
- The contract
is not dated.
- Names are
deleted from or added to the purchase contract.
- The contract
is an “option contract.”
- The contract
was assigned or is assignable.
deposit is an unusually high amount, consists of the entire down payment, or is
an odd amount.
- Contract has a
very short inspection period and upon satisfactory inspection, the buyer is to
notify the settlement agent who is then supposed to transfer a large portion or
all of the deposit to the seller (scam is that 10 business days later, it is discovered
that the cashiers’ check is counterfeit after the money has been sent, and the
escrow account suffers a shortage).
- Recommendation is to contact the bank or
entity issuing the cashier’s check to confirm that the cashier’s check number
and amount is valid prior to depositing the item in the account. Most banks
will confirm this by telephone. Due to the increasing occurrences of
counterfeit cashier’s checks, most banks have instituted mandatory holds on
cashier’s checks. It is not uncommon for a hold to last up to 10 days (check
with your bank to confirm their policy).
- Name and
address on earnest-money deposit check is different from that of the buyer.
deposit checks have inconsistent dates, for example:
- Check #111 dated November 1
- Check #113 dated September 1
- Check #114 dated October 1
check is not cashed or is not reflected on the Closing Disclosure.
Download Our Fraud
Detection Guide for Agents
(It’s a lot to say – SupercaliFRAUDulisticexpialidocious)
Email can be sinister. It can encourage changes (not
authorized, not legitimate), it can “warn” recipients of dire
circumstances if instructions are not followed, it can be shaped and branded to
look like an institution all parties are familiar with, and it can assist in
fraud that involves any number of untoward outcomes – like clients’ and
institutions’ funds being pilfered.
The U.S. Government has a
phrase for such criminal action: Business Email Compromise/Email Account
Compromise (BEC/EAC). That wordy title speaks to two crimes.
Fraud Detection Guide for Agents
are carried out by compromising legitimate business email accounts. The EAC component
of the scam refers to the targeting of consumers and the lenders, real estate
professionals, attorneys and others who serve them.
More information on
BEC/EAC fraud prevention and recovery can be found on our Education
It can be daunting to try
to wrap one’s brain around every single possibility and scenario that could
trip someone up – and trick someone into giving away information that affords a
thief the opportunity to steal funds.
Below is a list that,
while not necessarily “completely memorizable” – even if studied, can
serve as a red flag for knowing when something is awry.
It can serve as warning to
be wary of the many and various paths that crooks can take to defraud
legitimate people conducting real estate transactions.
- Exercise extreme caution when weighing any
request to change wire instructions. Encourage all parties to do the same.
- Be wary of any email, phone call or other
communication that involves threats, high pressure language (e.g. markings,
assertions, or language designating the transaction request as “Urgent,”
“Secret,” or “Confidential,”) or warns of “dire consequences” if immediate
action isn’t taken.
- Be wary of emails with missing or unusual
- Be wary of any request to change wiring
instructions, especially any last-minute requests.
- Be wary of emails that include poor spelling or
grammar, are overly formal or that are written in a style uncharacteristic of
the purported sender. Also, beware of emails that misuse industry terminology,
for instance, references to the “HUD” instead of the “Closing Disclosure”.
- Be wary of any unexpected emails or requests,
including internal requests purportedly from executives or others.
- Be wary of emails sent at odd hours.
- Be wary of any communication seeking to confirm
information the purported sender should already have.
- Beware of sudden changes in business practices.
For example, if a current business contact suddenly asks to be contacted via a
personal email address, it’s best to verify the legitimacy of the request via
- Review monthly escrow statements from the
Receiving Bank (the one holding the agent’s escrow account) as soon as
available to verify that all expected funds have actually been received.
- Have a written agreement in place with the
Receiving Bank (the agent’s bank which holds the escrow account and receives
the agent’s payment order) that the Receiving Bank will match all names,
addresses, account numbers, routing number and beneficiary bank name on the
payment order with where and to whom the funds are actually sent. Or put
instructions on the payment order for the Receiving Bank to verify
authorization by matching all of this information.
- Emailed transaction instructions directing wire
transfers to a foreign bank account that has been documented in customer
complaints as the destination of fraudulent transactions.
- Emailed transaction instructions directing
payment to a beneficiary with which the customer has no payment history or
documented business relationship, and the payment is in an amount similar to or
in excess of payments sent to beneficiaries whom the customer has historically
- Emailed transaction instructions delivered in a
way that would give the financial institution limited time or opportunity to
confirm the authenticity of the requested transaction.
- Emailed transaction instructions originating
from a customer’s employee who is a newly authorized person on the account or
is an authorized person who has not previously sent wire transfer instructions.
- A customer’s employee or representative emailing
financial institution transaction instructions on behalf of the customer that
are based exclusively on email communications originating from executives,
attorneys, or their designees when the customer’s employee or representative
indicates he/she has been unable to verify the transactions with such
executives, attorneys, or designees.
- A customer emailing transaction requests for
additional payments immediately following a successful payment to an account
not previously used by the customer to pay its suppliers/vendors. Such behavior
may be consistent with a criminal attempting to issue additional unauthorized
payments upon learning that a fraudulent payment was successful.
Review and revisit this list of tips when
handling suspicious wire requests, before the exchange of funds takes place.
- Verify all wire instructions with an alternate
method of communication.
- Check emails to ensure the sender’s address has
not been altered. Fraudsters typically use email addresses that closely
resemble a seller’s (or any party’s) actual email address.
- Do not open unknown or unverified hyperlinks or
downloads. Tip: Hovering your mouse over the sender’s email address may reveal
a different email address. Caution: Do not hover over unknown links within the
body of a suspect email. Security experts formerly recommended hovering as a
way to determine the validity of such links. However, newer strains of malware
may infect a computer when the user merely hovers over the link.
- Delete unsolicited emails from unknown sources.
- In the case of an invoice, verify any changes
in vendor payment location and confirm requests for transfer of funds.
Fraud Detection Guide for Agents