We’ve learned from the refinance boom and bust years that being a one trick pony in the title insurance profession is not the pathway to longevity. Diversifying your transactions with purchase, refinance, builder, REO and mobile home transactions is a good way to hedge your bets in the cyclical reality of the real estate market.
Commercial transactions can also be a great way to solidify your competitive position in the local market. However, many agents are a bit leery of taking the plunge due to the more complex nature of these deals.
Donna More, VP and Senior Underwriting Counsel for Alliant National Title Insurance Company, says that while she can understand an agent’s initial trepidation, there is a logical pathway for agents to move into the commercial end of the business, and Alliant National underwriting counsel can be a great resource as you are learning the ropes.
“I think an experienced underwriting attorney is key in these transactions,” More says. “We know right off the top what is going to come up. We can get the agent prepared, alert them on what they are going to need, and tell them what questions to ask – even before they get the search report – so they can avoid some surprises later on in the transaction.”
She notes that agents are hesitant to get into commercial because they don’t want to appear ignorant when questions and issues come up. But most of the tough issues will be resolved by underwriting counsel.
“We are going to be the ones who come up with methods of resolution, based on our professional experience,” she explains. “That is one of the big advantages we offer our agents. With our experience and knowledge, we are often able to predict what is going to happen, or what is going to be needed. We can already be thinking ahead to the best way to resolve potential issues.”
But let’s not put the cart before the horse.
There are some key steps you can take before venturing into commercial transactions. It’s also helpful to understand how the players’ roles are different and explore some of the elements that are unique to commercial transactions.
Learning about commercial transactions
The best way to learn the nuances of commercial deals, according to More, is first, to take on small deals in order to learn by doing; second, to work closely with underwriting counsel to get questions answered; and finally, to seek out educational opportunities.
“I recommend that agents who want to get into commercial and want to feel competent and prepared should take classes,” she advises. “There are always good takeaways from the commercial real estate seminars. Also, ask local attorneys what they recommend would be helpful to gain a higher degree of sophistication in commercial real estate.”
More says it shouldn’t be too hard to find educational opportunities, since bar associations and land title associations offer commercial real estate classes. Even if the class is geared towards lawyers, it can still give an agent insight into commercial deals, affording them a greater level of comfort, she adds.
Alliant National agents can check out a free webinar, Commercial Closings? No Problem! at alliantnationalacademy.com.
Securing commercial transaction title orders
More acknowledges that the most complicated commercial transactions are usually handled by attorney title agents but notes that there are plenty of non-attorney title agents who have been successful at developing a clientele with their existing real estate agent and broker customers who handle both residential and commercial transactions.
She also advises mining existing customer relationships for potential opportunities.
“Someone who bought a $3 million home and closed with you is probably a fairly successful businessperson and may be involved in buying and selling commercial properties,” she says. “Nurture those relationships.”
She also suggests getting immersed in the local business community and commercial industry organizations, especially the real estate associations like Commercial Real Estate Women (CREW) or NAIOP, the Commercial Real Estate Development Association (fka the National Association for Industrial and Office Parks).
“Being involved in the local commercial industry organizations is a very good source of knowledge and business,” More says. “Go to the local meetings and take advantage of the educational opportunities to build your confidence.”
How commercial title work differs from residential
Commercial transactions can be complicated, with more lawyers involved and often more parties to the transaction. In addition, the principals are often not individuals, but legal entities.
“The title agent needs to be very familiar with the types of legal entities in their state and what the requirements are for proof of good standing and proof of authority,” More explains.
She says an agent is also more likely to have to deal with ancillary issues, such as easements for access. Generally speaking, in a residential sale, the home is on a platted lot and there are no issues with access. But with commercial property, it could involve a landlocked parcel and you have to be concerned about access or the adequacy of access.
“The other important difference is how you deal with the lenders,” she says. “The lenders are going to expect more. In the more sophisticated transactions, there are going to be more requirements and different documentation needed. Even though you as the title agent would not be preparing the documents, you will have to familiarize yourself with all the documents in the transaction as well as get them signed as part of the package and recorded.”
More notes that construction loans are also more complicated for commercial properties and lenders will have a lot more requirements. The agent could also run into construction lien issues.
“Florida has a construction lien law that is very detailed and very complicated. That’s another reason why it’s so important to go to your underwriting attorney to get the guidance you need,” she advises.
Same basics, different pacing
The basics of the title and closing work in a commercial transaction is not very different from residential transaction.
“The agent needs to go through the commitment, see what the requirements are, and get familiar with the exceptions,” she explains. “It is especially important for a title agent to be able to distinguish what the parties are responsible for vs. what they are responsible for. And of course, they should come to underwriting as soon as they see something that makes them say, ‘I don’t know what this is.’”
However, More clarifies, the title agent must account for everything even if it is the sellers’ or buyers’ responsibility to actually perform the task or provide the documentation.
Sometimes commercial deals can be turned around quickly, but usually they take longer because the inspections and due diligence are more complicated, often involving permitting, approvals, DOT issues and access.
“In my seminars for Florida agents, I have always suggested checklists for any transaction, but it is most imperative in commercial deals,” More says. “Go through the contract. Check the timelines. Also, as the title agent, you need to share your title work with all parties – seller, buyer and lender. Sellers and their lawyers will have a much bigger role in a commercial transaction. The seller will have to come up with all kinds of documentation. On the buyer side, the lender will need to see the organization of the entity and will want to look at their books and balance sheets.”
And of course, the title agent will be involved in the curative work, even if it is only to give the seller guidance as to what will be required.
“In addition to keeping up with the timing, probably the most crucial part of what they do is keeping track of what needs to be fixed and how it needs to be fixed,” More notes. “That’s where we come in. They need underwriting to determine how to cure a problem or explore the alternatives available to fix an issue. We rate those alternatives – this is the best course of action or this is the option we don’t want to do.”
Commercial real estate transactions do require some expertise, but it is knowledge that can be acquired over time through educational opportunities and on-the-job experience with smaller transactions. But the most important resource you have at your disposal will always be the experienced and knowledgeable underwriting attorneys at Alliant National. We are always here to help you learn how to navigate this fascinating and challenging aspect of the title insurance business in order to take your agency to the next level.
The cost of fraud to title and settlement services companies far exceeds the actual face value of a fraud incident, according to the 2022 LexisNexis True Cost of Fraud Study released recently.
The 57-page report provides information on current fraud trends in the mortgage, title and settlement industries and details some of struggles companies face in addressing fraud detection, prevention and customer experience.
In terms of the cost of fraud, research indicates that for every $1 lost in an actual fraud incident, the cost to a title company is $4.19 or four times that of the face amount of the loss. The number rises to $5.34 for originators.
According to the research, the additional cost is related to the labor required for fraud detection, plus the expense of investigation, reporting and recovery following an incident.
For title companies, the biggest cost is labor, with the actual breakout of related costs as follows:
- 35% attributed to labor costs
- 21% for detection, investigation and recovery
- 18% related to fines and legal fees
- 13% covering fees during application and processing
- 13% accounting for the face amount of the actual fraud
The actual cost is extraordinary, given that title companies reported a staggering 77% increase in fraud over the past three years. The growth in fraud is attributed in part to COVID, as a substantial portion of both mortgage and settlement services transactions moved to online and mobile-only transactions.
According to the LexisNexis report, although fraud originates largely in online and mobile-only transactions, it often the moves to the call center or phone-based point of interaction, which further adds to the risk, with the growth of remote workers handling these transactions.
For title companies working in the online and mobile transaction world, identity verification is the number one challenge.
“The challenge involves assessing digital identity attributes such as email and phone number,” the report states. “That is contributing to challenges with identifying malicious bots and the ability to determine the source of the transaction. Synthetic identities are a key driver of identity verification challenges, particularly among organizations that do not use fraud solutions that assess digital identities and behaviors.”
LexisNexis noted that the mobile channel especially is contributing to the high volumes in recent years.
“This channel brings device-related risks that are unique from online browser transactions (SIM card swapping, malware, SMS phishing). This allows fraudsters to gain entry through anonymous remote transactions at the very start of the mortgage process.”
Title companies walk a bit of a tightrope, determined to invest in strong fraud prevention, while striving to create a positive customer experience. Customers reportedly get frustrated with the passwords, qualifying questions and multiple identifiers it takes to get through the transaction and have been known to give up and drop out of online and mobile device-related processes out of frustration.
Balancing these two necessities of doing business has been challenging, but title companies that put forth the effort can dramatically reduce their exposure to fraud.
To help our agents assess their efforts, Alliant National released a white paper this year, titled Escrow Fraud/Social Engineering: Recent Schemes and Prevention Tips. The white paper provides agents with useful information, risk factors to consider, and practical action steps that will help you partner with consumers, real estate agents and lenders to defend against the fraudsters.
In addition, the LexisNexis report identifies four recommendations agents should consider, including remaining vigilant to increased fraud, increasing the use of technology, creating multi-layered solutions, and integrating cybersecurity and digital customer experience with your fraud processes.
Here are a few highlights from their list of recommendations:
- Accelerated movement to online/mobile transactions will continue to grow; therefore, title/settlement companies should continue to buildout and enhance the digital customer experience while protecting against fraud.
- Best practice fraud detection and prevention includes a multi-layered solutions approach, and the integration of fraud prevention with cybersecurity operations and the digital customer experience.
- Layering in supportive capabilities such as Social Media intelligence and AI/ML further strengthens fraud prevention.
While fraud prevention in the current environment is challenging, the report concludes that “firms which use a multi-layered solutions approach that is integrated with cybersecurity and digital customer experience operations can lower their cost and volume of successful fraud while improving identity verification and fraud detection effectiveness.”
We encourage agents to continue to explore and implement best practices as we all work together to combat fraud. Download our white paper – Escrow Fraud/Social Engineering: Recent Schemes and Prevention Tips – today to begin your own internal assessment.
To view the full LexisNexis study, click here.
Every wire fraud defense expert says the number one factor in recovering diverted funds is time. Every minute counts when fraud has been detected, and hesitations or delays can impede efforts to track down and restore lost funds.
That’s why a Wire Fraud Response Plan is imperative for every title agent.
Before you create your plan, or if you are undergoing a review of your current plan, we encourage you to download Alliant National’s recently updated Escrow Fraud/Social Engineering: Recent Schemes and Prevention Tips white paper. This 23-page guide provides an in-depth review of the current schemes and offers a wealth of tools and resources for building a strong defense against fraudsters.
Here are some things to consider when creating your response plan.
Elements of a Wire Fraud Response Plan
The first step in preventing wire fraud is to maintain policies and procedures for verification of wire instructions for the protection of everyone involved in the real estate transaction.
But should the unthinkable happen, remember that the most successful response strategies are those established well in advance and communicated to staff members and your bank.
Like a well-trained sports team, every member of your team must know their role and be prepared to leap into action.
- Establish a close relationship with your bank representatives and continually dialogue regarding updated fraud threats.
- Discuss wire retrieval scenarios and establish emergency contacts in the bank’s fraud department, whom you can call at a moment’s notice day or night.
- Download and fill in the Wire Fraud Contacts form in our Escrow Fraud/Social Engineering white paper and provide it to staff members charged with addressing suspected fraud.
- Notify management the moment suspicion arises that a wire may have been misdirected.
- If funds have been transferred to the receiving bank and cannot be recalled, ask your bank (the sending bank) to formally request that the receiving bank freeze the funds.
- Agents may also attempt to directly contact the receiving bank to ask that the funds be frozen.
- Contact local police in your jurisdiction and the jurisdiction of the receiving bank.
- Report the fraud immediately to your local FBI office.
- File a complaint with the FBI’s Internet Crime Complaint Center (IC3).
- Contact the underwriter involved in the transaction. Alliant National is available to help you evaluate the situation.
- Contact your corporate attorney to let him or her know about the events taking place.
- Depending on the nature of the fraud, contact the appropriate insurance provider (Cyber-Liability, Escrow Security Bond or Errors & Omissions).
Putting all of these resources in motion immediately can be extremely useful, as anyone of these professionals or organizations may have information that could assist you in recovering your funds.
IC3 may be one of your most important contacts. In 2018, IC3 established its Recovery Asset Team (RAT) to streamline communications with financial institutions and FBI field offices to assist freezing of funds for victims.
In 2021, RAT initiated the Financial Fraud Kill Chain (FFKC) on 1,726 Business Email Compromise (BEC) complaints involving domestic to domestic transactions with potential losses of $443,448,237. A monetary hold was placed on approximately $329 million, which represents a 74% success rate.
The efficiency of this organization’s work is largely dependent on the speed with which they are advised, so it’s critical that they be an important part of your Wire Fraud Response Plan.
Even the most vigilant companies may fall prey to fraud, but putting protocols in place can greatly reduce your exposure and give you a pathway to recovering lost funds.
As always, call your Alliant National underwriting team if you have any questions or concerns. We are here to help!
After years of incrementally slow progress on the e-mortgage front, the pandemic succeeded in catapulting the mortgage and settlement services industry into the digital mortgage and closing age in short order. As state legislatures quickly rushed through a variety of pending remote online notarization (RON) laws, more agents jumped at the chance to add this capability to their tool belt.
In an April 12 release, ALTA reported that the number of title professionals offering digital closings more than tripled over the past two years, from 14% participation prior to 2019, to more than 46% in its most recent survey.
The question for agents is, do your partners and potential customers know about your new digital closing capability? And how can you get the word out?
MISMO has provided a national solution that you can capitalize on immediately to ensure potential customers who are looking for a service provider with RON capability can check on your status.
The MISMO e-Eligibility Exchange was created to accelerate industry-wide adoption of digital closings. According to a recent release from MISMO, the e-Eligibility Exchange provides centralized access to acceptance criteria that enables lenders and other industry participants to easily determine the right type of digital mortgage closing for each loan, including the use of electronic promissory notes (eNotes) or RON.
How Can Agents Get Into the e-Eligibility Exchange?
The only way to get into the exchange is by first getting registered in the ALTA Title and Settlement Agency Registry. ALTA announced that it will be the sole provider of title and settlement data to MISMO through the registry, which currently includes more than 9,000 locations, with more than 2,000 of them indicating they have RON capability.
The registry is free and ALTA membership is not required. After you register, your underwriter will confirm your information. According to MISMO, this verification, along with the uniqueness of the ALTA ID, ensures the accuracy of the data in the e-Eligibility Exchange for users.
If you are not yet signed up with the ALTA registry, here’s what you need to know:
- Visit alta.org/registry to learn more about the ALTA Title & Settlement Agency Registry.
- Download materials to register on the ALTA resources site to begin the registration process.
- ALTA will provide you with a unique 7-digit identifier, called the ALTA ID, which is automatically assigned to each new database record as a permanent ID number.
- ALTA ID numbers are available for free to title agents and to real estate attorneys.
- Once you are registered, your underwriters will be contacted to confirm your status.
Recent legislation has helped grow adoption of e-recording and e-notarization, but the lack of uniformity still makes it difficult for lenders to universally adopt electronic practices, forcing lenders to make a loan-by-loan decision about what documents can be electronically signed.
MISMO’s e-Eligibility Exchange helps address this challenge by allowing lenders to quickly assess requirements for individual loans.
More importantly for you, it allows lenders to identify the availability of title and settlement agents with electronic capabilities. Hop on the digital train in 2022. With the advent of the e-Eligibility Exchange, you now have the perfect opportunity to put yourself front and center for digital closing opportunities in the coming years.
The FBI’s Internet Crime Complaint Center (IC3) 2021 report released in March highlighted an “unprecedented increase in cyberattacks and malicious cyber activity” resulting in a dramatic escalation in financial losses.
In 2021, IC3 received 847,376 complaints from consumers and businesses – a 7% increase from 2020 – with potential losses exceeding $6.9 billion. Most significantly for the title insurance industry, business email compromise (BEC) schemes resulted in losses of nearly $2.4 billion, up 33% from 2020.
In its report, the IC3 identified Russia as a hot spot for cyberattack actors in 2021. In recent weeks, the risk of those cyberattacks has grown exponentially in retaliation for the many sanctions imposed on Russia following its invasion of Ukraine on Feb. 24.
On March 21, President Biden released a statement highlighting the imminent threat to our nation’s cybersecurity. That same day, Deputy National Security Advisor Anne Neuberger said in a press briefing, “We’ve previously warned about the potential for Russia to conduct cyberattacks against the United States, including as a response to the unprecedented economic costs that the U.S. and allies and partners imposed in response to Russia’s further invasion of Ukraine. Today, we are reiterating those warnings, and we’re doing so based on evolving threat intelligence that the Russian government is exploring options for potential cyberattacks on critical infrastructure in the United States.”
These imminent threats are a reminder of how important it is to take the necessary steps to protect your agency and your customers.
Alliant National has just released a white paper titled Escrow Fraud/Social Engineering: Recent Schemes and Prevention Tips to provide our agents with information, risk factors and protocols that will help you partner with consumers, real estate agents and lenders to defend against the fraudsters.
In addition, the Biden Administration released a Fact Sheet, urging companies to take immediate steps to protect their systems, including:
- Mandate the use of multi-factor authentication on your systems to make it harder for attackers to get onto your system
- Deploy modern security tools on your computers and devices to continuously look for and mitigate threats
- Check with your cybersecurity professionals to make sure that your systems are patched and protected against all known vulnerabilities
- Change passwords across your networks so that previously stolen credentials are useless to malicious actors
- Back up your data and ensure you have offline backups beyond the reach of malicious actors
- Run exercises and drill your emergency plans so that you are prepared to respond quickly to minimize the impact of any attack
- Encrypt your data so it cannot be used if it is stolen
- Educate your employees on common tactics that attackers will use over email or through websites
- Encourage employees to report if their computers or phones have shown unusual behavior, such as unusual crashes or operating very slowly
- Engage proactively with your local FBI field office or CISA Regional Office to establish relationships in advance of any cyber incidents
The Biden Administration also encourages IT and security leaders at all companies to visit the websites of CISA and the FBI to access technical information and other useful resources. These heightened threats represent a clear and present danger for all of us. We encourage all of our agents to download the Alliant National Escrow Fraud/Social Engineering today and share this information with your staff and customers.