According to PositivePsychology.com, as humans we are innately wired to pursue instant gratification. It’s natural for us to want good things, and to want them NOW. In fact, the urge for immediacy surely benefited pre-modern humans as their very survival often hinged upon making instantaneous decisions followed by taking immediate actions (e.g. “there’s a Tyrannosaurus rex headed my way … I’d better run and take cover!”). Humans today are not so different from their ancient ancestors – we, too, want immediacy, especially when it comes to the acquisition of wealth – whether that translates into the speed with which we receive funds or the swiftness with which we get title to real property under contract.
A Catalyst Corporate Credit Union blog reported that recent studies have shown “[a] staggering 70% of consumers express that having faster payment options from their financial institution is an important driver of satisfaction.” Thanks to advances in fintech, we now have a payment rail with two trains riding upon it to deliver that instant gratification. These two “trains” are Real Time Payments (RTP) and FedNow. They both move so FAST (almost instantaneously) that you and your customers can enjoy the ability to transfer funds 24/7, 365 days of the year in real time. With no waiting periods to transfer funds, just imagine how much faster your closings can take place – they can occur on holidays, weekends, and anytime convenient for you and the parties to the transaction!
Since 2017, RTP has been operated by The Clearing House (TCH), a consortium of member financial institutions; TCH’s RTP Network lists approximately 373 participating Financial Institutions (FIs).
On July 20, 2023, FedNow – the Federal Reserve’s interbank, instant payment infrastructure – went live; it launched with 35 participating FIs, the U.S. Department of the Treasury’s Bureau of the Fiscal Service and 16 service providers, but it has the potential to service all depository institutions eligible to hold accounts at the Reserve Banks – currently estimated at more than 10,000 banks and credit unions! FedNow promises to be a real game-changer for the national economy, and especially for our industry.
Let’s talk about what FedNow can do for you. At this time, the FedNow Service supports account-to-account and consumer-to-business bill pay use cases. The maximum credit transfer amount is $500,000, but participating FIs have the option to provide a lesser amount (so you may want to check with the transferor’s FI in advance to make sure that you know its dollar limits). With FedNow, businesses and individuals can also request a payment (referred to as a RFP or “Request for Payment”) from a recipient. For example, with FedNow you can electronically send “Betty Buyer” a request for the balance of cash needed to close her transaction; there is even a “zero-dollar request for payment” pre-validation tool available to make sure that the end-customer has the ability to receive and act on the RFP prior to the biller actually sending one. We can anticipate that FedNow will be able to do even more in the future as its functionality is expected to increase in phases. To learn more about FedNow, and when and how it may be available for your use, please visit FedNowExplorer.org.
Lastly, if you want to know more about the BIG picture – RTP, FedNow, the Good Funds Laws, and Payment Service Providers (e.g. Venmo and PayPal) – and how these mechanisms and laws affect each other and work together, read our in-depth white paper, “Moving Money in a Real Estate Transaction.”
If there is a buck to be made, fraudsters will figure out how to lie, cheat, steal, swindle, hoodwink, dupe, con and bamboozle their victims in an effort to drain the bank accounts of homebuyers and sellers, lenders, title agents and real estate agents.
The first step in defeating the criminals is to understand the types of schemes that are afoot. The next step is to educate parties to the real estate transaction, to raise awareness of potential scams, and identify the warning signs.
Here is an overview you can share outlining the most common real estate industry schemes that participants may encounter.
Mortgage fraud scams
There are two basic types of mortgage fraud: fraud for profit and fraud for property.
Fraud for profit often involves real estate professionals or investors, for instance:
- Property flipping, where an investor purchases a property and then quickly resells it at a profit after acquiring an inflated appraisal.
- Equity skimming, where a team of fraudsters using straw buyers and false documentation acquire – and often quickly transfer a property – for the purpose of collecting rent without ever intending to pay the mortgage or property taxes, eventually letting the property fall into foreclosure.
- Air loan, where a fraudster uses a straw or non-existent buyer to acquire mortgage funds for a non-existent property.
- Appraisal fraud, where a real estate agent pays off an appraiser to inflate the value of the property for the purpose of increasing their commission.
Fraud for property often involves a buyer providing false information to qualify for a mortgage, for example:
- The borrower falsifies employment verification letters or uses stolen pay stubs or tax returns.
- The borrower steals someone else’s identity, including Social Security numbers, birth dates, and addresses, to acquire a mortgage.
Real estate scams
In a real estate scam, a fraudster swindles the buyer by misrepresenting the value of the property or by selling a property they do not actually own. Here are a few examples:
Home inspection scams: A fake home inspector is hired to perform an inspection for the purpose of deliberately hiding potential problems with the property.
Vacant lot scams: A fraudster identifies an empty lot free of liens – and often owned by an out of state owner – then pretending to be the owner, lists the property with a real estate agent. The fraudster often lists the property at below market value to ensure a quick sale.
Fraudulent deed scams: Through identity theft or fraudulent deed transfer, the scammer transfers title to a property to themselves and then sells the property out from under the true owner.
Fraud against consumers
Consumers are the most vulnerable targets when it comes to fraudulent activity in the real estate transaction because they generally are not aware of many of the schemes used to infiltrate the deal or prey on their ignorance. Wire transfer fraud and foreclosure rescue schemes continue to be the most damaging and costly to consumers.
Wire transfer fraud is the most devastating of all consumer fraud schemes, as it often wipes out the assets of the individual homebuyer or seller. In a wire fraud scheme, the criminal often infiltrates a real estate transaction through email phishing tactics, then poses as a participant in the transaction for the purpose of convincing the buyer or title company to divert funds to a fraudulent account.
Foreclosure rescue scams are also on the rise. Here are four different tactics fraudsters employ:
Negotiation fake out: The fraudster takes money from a distressed homeowner promising to negotiate an agreement with the servicer or lender and then fails to provide any meaningful assistance.
Bait and switch: The homeowner is asked to sign documents purportedly to bring the mortgage current but in actuality the owner unknowingly signs a document transferring the deed to the fraudster.
Rent-to-own: The homeowner signs a deed to the scammer under a rent-to-own agreement believing they will be able to buy the home back, but instead the fraudster sells the home without the knowledge of the owner.
Equity skimming: The owner signs a deed to the fraudster with the promise they will profit from a refinance, but instead, the fraudster leases back the property to the owner, pockets the owner’s money and eventually lets the property fall into foreclosure.
Text, email or phone scams
Of course, you don’t need to be actively involved in a real estate transaction to be the target of criminals. Text, email and phone scams are also on the rise and victims fall prey to these schemes in alarming numbers. Recent homebuyers and sellers may be particularly vulnerable to these types of scams amidst the commotion of moving and changing information to reflect new residences.
Here are a few of the most common:
Bank fraud alerts: You may receive a text, email or phone call alerting you to “suspicious activity” in your bank account. You may be asked to provide sensitive information to verify your identity or be invited to click on a link that leads you directly into the hands of the fraudster for the purpose of identity theft or getting access to your account.
Delivery problems: We are so accustomed to getting alerts from our delivery services, whether it is the U.S. Postal Service, FedEx or UPS, that we don’t think twice before clicking on a link that alerts us to a delivery problem or delay. A fake alert may direct you to a website that requests a fee to correct the delivery error or requires you to enter a credit card number or provide information that could lead to identity theft.
Fake Amazon orders: You may get a notice from Amazon or other online retail service impersonators asking you to verify an order that you know you never placed. The fraudster will offer to fix the problem for you, if you will just give them information, credit card numbers, or access to your account, all of which spells trouble if you follow through.
Subscription cancellations: Threats are a fraudster’s most effective tactic. When you learn that your subscription to something you rely on every day is about to be cancelled, i.e., video conferencing solution, anti-virus software or a favorite streaming service, you may not think twice before clicking on the re-subscribe button and providing your credit card information.
“Free” gifts: Sometimes fraudsters pretend to be one of your favorite service providers or shopping sites and offer to send a “free” gift if you will just give them your credit card information to pay for the shipping cost.
Red flags of fraud
Scam artists are very adept at preying on the emotions of their victims. Here are a few red flags to be aware of should someone reach out to you under the guise of one of these schemes:
- They impersonate a company, organization, or government agency you are connected with.
- They instill fear in you by suggesting there is a problem.
- They entice you by promising something free or saying you won a prize.
- They pressure you by insisting that you must act quickly to avert a disaster.
- They require you to provide birth date, social security information or credit card numbers that you know you should never give out.
Fraud schemes like these are successful only when their mark cooperates. In all cases, it is important to slow down and think about what we are being told or asked to do. If your instincts are telling you something is off, it is best to investigate before responding.
If you are concerned that the request that is being made or the information provided may be illegitimate, it is crucial that you reach out directly to the company or individual by a phone number already in your records, rather than respond to an inbound phone call, text or email.
At Alliant National, we invite agents to share their stories to help us spread the word on how to protect all of our customers from becoming victims of fraud. Please email us your stories at: email@example.com.
In addition, agents who prevent a fraudulent transaction from being insured by Alliant National may qualify for a reward through Alliant National’s Crime Watch Program. Please visit https://alliantnational.com/title-claims/crime-watch-program/ for more information.
Progress is never easy or fast, but the rewards are well-worth the effort (and patience)! With the advent of new inventions, innovations and technology, we are continuously improving the quality of our lives and the freedoms we enjoy – both in our personal and business lives, which are inextricably intertwined.
Did you know that the audio-visual technology that makes it possible for families and friends to stay in touch across the globe, as well as the video-conferencing platforms that enable employees to work at home while remotely collaborating, took root from an idea to transmit images and audio over wire that was conceived by Bell Labs in the 1870s? Step by step, that idea became a reality over time, eventually giving rise to the smartphones and smartphone apps with video conferencing in the 2000’s, and then given a catalytic push in 2020 by the Coronavirus pandemic and the need for videoconferencing to allow workers to safely isolate while still conducting business remotely.
Similar to the evolution of videoconferencing, the development of the U.S. money rails has had a profound effect on the way we live and do business. I remember my mother saying how she thought the invention of the credit card was life-changing during her youth! In the U.S., the financial system has been relatively slow to evolve, but within the last 10 years it has picked up speed and there have been some amazing technological advances, such as Real Time Payments (RTP) and FedNow, the Federal Reserve’s version of RTP, which is on the cusp of being publicly rolled out. These newer payment rails, along with the convenience of modern payment methods – like PayPal, Venmo, Apple Pay and others – hold great promise for transforming the real estate and title insurance industries, and we want to share some special insights with you.
In a November report to Congress on business email compromise (BEC) and real estate wire fraud (REWF), the FBI announced enhanced efforts to put the brakes on what has become one of the most financially damaging crimes in the United States.
According to the FBI report, BEC has been the largest dollar loss by victim crime typology reported to IC3 in the past several years, with over $2.4 billion of losses in 2021.
“For comparison, the second highest dollar loss category reported to IC3 was investment fraud, with losses of approximately $1.45 billion,” the FBI reported. “In other words, dollar losses associated with BEC were over 65% more than dollar losses associated with investment fraud.”
The FBI noted in its report that criminals have been refining their exploitation of technology, especially the internet, to carry out financial crimes, logging substantial increases in internet-enabled financial frauds such as bank account takeovers, synthetic identity related frauds, money laundering through virtual currency, and BEC.
“The FBI has pivoted its approach to address this issue through gathering intelligence, utilizing advanced investigative techniques in conjunction with traditional financial crimes investigative techniques, using proactive public and private partnerships, and education and awareness campaigns,” the agency noted in the report.
Real estate wire fraud in the crosshairs
REWF is a sub-category of BEC, in which criminal actors target individuals or companies executing large wires related to real estate transactions. As our agents are aware, the criminals pose as parties to the transaction and directly communicate with the other parties to steal funds intended to pay for the real estate.
According to IC3 complaint data, victims participating at all levels of a real estate transaction have reported such activity, including title companies, law firms, real estate agents, buyers, and sellers. The FBI has specifically focused on addressing REWF due to its prevalence in the U. S. and the effect it can have on the individual victims of the REWF schemes, who may be home buyers wiring their life savings.
These schemes and the preventative measures that title agents can take have been detailed in Alliant National’s 2022 Escrow Fraud/Social Engineering White Paper.
In its report to Congress, the FBI updated its preventative measures to include the following recommendations:
- Use secondary channels or two-factor authentication to verify requests for changes in account information.
- Ensure the URL in emails is associated with the business/individual it claims to be from.
- Be alert to hyperlinks that may contain misspellings of the actual domain name.
- Refrain from supplying login credentials or PII of any sort via email.
- Verify the email address used to send emails, especially when using a mobile or handheld device, by ensuring the sender’s address appears to match who it is coming from.
- Ensure the settings in employees’ computers are enabled to allow full email extensions to be viewed.
First published in 2017 and fully updated by Alliant National’s Compliance, Risk and Education teams, the paper provides information, tips and suggestions to help you better understand the current threat environment and create a comprehensive plan that addresses the realities we face in our industry.
Filling in the Gaps
The FBI has had considerable success in reclaiming lost funds through the IC3’s Recovery Asset Team (RAT) program, since its inception in 2018.
The RAT is designed to assist FBI field offices with the rapid recovery of funds for victims who made transfers to domestic accounts. In 2021, the RAT reported just over 1,700 incidents, with losses approaching $445 million. According to the FBI, the RAT was able to recover more than $328 million of the $445 million.
But there is more work to be done and the FBI has identified vulnerabilities which, if addressed, would bolster the ability of U.S. law enforcement to effectively address a wide range of threats, including BEC.
The first is getting access to beneficial ownership information to track funds that end up in accounts controlled by shell companies.
“The Corporate Transparency Act (CTA) provides for the creation of a national, non-public database of underlying beneficial ownership information for U.S.-registered businesses that meet specific criteria,” the FBI noted. “The data collected will be made available to U.S. law enforcement, subject to certain guardrails, offering a critical resource for identifying participants in a BEC scheme.”
On Sept. 29, the Financial Crimes Enforcement Network (FinCEN) issued the first of three rulemakings to implement the CTA, governing who must report and what information they must report to FinCEN. The final rule will take effect on January 1, 2024.
The effectiveness of this reporting requirement is as yet unknown, and there is some concern that the CTA exempts from its reporting requirements various types of entities, including trusts, which may affect efforts to identify the beneficial owners of trusts or other entities engaged in REWF.
The FBI is also recommending that UCC 4A-207 be redrafted to require banks to properly identify the name and number of the beneficiary and to determine they are in fact the same individual or entity. Currently, a bank may simply rely on the number as the identifier, without requiring a check to see if it is actually connected to the named beneficiary.
Cyber security #1 priority in 2023
As the threat from cyber criminals continues to escalate, it is imperative that our agents review their procedures for protecting client funds.
You can begin today to assess your systems and educate your staff to make sure every possible precaution has been put into place. We hope our Escrow Fraud/Social Engineering White Paper will be helpful in this work. Alliant National is committed to updating our agents to help you understand and respond to the current threat environment. Feel free to reach out to your agency representative, or any member of the Alliant National team if you have any concerns.
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.