Posts Tagged ‘Escrow Fraud’

Partners in Wire-Fraud Protection: The Escrow Account Holder and the Bank

Wire fraud is a HUGE problem that only keeps getting bigger and bigger.

In fact, U.S. Representative Randy Hultgren (R-III) wrote a letter to Fed Chairman Jerome Powell on June 29th urging the Fed to be more proactive in regard to wire fraud and real estate transactions. The letter referenced the United Kingdom’s system of matching payees’ names as a possible solution to the problem of wire fraud.

However, we don’t have to wait until a federal law is passed that orders banks to match the payee name on the wire transfer payment to name on the payee’s destination bank account (“Beneficiary Bank”).

As title and escrow agents, we can be proactive and in partnership with the banks with which we do business.

So, what can we do right now?

First, we can know what our Agreement with our Escrow Account Bank says.

Does your Bank Agreement say that your bank will check the payee’s name with the name on the destination account when a wire fund transfer is initiated?

Or, does it say your bank need only rely upon the account number it was provided in the wiring instructions order? The answers to these questions might lead to an opportunity to have a discussion with your partnering Receiving Bank.

We can also send the wire instructions on the payment order, with explicit directions that acceptance be restricted to match the designated payee’s name on the Beneficiary Bank account. If it doesn’t match, then do not send the funds.

Lastly, if something does go wrong despite our best efforts and precautions, then notify both the Beneficiary Bank and the Receiving Bank as soon as possible. Typically, banks require notification of an unauthorized transfer or error within a defined time period such as, for example, thirty or sixty days.

Aside from any contractual or legal requirement for early notification, the sooner the problem is communicated, the greater the odds of the bank being able to halt or pull back the wire funds transfer.

For a great explanation of how a wire fund transfer works behind the scenes, view “Funds Transfer Law and Unauthorized Payment Liability.”

Embracing What If

By now, you’ve probably heard the well-worn cybersecurity platitude, “it’s not if you get hacked, it’s when.” Kind of a downer.

Really, that statement is about getting us to seriously consider the “what if.” For instance, “what if I suffered a data breach;” or, “what if, despite my best efforts, a criminal somehow managed to divert a wire to a fraudulent account?”

Thinking about the “what if” is uncomfortable, particularly when it comes to wire fraud. We spend most of our time and effort figuring out how to avoid the “what if” scenario.

The thing is, when it comes to attempted wire fraud, experience tells us that title agents who’ve spent time planning for “what if” are the ones who tend to get the money back.

Don’t even hover your cursor over unknown or unverified links to stay safe from wire fraud

The title and settlement industry is blessed with great people, and that makes sense because our industry is built on being helpful.

We all want a smooth, efficient transaction for everyone involved. Unfortunately, our desire to be helpful and to keep things moving makes us a prime target for wire fraud.

So, how careful do we need to be when verifying the legitimacy of an email or even an incoming phone call?

Very careful.

Fraudsters know about us. They know how busy we can be, and they know how to prey on our traits to overcome our data and escrow security training.

They aren’t just looking to trick us. They aren’t practical jokers. They are truly insidious “social engineers.”

They use every scrap of information they can find, every pretext they can imagine and all the dark arts of the hacker to whittle down our firewalls — electronic and human. For the overseas criminal, wire fraud is a low-risk, high-reward strategy. Until that changes, the threat will persist.

We need good policies and procedures to address the threat, but even this isn’t enough. Anyone who’s been hit with a wire fraud loss will tell you that fraudsters can find ways to keep people from following the best policies and procedures.

Addressing this kind of threat requires something additional — a healthy dose of skepticism for one. But more than this, each member of the team needs to feel a sense of empowerment.

Each one of us has the ability to hand over the “keys to the kingdom” when it comes to data and escrow security, so each one must also feel empowered to pause the process when any suspicion of fraud arises.

Here are a few steps you and your team can take when an email or other communication just doesn’t feel right:

  • Go with your gut: Don’t hesitate to pause the process if you suspect fraud.
  • Do not give in to pressure: If you feel threatened or pressured by any communication, treat this as a red flag and immediately escalate the situation to management.
  • Don’t trust — verify: Verify via telephone the legitimacy of any wire instruction, or any suspect communication. Encourage all parties to the transaction to do the same.
  • Don’t click: Do not open or hover your cursor over unknown or unverified hyperlinks.
  • We’ve developed an infographic outlining these tips, and we encourage you to share it with your team and post it in your office. We hope that by discussing these simple steps, each person in our office will feel a sense of empowerment when it comes to protecting sensitive data and escrow funds.

    Alliant National recently produced a white paper on escrow fraud as part of our ongoing effort to inform agents about the threats we all face. The paper provides information on how we can work with all parties to the transaction to reduce the risk of escrow fraud. Along those lines, I’ll be back next week with a post exploring how working with your bank in advance can be a real life saver if a wire is ever diverted.

5 tips to share with your consumer early and often during the real estate transaction

A few weeks ago, I wrote a post likening email escrow fraud to Whac-A-Mole. I’d like to revisit that image for a moment.

A few years ago, scammers figured out what our industry does. Admittedly, it took them a while, but when they did, many agents started seeing a barrage of fraudulent emails. Title agents responded by tightening down on their policies and procedures.

The “mole,” however, always manages to find a weak spot where he can pop his head out of the ground. In our case, that weak spot is clearly the consumer.

Ah, the consumer…

When I think about the consumer in a real estate transaction, sometimes I remember a scene from a 2004 episode of the popular TV show Friends, where Monica (Courteney Cox) and Chandler (Matthew Perry) are trying to convince Joey (Matt LeBlanc) to see the new house they’re buying in the suburbs.

Joey: “But no, it’s not close. You said it was in escrow? I couldn’t even find it on the map.

Chandler: “No Joey, escrow is (pause) well, there’s money in (pause) it’s not the bank exactly (long pause) I don’t know what it is.”

And of course, it’s the real estate agent who ends up explaining escrow to everyone.

A consumer buying or selling a home is excited about completing the transaction. The truth is, despite our best efforts, they’re apt to be at least a little hazy about everything going on. Consumers rely on settlement agents, real estate agents, attorneys and loan officers to make sure things go smoothly.

Fraud is likely the last thing on the consumer’s mind, but title agents are in a unique position to help consumers understand the dangers of fraud and the steps they can take to protect their funds and personal information. Here are some things to tell the consumer early and often during the transaction.

Use Extreme Caution

Fraudsters are targeting buyers and sellers. Unwitting consumers have been scammed into wiring funds to fraudsters. Consumers should be wary of any email purporting to be from a closing agent or another party to the transaction that has a generic domain at the end, like “gmail” or “mail.”

Follow Procedures

Discuss your company’s procedures for accepting, verifying and changing wire instructions. Establish any pin codes or challenge questions you might use to identify the consumer.

Verify, Verify, Verify

If the consumer receives an email from your agency regarding wiring funds, they should verify the information by contacting your office using a pre-determined telephone number, and not a number on that email.

No Sharing!

Discourage the consumer from sharing wiring instructions or other banking information with third parties, including the real estate agent.

Never Wire Funds Based on Email

Most of all, let the consumer know they should never wire funds based on an email, even if the email appears to come from the title company, the real estate agent, the bank or anyone else.

We’ve developed an infographic outlining these important consumer communications, and we encourage you to find points during the transaction where it makes sense to deliver and reinforce these messages with buyers and sellers.

Alliant National recently produced a white paper on escrow fraud as part of our ongoing effort to inform agents about the threats we all face. The paper provides tips for spotting suspect emails and other communications. I’ll be back next week with a post exploring the steps each one of us can take when a communication just doesn’t feel right.

Escrow fraud schemes tend to follow common patterns connected by email

We’ve all heard escrow fraud stories, and maybe you or someone you know has even had a wire diverted. The details can be pretty freaky.

See what you think of this one:

A young woman is selling a property and her father is the real estate agent on the deal. The father and daughter hand deliver wire instructions to the title agency. Ten minutes after they leave, the processor at the title agency receives an email that looks like it’s from the daughter. The email says “My daddy” wants to change the wire instructions so the seller proceeds will go to a different account.

The processor doesn’t want to bother the daughter and feels comfortable that the email is legit given that it mentions the woman’s father. The processor marks the changed instructions as “verified” and sends them to the wire department.

The email was fraudulent. The wire was for nearly $300,000. In this case, the title agency was able to retrieve all the money thanks to quick action and more than a little luck.

Freaky, right?

The details always get our attention, but they can also distract us and make it hard to get ours hands around the basic ways escrow fraud tends to work.

Escrow fraud schemes tend to follow common patterns. Often, fraudsters hack the email account of the real estate agent or another party and monitor the account for upcoming closings. As a closing date approaches, the fraudsters — posing as one of the parties to the transaction — interject themselves into the communications chain and seek to change wire instructions. Fraudulent communications usually come via email but also can be made via telephone or fax.

Here are seven common scams we’ve have heard about from our agents.

  • 1. THE SELLER SPOOF: A classic. Fraudsters, posing as the seller, email the settlement agent using an email address that looks like the seller’s, or even uses the seller’s actual email address. The criminals attempt to divert seller proceeds to a fraudulent account.
  • 2. THE LATE SWITCHEROO: The settlement agent receives instructions from the seller regarding where to wire the seller’s sale proceeds. Then, before the closing, the settlement agent receives a message from an email address that looks like it is from the real estate agent instructing the settlement agent to wire the sale proceeds to a different, fraudulent account.
  • 3. EARNEST MONEY HUSTLE: The settlement agent receives an email from an address that appears to be the real estate agent’s. The fraudster instructs the settlement agent to release the earnest money deposit back to the alleged client. The instructions direct funds to a fraudulent account.
  • 4. THE BUYER BEWARE: Fraudsters pose as the settlement agent or real estate agent using an email address that looks like it is from one of them and instruct the buyer to wire his or her down payment funds to a fraudulent bank account.
  • 5. THIRD-PARTY POOPER: In a transaction involving a third-party investor who is to receive seller proceeds: The fraudsters, impersonating the investor, using an email address that looks like the investor’s, provide fraudulent wire instructions to the seller. The seller conveys these instructions to the settlement agent who wires proceeds to the fraudulent account.

In addition, some frauds may not involve the buyer, seller or real estate agent. Here are some examples:

  • 6. BUSINESS EXECUTIVE SCAM: Fraudsters, posing as the CEO or CFO of a title company, email an employee whose job includes transferring funds. The email requests an urgent payment to be made outside of normal procedures, often giving a pressing reason. The account to which payment is made is fraudulent.
    7. THE VENDOR BENDER: Fraudsters, posing as a vendor of the title company, email the title company directing payment of an invoice to a fraudulent account.
  • We’ve developed an infographic outlining these 7 Deadly Scams, and we hope that by familiarizing yourself with these basic patterns, you and your team will be better positioned to sniff out escrow fraud. You may also want to discuss common scams, like the Buyer Beware and the Third-Party Pooper, with your consumers.

On that note, Alliant National recently produced a white paper on escrow fraud as part of our ongoing effort to inform agents about the threats we all face. The paper provides real-life tips and strategies for keeping consumers informed about the important role they can play in helping to keep escrow funds safe.

I’ll be back next week with a post exploring some of those strategies.

This blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on this blog.

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