Fraudsters continue to seek out legitimate businesses they can use as a cover for illegal schemes that attempt to separate people from their money. One of the fraud scams that has reemerged is the check fraud scheme.
The claims team was recently notified of a scenario involving an Alliant National agent. A new purchase agreement and a sizeable earnest money deposit cashier’s check was presented to the agent. The cashier’s check was from a foreign bank and was promptly deposited by the agent into their escrow account. Shortly after depositing the check, the buyer notified the agent that the transaction was cancelled. The buyer demanded the agent promptly return the funds through aggressively worded emails and continuous phone calls. The agent did the right thing by not allowing the purported buyer to usurp the procedures that the agent already had in place. Ultimately, the foreign bank confirmed that the cashier’s check was fraudulent, and the purported buyer ceased any further efforts to communicate with the agent.
A few Red Flags from the transaction included:
A foreign buyer,
For sale by owner transaction,
No real estate agent utilized in the transaction,
Use of non-standard real estate purchase and sale agreement template,
Termination of the purchase and sale agreement was quickly sent to the agent after the check was deposited, and
An aggressive stance is taken by the buyer requesting that the funds be returned.
Appropriately, the agent did not rush the process, notified the purported foreign buyer of their check verification process, independently researched and located contact information for the foreign bank, confirmed the validity (or lack thereof) of the cashier’s check with the bank, and waited for confirmation from the bank on whether or not the funds cleared the account.
For a foreign bank’s check, it is important to remember that it may take several weeks for funds to clear an account. If you act and return funds too quickly, the buyer’s original check may be returned due to insufficient funds. If you attempt to try and recover the funds from the buyer, most likely the buyer will refuse to return the money or the buyer can no longer be located. Then, the agent is left without those funds in their escrow account, which will lead to other issues.
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.”
Whether your customer has owned property for years or just purchased property, you know these property owners are not immune from being a potential victim of real property fraud. With the use of technology and access to real property records, property owners are reporting a number of fraud cases. One type of fraud being reported involves foreign property owners. The typical target owns an unencumbered, vacant parcel of land and has an out-of-country mailing address listed in the county records. Fraudsters are most likely finding these properties by searching the county records to identify a potential victim.
Here’s one recent fraud scenario: Months after a sales transaction closed, the title company was advised by the insured of a potential fraudulent sale of a vacant parcel of land which was owned by a foreign investor. An investigation revealed that the sale of the property was fraudulent. The conveyance deed was allegedly notarized by a notary employed at the U.S. Consulate General office in Johannesburg, South Africa. The Consulate General’s office confirmed that there was no notary by that name employed at their office. The owner of the property, who resided in Columbia, confirmed that the property was not for sale.
A few Red Flags we have identified while administering these types of claims include:
Vacant land sales;
Vacant parcels that have been owned by the same owner for several years;
Low sales price; or
Real estate agent is contacted by a buyer/seller in a rush to buy/sell the property.
Some tips to help a title company avoid this type of fraud:
Be extremely careful with emails from out-of-country sellers rushing to close the transaction;
If you receive a rush sale request from the purported seller or a real estate agent, DO NOT rush; rather take your time and give the file your full attention;
Ask the real estate agent how or from whom they received the sale listing;
Contact the prospect seller via Zoom, Skype or another video-enabled meeting platform;
Ask the seller questions about the property such as when and how they came to acquire it, and what their plans were for the vacant parcel to see if the seller knows the property’s history;
Request to see the identification that will be used at the closing transaction;
Check the seller’s foreign identification. Look at the picture (sometimes you can see that a picture was placed on top of another picture), and check for inconsistencies with the font and signs of tampering. Whenever possible, compare to a standard version of the identification, whether using a guidebook, an online resource, or even Googling samples of identification for comparison;
Check the property appraiser’s website for the current owner’s address, and consider forwarding a letter to that address;
Check the tax collector’s website, and review the history of tax payments to see if you can determine who the payor has been, and their mailing address;
Research the notary and contact the Embassy or Consulate to confirm the notary works there. We have learned that many of the foreign officers are aware of this type of fraud; and
If your gut tells you something is wrong, please follow your gut. That feeling is usually right!
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.
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 Tipswhite 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 Engineeringwhite 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!
Alliant National’s Crime Watch Program creates a formidable partnership to fight fraud.
There is no other way to say it: Real estate fraud is a major problem in the United States. According to the National Association of Realtors, nearly 14,000 people were victimized by real estate fraud in 2020 alone.[i] Combatting this growing threat requires strong partnerships, and Alliant National’s Crime Watch Program seeks to foster such partnerships by rewarding Alliant National agents who prevent fraudulent closings.
The program has produced real results over the years. In this blog, we will look at a recent detection and prevention of a fraudulent transaction by Siesta Title and Escrow Services LLC.
Alliant National Agents on Crime Watch
Alliant National offers a $1,000 reward to Alliant National agents who help prevent a fraudulent transaction from closing. The company created the program to help raise agents’ awareness of potential fraudulent transactions and to reduce the overall cost of claims.
To qualify for consideration to receive a reward under the Crime Watch Program, an agent must satisfy a few requirements:
The reporting agent must be an active Alliant National agent in good standing.
The agents must prevent a fraudulent transaction or forgery involving a real estate transaction that was intended to be insured by Alliant National.
In the case of forgery, the intended forgery must include the falsification of a signature with an intent to defraud.
The Crime Watch Nomination form must be executed by an owner/manager.
All available and relevant documentation – including evidence showing that the transaction was to have been insured by Alliant National – must be submitted to the appropriate Alliant National State or Regional Agency Manager along with the Award Nomination form.
The submission form and all relevant documentation will be reviewed by the company and a final determination will be made.
Siesta Title Spots Suspicious Activity
Siesta Title and Escrow Services LLC, a title agency headquartered in Port Charlotte, Fla., recently submitted a suspected fraud to Alliant National. Their story underscores the importance of Alliant National’s Crime Watch Program and how collaboration between agents and underwriters can help stop fraud.
The property in question was a vacant lot in Port Charlotte that had been owned by a Canadian man for 30 years. Quite quickly there were communication problems and other warning signs that something about the transaction was amiss.
“The seller was hard to reach from the beginning, did not respond to emails and only called once, but it was a horrible connection,” said Amanda Pertuch, the submitting agent.
Some of the other indicators that tipped Amanda off to the questionable nature of the transaction included:
The purported seller having suspicious-looking ID
The purported seller’s wiring instructions going to a foreign bank
The purported seller’s letterhead having an address associated with a vacant lot
The purported seller not having a bank account in the same country where he holds citizenship
The notary on the closing documents was already on Siesta’s fraud alert list
The purported seller not showing up in any Google searches
Following verification by Amanda’s manager and Alliant National, the suspected fraud was confirmed, and the transaction was cancelled. The proposed liability amount for the transaction was $160,000.
“I’m glad and relieved that we were able to catch this fraud attempt,” said Pertuch. “Anti-fraud programs are important for our industry to keep claim costs under control. I’m happy Alliant National and Siesta Title were able to take care of this quickly and efficiently.”
If you suspect fraud, notify your manager immediately. Your manager may investigate further and will determine next steps. Under no circumstance should suspicions be communicated to outside parties without prior approval from your manager.
Fraudsters will often attempt to speed the transaction along; do not let them succeed. If you suspect fraud or forgery, conduct a full investigation before proceeding to close the transaction and issuing the policy.
Managers should contact Alliant National underwriting or claims for further assistance.
Working Together, We Can Limit Fraud
Alliant National is committed to limiting fraud and lowering claim costs. However, we can’t do it alone. Just as our ability to deliver high-quality title insurance hinges on our partnerships with agents, so too does our capability to detect and thwart fraud. And as Siesta Title and Escrow Services’ work shows, when those partnerships work, real results that reward agents and protect transactions are indeed possible.