Posts Tagged ‘escrow fraud’

escrow fraud

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.

7 common scams we’ve 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.

Escrow fraud remains low-risk, high-reward for criminals

Several months ago, title agents across the country observed an uptick in attempted escrow fraud. In many cases, fraudsters posed as other participants in the transaction and attempted to trick agents into wiring funds to fraudulent accounts. The vast bulk of these escrow fraud attempts involved bogus emails. The stories and dollar losses were startling, and the industry responded. Alliant National produced a comprehensive alert for its agents discussing the threat. The American Land Title Association (ALTA), Consumer Financial Protection Bureau, Federal Trade Commission and others issued various alerts for consumers. Since then, many agents have implemented policies around verification of wire instructions, and some have established retrieval plans in case a wire is diverted. Agents also have started discussing email and escrow security with consumers and real estate agents. The escrow fraud stories seemed to have quieted down a little recently. So, have we “whacked the mole” when it comes to escrow fraud? Probably not. The reason is simple. Escrow fraud is still a low-risk and high-reward strategy, particularly for criminals overseas. During a recent data security hearing before the U.S. House Financial Institutions Subcommittee, Daniel Mennenoh, ALTA’s immediate past president, noted that the average wire fraud loss is just under $130,000. On the other hand, the average successful bank robbery nets just $3,800. For a fraudster, the choice between holding up a bank and raking in 30 times as much money while sitting in front of your computer in your jammies seems pretty clear. Email-involved escrow fraud is part of a larger fraud threat targeting businesses of all sizes and the general public. The FBI refers to this threat as Business Email Compromise/Email Account Compromise (BEC/EAC). According to the FBI’s Internet Crime Complaint Center (IC3), BEC/EAC scams have been reported by businesses and victims in all 50 states and in 131 countries. IC3 data indicates fraudsters stole or attempted to steal more than $1.59 billion from roughly 22,000 U.S. victims between October 2013 and December 2016. Fraudulent transfers have been sent to 103 countries with the majority going to Asian banks located in China and Hong Kong. IC3 saw a 480% increase in the number of complaints in 2016 filed by title companies that were the primary targets of BEC/EAC scams. Those are big numbers, and they remind us that this problem isn’t going away. Fraudsters are going to keep trying to think up ways to get us to ignore our training and wire out money to fraudulent accounts, so we must remain vigilant in that regard. However, the escrow fraud “mole” is already rearing his ugly little head someplace else. Fraudsters are coming directly after consumers, and that’s a very difficult “mole hole” to guard. Staying on top of the escrow fraud threat isn’t going to be easy, but we in the title and settlement industry are uniquely positioned to help consumers and others keep escrow funds secure. Alliant National recently produced a white paper as part of our ongoing effort to inform agents about the threats we all face. The paper also provides real-life tips and strategies for preventing, detecting, and responding to BEC/EAC escrow fraud. I’ll be back next week with a post exploring some of the most common types of escrow fraud schemes. Until then, feel free to download our white paper, and let’s all whack that mole! ]]>

FRAUD WATCH: What is the business email compromise?

Wire fraud attempts are very common in the title industry. A typical wire fraud scheme, encountered by some of our agents, is known as a business email compromise (“BEC”). In this scheme, the fraudster has hacked into a party’s email account.

The fraudster then lies in wait, they read the outgoing and incoming emails waiting for a sales transaction to occur.

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