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!
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.
[i] Wire Fraud (nar.realtor)
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.
In part two of a three-part series, we continue examining common scenarios agents face when closing real estate transactions.
Previously, we introduced the first of a three-part blog series on the issues agents routinely face during the closing process. The initial entry covered a wide range of issues – from summarizing agents’ fiduciary responsibilities to best practices when dealing with spousal transactions. The second part will continue examining common closing scenarios, including issues related to funding, family transactions and dealing with property and homeowner associations.
Escrow and Funding Issues
When funding a transaction, numerous issues need to be addressed. For instance, clients may want to use foreign currency. These are not “good funds,” and agents should not provide a receipt of funds until they have been sent through their escrow bank’s collection process and credited to its account. What if a party wants the agent to wire funds to a foreign bank? An agent should discuss the matter with management, but typically such a transaction is not recommended.
What about domestic transactions? Automatic Clearing House (ACH) is an electronic network for U.S. financial institutions to process common credits and debits. The ACH is not appropriate for escrow transactions as it lacks the necessary safeguards and reporting mechanisms to meet audit guidelines. Instead, all deposited funds must pass through the agent’s hands via check or authorized wire, or they risk potential scrutiny from state regulators.
Once funded, sale proceeds need to be made payable to the seller in the closing documents. Lender instructions typically include a statement indicating that you are closing and that funding has been carried out following agreed-upon terms. Agents run the risk of violating their duties to the lender if they distribute proceeds to anyone aside from the seller. If the seller is an LLC, proceeds should go to the LLC through a bank. And the LLC may need to set up a bank account if one does not already exist. The same goes for an estate.
Finally, agents may need to address splitting commissions. In Texas for instance, if a broker asks to split the commissions between broker and agent, the agent must have a Commission Disbursement Authorization form, and this form must be disclosed on closing statements or the form T-64.
Family transactions have their own unique complexities. One potential problem is a pretended sale of homestead property, usually based on the assertion of an invalid lien. Frequently triggered by foreclosure or bankruptcy, an assertion is often made that the property is owned by a family member who conveyed the property and not the borrower – invalidating the lien.
A family member sale can qualify as a bona fide sale; however, in a state like Texas, if property is claimable as a homestead, it can be rendered void if the conveyor continues to occupy or intends to use the property for homestead purposes. To be insured, the agent must determine that the property is not the homestead of the selling family member. Of course, it is different if it is a cash sale. There is less concern here and underwriting approval is not needed.
Property Owners’ Association (POA) and Homeowners’ Association (HOA)
Lastly, agents must be attentive when dealing with owner associations such as property owners’ associations (POA) and homeowners’ associations (HOA). Property codes require a POA to provide subdivision information. There can be multiple associations for one subdivision, and fees may have to be charged to get information from all of them. It is a best practice to obtain POA or HOA information on all transactions. Association dues are typically subordinate to purchase money and construction liens; and home equity loans (HELs) may also be subordinate to association dues. Agents must verify this by reviewing the Conditions, Covenants, and Restrictions (CCRs), and may need to obtain a subordination agreement.
When dealing with select lenders, agents may need to get a 60 or 90 letter from the HOA. In Texas, if the dues are not subordinated, the agent cannot provide all the coverage in the T-17 or T-19 endorsements. Agents should also check for violations, and if they exist, collaborate with underwriting if providing T-19 or T-19.1. If an HOA exists but has not been formed, an affidavit may need to be signed indicating its inactivity.
There are many different types of real estate transactions, and title agents need to be well-versed on how the details of a transaction can ultimately affect the closing process. By having a strong foundational understanding, agents can operate more effectively, upholding their fiduciary duties and safeguard their clients’ interests. In the third and final edition of this blog series, we will cover any remaining closing scenarios that agents will likely face throughout their career, including lender-required conveyances, Texas T-47 affidavits and more.
It may seem like “Title Insurance 101” – but small mistakes can be signs of fraud or misuse of funds or outright intentional undoing of a clear road to closing on a real estate deal.
It may seem like
“Title Insurance 101” – but small mistakes can be signs of fraud or
misuse of funds or outright intentional undoing of a clear road to closing on a
real estate deal.
Not everyone knows everything
all of the time; a thousand items have to fall into place and “add
up” in order to make the process smooth and completely unencumbered.
Our Fraud Detection Guide for Agents
A power of attorney
showing up in the middle of a transaction (or at the end) should be
scrutinized. So should cashier’s checks drawn from geographical areas that
don’t coincide with the seller’s, buyer’s or property’s locale.
Take a look at the
potential red flags below; being aware is half the battle.
Red flags” involving the preliminary title report and title search may include:
by, prepared for, or mailed to a party other than the lender.
seller is not in title (possible purchase disguised as a refinance or improper
owned property for a short time with a cash-out on the sale.
of default is recorded (possible cash-out purchase with a straw buyer or
indicates delinquent property taxes.
indicates modification agreement on existing loan(s).
documents show the borrower or Seller on a purchase is not the owner of record.
- For a purchase transaction, the seller
should be the owner of record.
- For a refinance transaction, the
borrower on the loan application should match the owner of record on the title
“Red flags” involving escrow
and closing instructions may include:
in the blank” or generic escrow instructions.
of sales prices to “fit” the appraisal.
amounts paid as a deposit/down payment.
or unusual buyer credits or fees.
amendments to the original transaction.
on Closing Disclosure different than seller on preliminary title report.
of “white-outs” or alterations without initials.
to third parties whose lien was not listed on the preliminary title report.
to another escrow.
payment is paid into escrow upon opening.
is paid outside of escrow to property seller.
is “subject to” property seller acquiring title.
acting as the property seller is controlled by, affiliated with, or related to
the applicant or another party to the transaction.
is required to use a specific broker/lender.
of subject property is not subject to inspection.
of attorney used with no explanation.
of attorney is not properly documented/recorded.
Funds to Close
“Red flags” involving funds
to close may include:
- Remitter on cashier’s check or source of the wire is not the borrower.
- Cashier’s check issued from a bank that is inconsistent with the depository information on application.
- Cashier’s check issued from a bank branch that is out of the buyer’s geographic area.
- Dollar amount is incorrectly encoded on check.
- Sources of funds are questionable
Closing Disclosure/Settlement Statement
“Red flags” involving the
closing disclosure or settlement statement may include:
and addresses of property seller and buyer vary from other loan documentation.
mailing address is the same as another party to the transaction.
real estate agent commissions paid.
estate commission paid, but no realtors listed on the purchase contract.
price differs from sales contract.
is made to undisclosed secondary financing or double escrow.
prorated on owner-occupied transactions.
amount due to/from buyer.
Disclosure or escrow instructions contain unusual credits, disbursements,
related parties, delinquent loans paid off, or multiple mortgages paid off.
for items not consistent with liens listed on title commitment.
seller paid marketing, administrative, assignment or trust fees.
to unknown parties.
of the closed mortgage differ from the terms approved by the underwriter.
of settlement is delayed without explanation.
Our Fraud Detection Guide for Agents