There’s another victory to report as Alliant National partners with independent title agents in the ongoing fight against real estate fraud. Alliant National’s Crime program offers a $1,000 reward to Alliant National agents who help prevent a fraudulent transaction from closing. The program has already recognized the prevention of $2 million in attempted fraud, and recently Heritage Title of Austin was honored for stopping a fraudulent transaction from going forward.
Meet Heritage Title of Austin
Heritage Title of Austin is a leading title agency operating in the Austin metropolitan area. For more than 30 years, they have been a dependable partner for aspiring property owners who are looking to secure their investments. Having long adhered to industry best practices and the highest possible standards, Heritage Title was naturally well-positioned to respond swiftly and efficiently when an instance of attempted fraud came across their collective desks.
Obvious red flags
“The order was placed through our website, which is very rare for our company,” said Dan Elkins, Senior VP, Plant Manager, Heritage Title Company of Austin, discussing how he initially became aware of the suspicious transaction. The transaction carried other red flags as well according to Elkins, who stated, “The contract was not a standard TREC form contract. The wording in the contract was a bit unusual in a couple of places, and there was no representation listed in the contract for either party.”
Digging deeper
Once these red flags came into view, Elkins and the Heritage Title Company team began digging deeper. The contract in question only listed one woman as the seller, but an inspection of the tax rolls revealed that the woman and her husband were the owners of the property, as did the last recorded deed.
Therefore, the next step was to run the husband’s name, which unearthed that his will had been probated and explained why he had not signed the contract. The problem, according to Elkins, was that “the wife’s signature on their purchase money deed of trust also did not match the signature on the contract, which raised even more suspicion.”
Heritage Title then contacted the law firm that handled the husband’s probate to see if they could get contact information for the wife independent from the information listed in the contract. However, they were informed by the law firm that the wife had also passed away a few months earlier. This made it impossible for her signature on the contract to be authentic, as it was dated after the date of her death.
Wrapping things up
As Elkins and Heritage Title were conducting their due diligence and discovering the transaction’s clear fraudulence, Russell Gonzales, Assistant Vice President and SW Region Agency Representative at Alliant National Title Insurance Company, was on-site at Heritage Title. After Heritage Title reported the fraud to Gonzales, the company decided to alert other agencies and advise them to be on the lookout for similar scams. Gonzales then encouraged Heritage Title to apply for Alliant National’s crime watch award for having prevented a fraudulent transaction that could have proven to be costly for all involved.
Final thoughts from Heritage Title
In reflecting on the experience, Elkins noted that staying ahead of fraudsters requires a long-term outlook, a comprehensive approach and real investment. “We utilize physical access security at all our locations. We have network security installed on our networks that prevents unauthorized devices from connecting. We run very good software on all endpoints and servers to detect and contain any possible threats. We use top-of-the-line firewalls and mail filters,” he said, listing off a few of the security tools deployed by Heritage Title.
Elkins also made sure to emphasize that the human factor is equally important, and that without those two elements working together harmoniously, an agency can suffer negative financial consequences.
“The most important thing we do is train our personnel to always look for the red flags, whether it is in a phishing email or an impersonation attempt,” he said. “They are the last line of defense. You cannot spend too much on your defense and recovery plan because the monetary and reputational costs of taking even one hit can be enormous.”
Title agents across the country have seen an uptick in vacant lot scams over the past year, where criminals pose as the property owner and attempt to sell a property to unsuspecting buyers.
This is not a new scam, but it is once again on the rise, and we need to remain hypervigilant.
To help you identify and thwart these fraudulent property sales, we’ve pulled together information about how the schemes are conducted, red flags to be aware of, action steps you can take to verify property ownership, and documentation and proofs you need to verify the seller has the right to sell the property.
In January, ALTA issued an advisory outlining the scheme.
The Scheme
According to ALTA, these scams often begin with a fraudster searching public records to identify real estate that is free and clear of mortgages or other liens. They focus on property not occupied by the owner. This can include vacant lots, out of state ownership, or rental properties where the owner does not live on premises. In addition, elderly owners are often targeted.
After gathering the pertinent information from the public records, the fraudster, posing as the owner, contacts a real estate agent to list the property for sale.
The fraudster often lists the property below the current market value to realize a quick sale. Once the transaction is concluded, the funds are then transferred to the criminal. The ownership discrepancies are often not identified until the documents are filed with the county.
Red Flags
Fraudsters often use several tactics to keep the professionals handling the transaction at arm’s length from the seller. Here are a few potential red flags that may alert you to a fraudulent transaction:
Communications are conducted through email and digital means, never in person.
The fraudster seeks to push the sale through quickly.
Often, a preference for a cash close is indicated.
The scammers refuse to sign in person but demand a notary closing, often insisting on making those arrangement themselves with “their favorite notary.”
Sales proceeds are directed to be disbursed to someone other than the person in title.
Always follow your instincts if something seems unusual in a transaction involving vacant or unoccupied property and ask plenty of questions.
Jean E. Bailey, Vice President and Southwest Regional Underwriting Counsel for Alliant National, noted that the Texas Land Title Association has started a fraud task force after a single agent in the state reported several cases of fraudulent sellers, including one that involved a property worth $2.8 million.
“All the usual elements were there – only communication through email or text, no phone calls, or if there were phone calls, they were from burner phones,” she said. “They also included mail out closings or remote/e-closings, even if the owner resided in the same area as the property.”
An Ounce of Prevention
Agents can take steps to ensure a vacant land sale is legitimate, including making an effort to investigate the property, research the owner of record, and verify the identity of the seller and their forms of identification.
Investigate the Property
Early in the process, it’s a good practice to determine whether the property being sold is vacant. The preliminary title report will show if the property is mortgage and lien free. Contact the real estate agent to ascertain if they have been to the property or met with the owner in person.
Recently, a title agent became suspicious of a transaction and took the precaution to drive to the vacant property and interview neighbors. She discovered that the true owner was not trying to sell the property and reported the scam to the police.
In one reported case, the true owner discovered potential buyers walking through her vacant lot and inquired what they were doing. When they informed her they were buying the lot, the property owner assured them it was not for sale. If a property owner contacts you or the real estate agent about a suspected fraud, take the report seriously and conduct your own investigation.
Inspect Suspicious Deeds
Sophisticated fraudsters will sometimes record fraudulent deeds, transferring property to themselves or a shell company to maintain their anonymity. They often target property that is obviously not being maintained, left vacant or not properly transferred to heirs after the death of the owner.
Often the “new owner” will attempt to sell the property quickly, so a recently recorded deed is a predictable red flag in these transactions.
Establish Seller Identity
It’s worth the effort to independently research the identity of the seller, especially by trying to locate a picture of the owner of record or establishing the age of the seller.
One recently reported scam was discovered because the title agent working on the transaction identified the owner as an elderly woman, while the seller who had contacted the real estate agent was much younger, raising suspicions about the legitimacy of the seller.
An Alliant National agent in Ocala, Florida, became suspicious when asked to close a transaction for a half-acre plot of vacant land. They contacted the owner of record directly about the sale and instructed them to call their office if they were not, in fact, selling the property. The agency’s suspicions turned out to be correct, as the owner called back immediately, provided two valid forms of photo identification and scheduled a video conference call to discuss the matter. Conversely, the fraudulent seller was asked for the same items and never responded, putting an end to the transaction.
Verify Identification
Review a purported seller’s signatures on all documents, including the listing agreement and disclosures, making sure they are consistent with documents of record.
If the seller is a foreign owner, and a passport is used for identification, check with the country’s passport agency to verify the legitimacy of the passport.
If you are suspicious, you may want to consider requiring a second form of identification when conducting the closing.
Manage All Notary Closings
Be wary of a request by a seller to choose their own notary. It’s a best practice to insist upon using your trusted closers or closing attorney. You may also want to consider requiring a remote online notarization. If the seller refuses to agree to this form of closing, that may raise a red flag as well.
Report Suspicions to Management and Underwriter
If you suspect a transaction is not legitimate you should contact your manager or agency owner immediately. Based on the facts of the transaction, they may determine it is appropriate to alert other closers and staff to make them aware of other possible schemes they may encounter.
Remember that while you may suspect fraud, until that is proven in a court of law it is only a suspicion and you should not share your concerns outside of the office.
Bailey said this is especially true when dealing with the real estate agent or lender handling the transaction.
“We should not tell a real estate agent or lender that we think there may be fraud in the transaction, because that could result in a claim for slander,” she explained. “It may be sufficient for the underwriter to decline to insure and to have the agent then decline to insure. If a commitment has been issued, the agent should rescind all issued commitments.”
While you must avoid discussing suspicious situations you encounter with the real estate agent or lender, Bailey said you should immediately alert the underwriter.
“It is important to tell the underwriter all the details of the fraud, including the names of all parties and real estate agents, the property address, and any other pertinent information,” she advised. “In addition to alerting the underwriter on the specific transaction, it is advisable for the agent to contact all the underwriters on which they issue policies. The more people who are made aware of these transactions, the more likely fraud can be stopped.”
Bailey noted that the Alliant National underwriting counsel may be able to offer assistance in investigating the parties involved, to ascertain if they are active entities and if the persons purporting to be acting for the entity are actually involved with the entity.
“We may be able to perform credit checks or other searches on the parties that may yield additional information,” she said. “In addition, we may already have knowledge of the scheme, or the persons involved, and be able to inform the agent whether they are right to be suspicious. Sometimes we can even let them know that the transaction appears to be legitimate.”
If there is actual evidence of fraud, the agency owner or manager should contact local law enforcement, especially if fraud is active in their area or they have had more than one occurrence.
County Alert Systems
Vacant lot fraud has been particularly rampant in Florida and Texas. Many counties in those states have established property fraud alert systems, for example the Tarrant County, Texas, Property Fraud Alert, which encourages property owners to request notification from the county recorder if any documents are filed against their property. New deeds, liens or other legal documents would trigger an alert to the owner. As Tarrant County points out on their website, the system will not prevent fraud from happening, but does offer an early warning system that will allow property owners to take appropriate action should they believe fraudulent activity has occurred with their property.
In Florida, several counties have also implemented a similar fraud alert system. Check with the county in which the property is situated to see if this program is available. In addition, Florida is currently considering legislation that would make these alerts mandatory for all property owners.
Follow Your Instincts
Title agents are skilled at ferreting out fraud of all kinds in real estate transactions. Often, the number one indicator is your own instinct that something is off. It could be a buyer who is overjoyed at getting a phenomenal deal on a property that raises your suspicions. Sometimes it is the odd way in which a transaction is progressing. Anything out of the norm should be investigated to ensure the validity of the transaction.
At Alliant National, our underwriting team is here to assist you in thwarting any suspicious activity. Call us if you have any questions or uncertainty about a transaction so that we can work with you to verify the facts at issue.
As part of its mission to provide valuable help to title industry stakeholders, Alliant National has launched a program incentivizing agencies to report any suspected instances of fraud. Firms that do so are eligible to receive a $1,000 reward.
Since its inception, the program has proven to be a model for how underwriters and agencies can work together to prevent financial malfeasance within the industry and help lower premiums. In the past year alone, Alliant National and its agents have successfully averted over $1.8 million in liability costs.
Those results carried over into 2023 with yet another successful example of how fraud can be effectively detected and prevented when different stakeholders work together proactively and in tandem. Marion Lake Sumter Title, an agency based out of Ocala, Fla., recently noticed a potentially fraudulent transaction regarding a roughly half acre plot of vacant land valued at $20,000. As per the agency’s protocol, Marion Lake contacted the seller about the sale and instructed them to call their office if anything was amiss and if they were not, in fact, selling the property. The agency’s suspicions turned out to be correct, as the owner called back immediately, provided two valid forms of photographic identification and scheduled a video conference call to discuss the matter. Conversely, the fraudulent seller was asked for the same items and never responded.
“As soon as we received a call from the real seller, we notified our underwriter as well as both real estate agents on the transaction,” said Heather Pierport, Manager, Licensed Escrow Agent and Post Closer at Marion Lake Sumter Title, who initially identified the suspicious transaction. When asked about why fraud detection and prevention programs are important, she said, “These types of transactions are emotionally draining and can put agents in a depressive state. Programs like Alliant National’s help keep morale up when dealing with fraudsters.”
“Heather has been instrumental in keeping our underwriting team updated on both the fraudulent seller schemes and fraudulent checks they have encountered. I wish we could clone them!” said Lisa Yates, AVP, Agent Training Manager, Fla., for Alliant National, when discussing the incident.
Lisa then addressed Marion Lake Sumter’s anti-fraud efforts more broadly: “The way they strive for attention to detail and research each order is such a benefit to customers, underwriters and the title industry as a whole. Heather and her team have the best ‘trust your gut’ reactions to questionable transactions. As fraud continues to plague our industry, it is very important to double-check transaction details to make sure they all match-up.”
For her part, Heather concurred with how important it is to catch fraud before it occurs for the larger title insurance industry, taking the time to explain how continuing education and digital solutions have also made a positive difference: “We are constantly learning about the latest fraud trends. We also use Positive Pay to catch fraudulent checks that may try to post to our escrow account. This November, for example, we had almost $90,000 in fraudulent checks try to come through our account. With Positive Pay, I rejected those items, and we never lost any funds. I truly believe that solution should be a requirement for every escrow account.”
Cyber criminals are busier than ever. Staying safe requires fraud awareness and the right business insurance coverages. Jerome Magana of SSIS Securance and Tom Weyant, Alliant National’s Risk Management & Data Privacy Officer, sit down to discuss the latest fraud trends and tips for making sure your businesses is positioned to recover in the event of a cyber fraud attack.
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.
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.
