Fraud and Forgery – Catch Me If You Can

The rise in instances of fraud and forgery in real estate transactions continues to sound alarms across the industry. The statistics governing fraud and forgery and the way the parties are targeted give all of us cause for concern. CertifID, a third-party verification service, reports that the 2023 data it collected revealed that there was a record fivefold increase in mortgage payoff fraud attempts from the first quarter to the second quarter alone. Fraud is not new; in a 2022 ALTA survey of closing agents nationwide, almost half reported receiving at least one email per month attempting to change a payoff or wire instructions. Unsurprisingly, the various data collected by different agencies show that Florida continues to be ranked as one of the states with the highest reported loss to cybercrime. The purpose of this article is to raise awareness and share ways in which some common types of fraud is perpetuated, explore some prevention strategies, and implement some best practices that may ultimately combat and thwart fraud.

There are many allies that have undertaken efforts to combat fraud in diverse ways. Involvement stems from federal and local agencies to local property appraisers to legislatures. Effective Jul. 1, 2023, House Bill 1419, which became law under Ch. 2023-238, Laws of Florida, attempts to curb real property fraud through new statutory provisions. For more information, please see “New Measures to Reduce Real Property Fraud” 55 Fund Concept 105 (Sep. 2023). Even with all the efforts and security measures in place, fraudsters are getting smarter and more resourceful than ever before. This is why it is important to recognize situations that may raise red flags that allude to fraud. This article will discuss two of the methods fraudsters employ: wire fraud and seller impersonation fraud.

Wire Fraud

In a real estate transaction, wire fraud involves the deceitful scheme to divert closing funds or mortgage payoff funds by altering legitimate wire instructions so that the funds are diverted to the fraudster’s account instead of the authorized person’s intended account. The ruse is typically accomplished via email phishing, which involves the fraudster targeting a realtor or an attorney, or even a buyer or seller via email or other online means to steal sensitive information and then impersonating that party via spoofed emails to the closing attorney. This can occur when unsuspecting parties click a link that ultimately provides the fraudster the pathway to access vital information related to the transaction. Often the scheme involves hacking on multiple levels; after accessing the computers of a realtor, for example, the fraudster can steal the names and contact information for the seller, and then monitor the seller’s email for information sufficient to facilitate the hijacking and alteration of wiring instructions. Fund Members must be diligent to avoid being fooled by these spoofed emails that appear to come from a legitimate source. Once the wire is sent using the fraudulent instructions, the money lands in the fraudster’s account and it is quickly withdrawn or transferred elsewhere before anyone involved in the transaction gets wind of the hoax.

How to Protect Yourself and Others Involved

• Independently Verify: Before sending money to a third party, review the original payoff and wire instruction document received from the lender with the lender over the telephone and verbally confirm the information provided, including loan numbers, routing numbers, account holder name and account number. Also make a note of the person’s name, extension and title within the institution who verified the information. Be sure to use a known telephone number or one researched independently.
•  Exercise Caution: If unsolicited or last-minute changes to wire instructions are received, verify the legitimacy of the change(s) by independently contacting the lender and verbally confirming the information, as outlined above. Some red flags to look for:
  • Emails that are sent outside of normal business hours, especially, if routinely in the past, the emails came during business hours.
  • Emails that contain poor grammar, misspellings, or unusual fonts.
  • Emails with a slightly different address than previously used.
• Take Charge: Exercise control over the wire process and communicate these expectations to all involved. Some ways to take charge of the closing process include:
  • Controlling the wire information being disseminated in and through your office. For example, communicate wire instructions in person and if sending via email or electronic means, consider transmitting through encryption.
  • Consider and implement strong passwords and two-factor authentication for your office accounts and emails.
  • Educate your staff and clients on proper wire and cyber hygiene.

Seller Impersonation Fraud

Seller impersonation fraud involves the deceptive practice where an individual or group of individuals pretend to be the property owner when marketing to a potential buyer. The fraudster undertakes the identity of a genuine seller to gain the trust of unsuspecting realtors, buyers, and closing agents by establishing fake profiles, listings, or websites that closely resemble those of the legitimate property owner(s). The fraudster sweeps the web for publicly available information related to the seller and may steal photos, forge deeds, or alter contact information, to influence and convince the unsuspecting parties involved. This more commonly occurs on vacant lands, with absentee or foreign owners located elsewhere. For this reason, heightened scrutiny is required when dealing with such scenarios.

How to Protect Yourself and Others Involved

Independently verify: Consider sending letter(s) to the seller at the address on tax records, the property address, and the grantee address on the vesting deed via mail or overnight delivery to introduce yourself as the closing agent in the transaction and confirm the current transaction. Contact the seller directly at an independently discovered and validated phone number.

• Exercise Caution: Identify if there is a trusted source (such as a realtor, listing agent, or seller’s counsel) that may have personal or verifiable knowledge of the seller’s identity. Require appearances in your physical presence, if possible, and request multiple complete forms of identification from the seller. When accepting copies, require complete color copies of the seller’s identification. For example, for a driver’s license, request the front and back, and for a passport, do not accept the photo page only.
• Take charge: If the seller is unavailable for an in-person signing, consider using a Florida remote online notary (RON) provider of your choosing. When managing a remote closing, whether via RON or otherwise, using a vetted notary who is bonded and insured can eliminate uncertainties relating to the true identity of the “seller” in the transaction. As part of your vetting process, The Fund’s website contains a Notary Fraud List, which can be found under the Info Center section (Notary Fraud List). It provides names and locations of notaries involved in fraudulent transactions. If you discover the notary’s name on the deed, take a closer look at your transaction and contact the relevant notary to confirm the legitimacy of the notary block.

For resourceful information on spotting fraudulent identification, watch an on-demand webinar from The Fund’s Education Department called Spot the Fraud.

The rampant increase in fraud and fraudsters’ attitude of “Catch me if you can” requires a more watchful eye on any given transaction. For that reason, we encourage Fund members to take charge of the closing.  Should Fund Members require assistance navigating through a particular scenario, Fund Underwriting Counsels can provide guidance and practical advice in overcoming any red flags that are encountered. A Fund Member’s diligence and vigilance will unequivocally preserve and protect the time, money, and reputation of all parties involved.

The best protection for buyers, sellers, brokers, and agents is to use a professional, experienced attorney, such as Dara Siegel, Esq., to process your commercial and residential property transactions or litigation.

Article By Princy Valiathodathil, Fund Underwriting Counsel

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