Fraud Update: Red Flags Flying
By Danielle Kaiser, Esq.
It is not your imagination — there is a significant rise in the number of fraud claims across the entire title insurance industry. It seems that every week brings a new scam that title agents need to avoid. Lack of inventory, combined with high amounts of property equity, are leading to bad actors finding (illegal) ways to steal property and equity. This creates a significant risk to real property transactions, as fraud claims can lead to a total loss of title – resulting in a large claim payout, as well as expensive and time-consuming litigation. Both agents and underwriters suffer in these unfortunate scenarios.
As no one wants to deal with the fall-out of a fraudulent transaction, title agents should keep their fraud radars on highest alert when these high-risk transactions are presented:
Sale of vacant land
Currently, this is the most highly targeted type of transaction for fraudsters seeking to steal equity. In this real estate scam, which has long challenged agents and underwriters alike, fraudsters pose as the owners of the property and take out a new mortgage on property where there is no existing mortgage. The fraudsters steal the equity in the property by getting all the proceeds at closing from the new mortgage.
Alternatively, the fraudsters file a recent deed conveying the property into their names and then take out a new mortgage or sell the property. In either situation, the true owners are defrauded of the equity in their property – and the title agent and title insurance underwriter are left with a substantial claim from the new policy to be resolved.
Some of the typical characteristics of a fraudulent sale of vacant land include:
- Free-and-clear property
- Vacant residential lots or acreage
- Transactions that are a “rush” and need to close within a couple of days
- Fraudulent identification documents
Title professionals should assume a sale of vacant land is fraudulent until the details of the transaction prove it is a real deal with the true titleholder as seller/borrower, advises Valerie Grandin, Executive Vice President, Chief Underwriting Counsel of Doma Title Insurance.
Foreign bank checks
In this “old school” type of fraud, the title agent receives a cashier’s check, along with a purchase agreement, within a few days of one another. Often these come from a new customer, unexpectedly and out of the blue. Remember the old adage, “If it’s too good to be true, it probably is?” This applies in these files more so than anywhere else.
In these fraudulent scams, the cashier’s check is from a foreign institution, usually a Canadian bank. The check is usually for more than the stated earnest money and may be for the full transaction amount. This alone should be a major red flag and raise your antenna to potential fraud.
After a few days, the buyer reaches out to say that the transaction fell apart and asks for the return of the funds from the cashier’s check. If the title agent wires the money back to the buyer, then the scam is complete, and the fraudulent buyer is left in the wind with the funds.
Since this was a foreign cashier’s check, it can take up to 30 days to be deposited in the title agent’s escrow account. At some point during that 30 days, the title agent’s bank will no doubt return the check as fraudulent. If the title agent has already wired the funds back to the buyer, then the title agent now has a large deficit in their escrow account due to the fraud scheme.
If you receive a cashier’s check that you suspect to be fraudulent, do not deposit it into your account. Instead, you should:
- Contact your underwriting counsel and provide details of the suspected fraud, including names, property information and bank information.
- Inform the issuing bank of the suspected cashier’s check fraud.
- Contact your local authorities, and report to the Federal Bureau of Investigation (FBI) Internet Crimes Complaint Center (IC3) at www.ic3.gov portal.
Due to current real estate market conditions, title agents must be extra vigilant. Title agents should think through the details of a transaction, ask questions and independently verify information. Slowing down to take extra precautions can save a costly claim for everyone. Your customers will thank you for taking a little extra time to protect their most valuable asset: Their home.
Danielle L. Kaiser is Vice President, Deputy Chief Underwriting Counsel of the Midwest Region of Doma Title Insurance, Inc.