By: Sarah Holm, The Plunk Law Group – Title Office and member of CCAR's Affiliate Committee
Title Insurance is:
- An assurance against loss and indemnifies the insured against actual loss should the title to the property insured not be as stated in the policy
- An agreement to defend the insured’s title against an attack from parties claiming rights that have been insured by the policy coverage
- An agreement to compensate the insured for actual losses suffered under covered title risks
While fraud and forgery are covered risks offered in a title insurance policy, your client is only protected if the transaction closes. There are many frauds that can be perpetrated on your client or you prior to the transaction closing that the title policy cannot cover.
Seller Impersonation Fraud:
The industry is seeing an increase in scams that attempt to fraudulently sell property to unsuspecting buyers. There are multiple versions of the scam; but ultimately the “seller” is not the true owner of the property and does not have the right to sell the property.
The real estate agent is the first line of defense in these scenarios and watching out for red flags can keep you from being a victim too:
- The property is not occupied by the owner (vacant land or rental)
- You don’t know the “seller” and were contacted via email to list the property
- The seller is in a foreign country
- The property is free and clear of any encumbrances
- The requested list price is significantly below market value
These factors don’t necessarily mean that the potential listing is fraudulent; however, your best bet is to assume it is fraud and verify, verify, verify. Most title companies have some form of identity verification software that can be used to help determine that the person with whom you are dealing is a real person and the legitimate owner. They also sometimes have other tools to do preliminary checks on the property without running a full title search. Establish a relationship with your go-to title company, and they can assist you if you’re just not sure.
In addition, make sure that seller contact information (including address, phone number and email) is completed on the contract before it is turned into the title company. This will ensure that the title company can do their due diligence in determining that the “seller” is legitimate.
When a fraudulent transaction is closed and must be unwound, the buyer loses out on the property and you lose out on commission, but when we stop fraud in its tracks, everyone except the bad guy wins.
Wire Fraud:
Wire fraud can be extremely costly to your clients. Fraudsters attempt to substitute their own wiring instructions for those of the title company or sometimes even the payoff lender. This fraud is most often perpetrated via email hacking. Changing your email password routinely and using complicated passwords that include capital letters, numbers and special characters can help ensure you are not the weak link.
Verification is the next step in prevention. Make sure the title company has a good email address and phone number for your client so they can email the wiring instructions directly to them in an encrypted email, and make sure your clients have a phone number for the title company that they did not receive via email so that they can call the title company to verify the wiring instructions they have received.
The title company will not change their wiring instructions throughout the course of the transaction, so ensuring that instructions have been received and verified early in the transaction can thwart the bad guy’s attempt to replace the good instructions with fraudulent instructions prior to your client sending their hard-earned money to the title company for closing.
Mortgage Fraud:
Recent changes in the market have caused buyers to get creative with their financing but be aware that some of those “financing options” are actually a form of fraud that could get your buyer client in trouble. Mortgage fraud is a federal crime.
If your client is getting money from anywhere other than their own bank account, be sure that information is disclosed to their lender. All sources of funds used to purchase the home must be approved by the lender and there cannot be any secondary financing without the express written approval of the first lender.
Title agents cannot assist with or be a party to anything that isn’t disclosed to the lender and would be considered fraud because the lender also receives a policy of title insurance as part of the closing.
YOU are the first line of defense against fraud in real estate transactions.