“I could never do what you do. How do you sleep at night?”
I’m getting a lot of comments like this in the last few months. From clients, attorneys, and underwriters alike. The prevalence and devastation of seller impersonation fraud has to be one of the largest threats to our industry, especially for independent title agencies not affiliated with a larger company or joint venture. To be honest, it’s the scariest thing I’ve seen in my eight years in title.
Payoff fraud? Not ideal, but I feel my team is trained and our own insurance policies are strong to protect us. We have a lot of safeguards and redundancies in place to raise red flags. Wire fraud? Honestly heartbreaking when a buyer sends their hard-earned life savings to a fraudster, but 100% of the time it’s happened to our agencies, the social engineering took place through the realtors’ email addresses. Mistakes & errors? Stress me out daily, it’s a tough industry with a lot of moving parts, so I just have to accept that mistakes are going to happen.
But seller impersonation fraud truly scares me. Because there are so many ways it can happen, so much potential devastation and loss, and the fraudsters are getting so damn good at it.
I was out of the office from Thanksgiving to Tuesday, Nov. 28. This is not an amazing time for me to be out of office, what with a long holiday weekend tacked on to the end of the month, which is traditionally the busiest time for title. I came back to the office on Wednesday and my inbox was full of fraud. Let me explain – after a recent seller impersonation fraud attempt at my agency, I had a long and detailed conversation with my team about this fraud, how to identify it at every step of the process, and most importantly, emphasizing that we need to approach files with a suspicious mindset. I am extremely grateful that this message was received and my team is now suspecting fraud with every transaction – which is why my inbox was full of fraud.
“What do we think about this payoff?” “The seller wants to use his own notary out of state but we’ve never closed a deal with him, what do we say?” “This client is really pushing me to close but not getting me the authorization documents I need.”
Let me tell you, it was quite the day back from vacation. It has been an active and exhausting practice to shut up the part of brain that’s focused on service and accommodating our clients. Yes we can close right away! Yes we can do the title commitment same-day! Yes we can send a notary to you! Yes you can e-sign! Yes we can draft that for you! This mindset is perfect for seller impersonation fraud – we’re trained to be so focused on not losing the deal, we aren’t asking if we should want it in the first place. Plus – it is SO MUCH WORK to verify everything we’re supposed to be asking questions on.
That’s how I spent my day – tracking down information for all of these potential fraud issues. I wanted to share a bit about the seller out of state, because he refuses to have a copy made of his driver’s license, citing (legitimate) privacy concerns. Seller impersonation fraud is exactly why he won’t allow us to verify his identity, and refusal to verify identity is a hallmark of seller impersonation fraud. Which means I’m caught in a loop and have the potential to lose this transaction. This is what I wrote to him:
The question you’re probably asking yourself is whether or not another title agency will present less of an obstacle to you signing remotely – probably. This type of fraud and resulting restrictions are very new, and title agencies are playing catch up. We’ve had this property as a file in our system since 8/1/23. As stated previously, we’ve redone and reworked the file three times for the three buyers. We haven’t been paid anything on this file in the meantime. And we will not get paid unless and if we are able to successfully close the transaction. I state this to let you know that I am extremely motivated to find a solution that fits both your privacy concerns (which are legitimate) as well as my obligation on behalf of my title agency to eliminate risk before issuing an owner’s title insurance policy insuring the buyer for over half a million dollars.
There is no doubt that changing my mindset – and my team’s – to be suspicious of transactions and protect us from seller impersonation fraud will make me lose legitimate deals with legitimate sellers. This is obviously not my intention, and not to my agency’s financial benefit. However, what I also know is that seller impersonation fraud claims against my underwriters result in a total failure of title, and a payout of the claim to the full limit of the policy. And if an underwriter comes to me for recoupment, one singular instance has the potential to bankrupt my title agency. I can lose a couple thousand dollars on a file if it means I avoided losing my agency.
The other obstacle to this mindset is our clients (realtors, attorneys, brokers, lenders) aren’t scared of this yet. They aren’t really scared of wire fraud or payoff fraud, because they haven’t been held accountable for losses. They’re also trying to get whatever deals they can which is forcing them to expand to areas that aren’t their expertise – just like title agencies. We have to be so careful when we expand out of necessity rather than an interest or natural extension into an adjacent market.
I have a client refinancing a property. There is a private lender showing up on title with an outstanding mortgage. The client tells me the mortgage was paid off in 2017 with another refinance, and the private lender is now out of business. He offers to sign the discharge on behalf of the private lender. It’s easy, right? He’s doing me a favor by drafting and signing this discharge, and the old owner of the private lending company will call me and tell me it’s okay. That’s fine, right?
I hate that I can’t trust people automatically in this industry any more. But I can’t. I don’t know who this private lending company is, I don’t know who owned it before it closed, and I don’t know who has authorization to sign the discharge. That’s work I’m going to have to do that I can’t really charge a fee for. But I look at my team around me and I don’t care that it’s more work, or it annoys clients, or we might lose a few deals over us elevating and insisting on new standards.
Because my team is 100% worth it, as is this company that I’ve built. I don’t know what recovery looks like for a title agency after seller impersonation fraud but I’m going to do everything I possibly can not to find out, and I really strongly encourage you to do the same. Whether you’re a real estate agent, homebuyer, lender, attorney, title agent, or underwriter – we need to protect consumer property rights. Please change your mindset, and your team’s mindset. It can save your job, their jobs, your company, and unsuspecting buyers’ hard-earned savings. If you own property, check with your county if they have a property record notification system that will tell you if anything has been recorded on your property.
Oakland County, MI Property Owners Sign Up Here
