May 1, 2025
This article is a product of the Virginia State Bar Real Property Section.
Introduction
Fraud in real estate and title insurance is a growing concern, impacting both professionals and the public. As technology evolves, so do the tactics employed by fraudsters. This article aims to shed light on the most common types of fraud occurring today and provide guidance on how to protect against these threats. Those who consider themselves victims of fraud should contact their local authorities, the FBI Internet Crime Complaint Center, and their attorney.
- Seller Impersonation Fraud
Seller impersonation is one of the most common types of fraud in the real estate sector, especially with unimproved property. Fraudsters assume the identity of the property owner and attempt to sell or mortgage the property without the owner’s knowledge. This type of fraud often involves forged documents and fake identification.
Preventive Measures:
- “Trust but verify”—Real estate agents and title professionals must constantly verify the identity of sellers through multiple forms of identification. While sellers may not appreciate being asked by various parties to produce identification, it helps protect ownership of the property. The various parties involved don’t share identification very well due to federal consumer protection laws, so verification documents need to be supplied repeatedly at each step of the way. Use secure communication channels to confirm transactions. For consumers, this may not be possible on home devices, but be aware that the information sent online may not be secure. Also, resist the urge to post about selling a property on social media. Fraudsters monitor social media for just this type of information.
- Settlement agents must be cautious of out-of-state notaries and confirm their legitimacy, as much fraud is linked to transactions in which the seller has not been met in person. As a seller, do not be surprised if the settlement agent requires at least one document to be signed by a Virginia-licensed electronic notary. The notary will ask a series of questions that only the owner should easily answer.
- Wire Fraud
Wire fraud typically occurs during the transfer of funds in a real estate transaction. Fraudsters hack into email accounts to monitor communication between buyers, sellers, and real estate agents. At a critical moment in the transaction, they send fake instructions for wire transfers, diverting the funds to their accounts.
Preventive Measures:
- Confirm wire transfer instructions verbally using known phone numbers. The numbers can be ones found on the settlement agent’s website or what are sent in U.S. mail. Be very cautious about emailed instructions. Independently verify contact information. Do not rely on phone numbers listed in an email. Fraudsters are sophisticated and will include a legitimate phone number in their email. If called, the fraudster will answer and impersonate the receiving party of the wired funds.
- Be wary of last-minute changes to wiring instructions. It is exceedingly rare to have a settlement office change wiring information close to settlement. Sometimes, when their bank account is compromised, it’s necessary, but very unlikely. Talk with your real estate agent. Talk with the settlement agent doing the closing. Sellers should talk with the attorney writing the deed. Do what’s necessary to make sure funds are sent to the correct account, or those funds may be lost.
- Use encrypted email services to protect sensitive communication if at all possible. Using the U.S. Postal Service to send information is also acceptable. Sellers should have wiring instructions for proceeds sent in the same package as the signed deed.
- Fraudulent Payoffs
In fraudulent payoff schemes, fraudsters pose as legitimate creditors and provide false payoff information to settlement companies. This results in the settlement funds being wired to the fraudsters instead of the actual lienholders.
Preventive Measures:
- As a seller, help the settlement agent get information about payoffs, whether for a mortgage loan or to pay off a judgment. The settlement agent should independently verify payoff instructions by contacting the creditor directly, but the seller should facilitate this.
- All parties should cross-check details such as account numbers and contact information.
Use secure portals for exchanging financial information if at all possible. Consider using the telephone, even though the creditor and the settlement company will need written consent to discuss the matter with anyone other than the buyer. Consumer protection works on behalf of the buyer.
- Entity Fraud
Entity fraud involves the creation of fake business entities or someone acting without authority on behalf of an entity. Fraudsters use these entities to engage in real estate transactions, secure loans, or commit other types of financial fraud.
Preventive Measures:
- Purchasers should rely on the professionals working on their behalf.
- Sellers should make sure their organizational documents are clear as to who is authorized to sell real estate for the entity.
- Real estate agents and title professionals should verify the existence and good standing of business entities with state business registries; require detailed documentation and references for business entities involved in transactions; and monitor for red flags such as inconsistencies in documentation or pressure to expedite the process.
- Loan Modification and Foreclosure Rescue Scams
Homeowners facing foreclosure are prime targets for fraudsters who promise to negotiate with lenders on their behalf. These scams often involve upfront fees and result in no actual services being provided, leaving homeowners in a worse financial situation.
Preventive Measures:
- Educate yourself about legitimate foreclosure assistance programs.
- All parties should report suspicious companies or individuals to the state regulatory authorities.
- Homeowners should seek advice from trusted legal and financial advisors.
Conclusion
Awareness and vigilance are crucial in combating fraud in real estate and title insurance. By implementing robust verification processes, using secure communication channels, and being constantly aware of the possibility of fraud, the risk of falling victim to these schemes can be significantly reduced.
Additional Information
U.S. Department of Justice: Criminal Division—Report Fraud ALTA: Wire Fraud
ALTA: Wire Fraud
ALTA: Mortgage Fraud Prevention
Consumer Financial Protection Bureau Sections $12 Million from Ringleaders of Foreclosure Relief Scam