Imagine this all-too-real situation: A new client finally found their dream home and is looking to you to take the deal over the finish line. The seller is excited, the paperwork is in place, and everything appears to be going smoothly.
The day before closing, a member of your title company receives a call from a new assistant representing the bank asking for a last-minute change to the destination account for the mortgage payoff. Although confused, the pressure to finish the closing causes the team member to overlook some missing details and complete the mortgage payoff using the new instructions.
Little do you know, your title company just became the victim of mortgage payoff fraud.
Protecting Yourself Against Mortgage Payoff Fraud
Mortgage payoff fraud is a type of scam in which fraudsters impersonate a seller's mortgage lender and provide false wire transfer instructions in an attempt to have huge sums of money wired to their own account.
Understandably, this type of fraud can be devastating for title and settlement companies, home sellers, and the real estate professionals that represent them. In addition to significant financial losses and ruined reputations, the payoff is lost.
Despite growing awareness of the financial and reputational impacts of payment fraud in a real estate transaction, criminals are continuing to increase their attempts. In fact, the CertifID Fraud Recovery team saw a 145% increase in fraud cases reported year-over-year, averaging $158,000 in losses per case. Additionally, mortgage payoff fraud was the largest source of loss.
This is why it is more important than ever to be aware of the signs of mortgage payoff fraud and take steps to protect your business against it. And that’s what this CertifID resource is for.
Let’s dive in!
What factors contribute to the rise of mortgage payoff fraud?
Fraudsters have always been driven by the allure of a big payday from successfully tricking an unsuspecting victim. However, the techniques they use to commit fraud and the factors contributing to their success have evolved.
Some of the most prevalent factors include:
Fraudsters are becoming more sophisticated and using a combination of technology, social engineering, and security breaches to carry out mortgage payoff fraud. These tactics include:
The widespread use of digital communications and transactions also contribute to the rise of mortgage payoff fraud. As more elements of the closing process move to the internet, smartphones, and SMS, it becomes easier for scammers to impersonate legitimate businesses or individuals and deceive their victims. In fact, a 2022 survey by ALTA found that 46% of title and settlement companies received at least one email attempting to change wire or payoff instructions monthly.
The accelerated pace of the closing process in the mortgage industry increases the likelihood of mortgage payoff fraud. Cybercriminals know the typical closing schedule and stress that can define a busy title or escrow company. The pressure of juggling multiple closings can make it easier to overlook a small detail or warning sign.
Fraudsters view their crimes as a pure numbers game. Even if they are spotted, ignored, blocked, or thwarted dozens of times, they will eventually find one unsuspecting victim to exploit in return for a big payday. And with the average mortgage payoff topping $236,000, one successful fraud attempt can make all the criminals' efforts worth the wait.
How can you prevent mortgage payoff fraud from impacting you?
No matter the size or location of your real estate transaction or your company’s track record, fraudsters are always hunting for a weak link to exploit to their advantage. Although you can never fully prevent a fraud attempt from occurring, there are several key steps you and your team can take to thwart an attacker.
Here are three proven best practices:
Impacted by mortgage payoff fraud? Here’s what to do next.
Although the shock of being hit by payoff fraud can be overwhelming, it's crucial to respond quickly. A swift response is key to potentially recovering your funds and mitigating the damage. Here’s what you should do next:
1. Contact your bank to attempt to halt the wire.
If you suspect that you have been the victim of mortgage payoff fraud, you should immediately contact your bank and ask them to attempt to stop or recall the wire transfer. Because some banks perform secondary checks or need to wait for the SWIFT system, the process takes 1-4 days. However, once the transfer is started and accepted by the receiving bank, it’s nearly impossible to stop.
2. Contact law enforcement.
After contacting your bank, your team should contact the FBI Internet Crimes Complaint Center (IC3). The FBI has a Mortgage Fraud Unit that investigates and prosecutes these cases. You can also file complaints with the Consumer Financial Protection Bureau (CFPB).
3. Get expert fraud recovery assistance.
You can also turn to professional services to help you take the above-listed steps. Navigating that complexity alone can be daunting. CertifID has a Fraud Services Recovery division that helps fraud victims. This division can provide:
4. Perform internal incident response procedures.
In case there are other vulnerabilities across your network, initiate your company’s incident response process to confirm there are no recent or ongoing transactions that might also be affected. This process can also help identify whether there are any other security weaknesses fraudsters may exploit.
With the increasing sophistication of scammers, widespread use of online communication and digital transactions, pace and pressure of closings, and high value of real estate transactions, it is more important than ever to be vigilant and take steps to protect your title company against mortgage payoff fraud.
That’s why more title companies and real estate law firms are turning to technologies like CertifID. Products such as PayoffProtect can give you the peace of mind that your wire transfers are verified and your funds are kept safe from fraudsters. Combined with other proactive measures, CertifID can help your business and clients safeguard real estate transactions and avoid devastating financial losses and reputational damage.