The title industry’s latest cat-and-mouse game: seller impersonation fraud

The threat posed by wire fraud has commanded quite a bit of attention from the real estate ecosystem. But as the housing industry has gotten better at tackling it, fraudsters have been hard at work developing more creative scams.

In January, a report from wire fraud prevention firm CertifID in conjunction with the U.S. Secret Service, notified the title industry of a rise in what is known as vacant lot fraud, or seller impersonation fraud.

“We started to hear a lot about seller impersonation fraud early on in the year,” Tyler Adams, the CEO of CertifID, said. “We polled our entire database of customers recently and we asked them if their company had experience seller impersonation fraud in the last six months and 56% of title companies have experience it in the last six months and 73% are seeing more attempts this year compared to last.”

In a vacant lot or seller impersonation scam, public records are searched to identify real estate that is free of mortgage or other liens, as well as the identity of the property owner. Oftentimes this leads to the discovery of vacant lots. Then, posing as the property owner, the scammer contacts a real estate agent to list the property. All of the communications occur through digital or email interfaces. The property is then listed, typically below market value to generate interest in the listing. When it comes to close on the sale of the property the scammer will request a remote notary signing. The scammer then impersonates the notary and returns falsified documents to the title firm or closing attorney involved in the transaction. The title firm then transfers the closing proceeds to the scammer.

“You hear about people getting duped by people pretending to be title companies or Realtors and directing parties within the transaction,” said David Kennedy, the CEO of Fidelity Land Title Agency of Cincinnati. “That is the typical fraud that we usually see with someone impersonating somebody already involved in the transaction and trying to get them to send the wire to the wrong place. This time was different though because they were pretending to be a party in the transaction right from the very beginning.”

Kennedy’s firm had a close encounter with vacant lot fraud earlier this year, but they caught it before the transaction closed.

“We’ve been hearing about this type of fraud for two years, but this was the first time that we have actually seen it take place here in our area,” Kennedy said. “We are glad we felt that something fishy was going on and that our technology partner, CertifID, verified those feelings for us.”

According to CertifID, vacant lot fraud is usually not discovered until the time of recording or transferring documents with the applicable county.

“This recent trend involving seller impersonation is particularly concerning, as the real property owner is typically not aware nor in a position to prevent the fraud, until it is too late,” said Thomas W. Cronkright II, Executive Chairman of CertifID. “Unfortunately, it’s just the latest evolution of wire fraud that affects title companies, law firms, lenders, realtors, and home buyers and sellers.”

In Florida, Christian Ross of Ross Law | Ross Title is no stranger to seller impersonation fraud.

“Someone recently told me that the Florida of today is the U.S. of tomorrow, so a lot of times we see this type of stuff before most other parts of the county and this was no exception,” Ross said. “We have a lot of absentee owners here that come from all over the world, fall in love with the beaches and buy property, so when these fraudsters started to target this game, it was a natural option because it is a very transient community.”

In addition to the frequent comings and goings of Florida property owners, the state also sees quite a few land sales every year. In 2021, Florida was responsible for 12.8% of total land sales in the U.S., second only to Texas (14.6%), according to data from Realtors Land Institute and the National Association of Realtors. This, along with the fact that many properties in Florida are not occupied year-round, makes Florida a prime playground for fraudsters.

Other states with high land sale rates include South Dakota, Idaho, Iowa and Utah, with land sales making up 60.0%, 32.4%, 29.4% and 28.6% of realtor’s sales in 2021, according to data from Realtors Land Institute and NAR.

Over the past few years all types of fraud have been on the rise. In 2022, the Internet Crime Complaint Center (IC3) identified a potential fraud loss for the year of $10.2 billion, up from $6.9 billion in 2021. In addition, of the 800,944 complaints received by the IC3 in 2022, 11,727 were real estate related.

“Real estate represents a high value target for criminals, so as fraud increases generally, we will likely continue to see new types of scams emerge in the housing space,” Elizabeth Blosser, the American Land Title Association’s vice president of government affairs, wrote in an email.

Over at CertifID, Adams believes the recent uptick in seller impersonation fraud is due to the overall decrease in the number of real estate transactions, with existing home sales dropping 34% year over year in 2022 to an annual pace of 5.03 million, according to NAR.

“Fraudsters are always going to go for the easiest place to generate money,” Adams said. “There were fewer real estate transactions taking place, so there were less opportunities for them to defraud a particular transaction, and so what we saw was that they started to go out and manufacture closings by posing as sellers and reaching out to real estate agents. With fewer deals happening, agents are eager to jump on the listing and they maybe aren’t doing as much of their due diligence.”

Adams said key to preventing seller impersonation fraud is taking a layered approach to identity verification and validation for sellers. This includes device verification, where the party acting as the seller must correctly identify their geographic location based on the IP address of the device they originally registered with CertifID, multifactor authentication using the verified phone number the seller provided, and knowledge-based authentication.

This approach is necessary as simply using an ID card validator is not enough, according to Adams.

“There are a lot of services that you can purchase where you can take a picture of the front and back of a license and it will tell you whether or not the card is legitimate or fraudulent and unfortunately those services have a high rate of false positives,” Adams said. “They also, in some cases, can’t tell the difference between a fake ID and a real ID, and they are not able to say who is actually in possession of that ID card.”

This is a challenge Jaime Kosofsky of Brady & Kosofsky in North Carolina has run into. His firm was hit by two seller impersonation frauds in the fall of 2022, despite having multiple layers of cyber security, a disaster recovery plan and transaction verifications in place. Kosofsky feels fake IDs are at the crux of his firm’s misfortune.

“You can buy fake scannable IDs,” Kosofsky said. “You then take that ID to a bank, set up an account with the fake ID and then you find a suitable property by using public record and you are ready to commit seller impersonation fraud and that is exactly what happened to us. The guy had a Texas ID, a Florida notary and the property was in North Carolina. Just checking IDs is not enough.”

While industry experts stress that identity verification is a necessary step in ensuring a secure transaction, Ross at Ross Law | Ross Title, said there are plenty of warning signs you can keep an eye out for even prior to reaching the closing table.

Like the fraudster Kosofksy’s firm dealt with, Ross said to be wary of a seller who has an out of state ID and home address and is using a notary from a third state.

“We’d get people who would be impersonating someone who’s forwarding address was in Michigan, so they would get a fake ID with a driver’s license from Michigan with the correct forwarding address on it, but then they would be in England for the signing and then they’d want the money sent to a bank in Singapore,” Ross said. “That definitely tipped us off because very few people really live like that.”

Ross also noted that warning bells ring for him when fraudsters posing as sellers are “almost too easy to work with,” and that they are always mysteriously out of town.

His firm has begun the practice of mailing letters to the property owner’s home address as listed on tax and property records, especially if the property being listed for sale is not their primary residence.

In addition to Ross’ red flags, ALTA suggests comparing the seller’s signature to previously recorded public documents, to manage the notarization process and only use validated contact details, such as the mailing address on tax records, to contact the seller.

“Knowing scammers are constantly changing tactics, ALTA members frequently share their latest experiences defending against fraud with other real estate professionals via meetings, communication portals and educational events,” Blosser wrote. “While it is a big win every time a title agent identifies and stops fraud, the sooner fraud can be detected in a transaction, the better it is for everyone. Certainly, everyone involved in a real estate transaction has a role to play in combating fraud.”