2 Fraud Schemes to Be on the Alert for in 2021.

Our CTIC & CLTIC agency leadership team is unmatched in experience in the real estate and title insurance industry, and our knowledge of trending fraud schemes is no exception. Here, Vice President and Associate GA State Counsel, David Gordon discusses new fraud schemes to be on the lookout for as we move through 2021.

Even though we are in the middle of a worldwide pandemic, and our lives have been upended, some things never change. Real estate fraudsters continue to devise schemes to try to separate honest people from their money. Fraud and cockroaches may be the only two things that survive the apocalypse. Two common scenarios we are seeing are detailed below with tips on how to avoid falling victim to them.

The absentee owner

            A property whose owner resides out of state and has little connection with that property is a prime target for someone willing to pose as that owner and fraudulently sell the property or take out a loan that strips the property of its equity.

When the property is owned by an individual the fraudster will pose as that owner using falsified identification documents. For that reason careful review of photo IDs is always important.

A more common scheme involves properties owned in the name of an entity. The fraudster may present falsified bylaws, resolutions, operating agreements or other entity documents that would not necessarily be filed with the Secretary of State. Based on those documents the fraudster would appear to be the individual who has authority to act for the owner of the property. Another variation on this scheme involves a fraudster who creates an entity that has a very similar name to the actual owner of the property. An example would be if property is owned by ABC Property 1, LLC then the fraudster would create an entity named ABC Property I, LLC using the capital letter “I” rather than the number 1. An even more devious twist on this scenario involves the creation of an entity with the exact name of the owner in a different state.

In all of these situations where there are concerns, there are steps that the closing agent can take to verify they are dealing with the true property owner:

1. Compare the address on the tax bill with the address for the representative of the seller. If they do not match then you can send a letter to the address on the tax bill notifying the seller that you are the closing agent and to contact you to provide information.
2. Review the seller’s information sheet, or the lender’s borrower’s information in a refinance, and make sure the information is consistent with what is known about the property.
3. Carefully review all the Secretary of State’s information and compare it to information that the seller is providing. Contact people identified in these filings to verify they are aware of this transaction.
4. Look at prior transactions involving the entity on GSCCCA and see who was signing on their behalf and compare their signatures with the signature for the person currently signing.
5. Lastly, trust your instincts. If something just feels wrong about the situation ask more questions and call one of our underwriters for suggestions.

The mysterious cash buyer

            Normally, when we realize a sale is a cash transaction it is a cause for joy and celebration. The closing should be much simpler and quicker than the typical sale involving a purchase mortgage lender. However, a cash purchase can also be a situation that a fraudster may try to exploit. Be on the lookout for the following red or yellow flags which may indicate there is a problem:

1. The buyer is interested in the property sight unseen.
2. The buyer is located internationally and due to time differences is never available telephonically and funds come internationally.
3. The buyer is over-eager to share information about their financial status to prove how legitimate they are.
4. A great deal of pressure applied by the buyer to close quickly.
5. The buyer deposits more money than requested.
6. Something does not smell right about the buyer. In fact, it absolutely stinks and your spidey-sense is going off. Learn to trust your instincts.

So why is our mysterious, international, financially well-off, sophisticated buyer trying to buy property halfway around the world without having laid eyes on it? The endgame for this “buyer” is to have their foreign down payment check deposited into the closing agent’s escrow account. The check typically appears to be good funds in the form of a cashier’s check. Inevitably the check will be determined to be fraudulent. Unfortunately, before that discovery is made the buyer will request the funds, or a portion of the funds, that were deposited be returned because the deal has fallen through or because too much was deposited in the first place. If those funds are wired back and the check is found to be fraudulent the closing agent will be accountable for the shortage.

When some of these warning signs appear there are some steps that can be taken to make sure no one falls victim to this form of fraud.

1. Insist on speaking to the buyer, not their representative, and determine if the story they are telling makes any sense. Ask them why you are so lucky that they chose you to be the closing agent.
2. Insist on wired funds and make sure that the wire cannot be reversed.
3. Do not accept deposits from a cash buyer for an amount greater than required.
4. If any check is presented to you call the bank that the check is drawn on to verify it is legitimate.
5. Never return funds to any party until you are 100% sure that the funds that came in to your account are collected.

If any questions arise with these, or other situations, feel free to call our office to speak with one of our underwriters to discuss the steps you should take to protect yourselves.