Payoff Verification: What the Real Estate Industry Needs to Know

Payoff Fraud is on the Rise

It might be tempting to assume this increase in scams was made possible by the ongoing COVID-19 pandemic, but that’s not the case. Payoff fraud was becoming more common well before the pandemic began. Predictions from years ago claimed that this method would overtake buyer-side fraud in “the coming months.”

That said, the pandemic’s impact on payoff fraud was like pouring gasoline on a fire. In 2020, attempted wire fraud was seen in one-third of all real estate transactions. Along with this, 76 percent of real estate agents noted that the number of fraud attempts they observed was comparable to or higher than those seen the year before.

 

Fraudsters are Becoming More Sophisticated

While advances in technology have many benefits, it is also enabling fraudsters to become more disguised and get access to more sensitive information. This makes it increasingly hard to distinguish between legitimate correspondence and schemes. This is especially worrisome when dealing with large transfers, like those that happen during mortgage payoffs.

In fact, incidents involving escrow officers are becoming more common. They receive a fax that looks like it is from the mortgage company, but is actually a fraudster posing as the mortgage company. All the information is the same including the bank and the routing number, but the account number is different. 

This means that to pull this off the fraudster had to know that the transaction was happening, the bank associated with the transaction, the routing number, and the amount for the payoff. And while escrow officers typically call to verify every payoff, they sometimes get busy–if it looks good they might just skip that step creating an easy ‘in’ for fraudsters. 

 

Preventative Steps Must Be Taken

Since fraudsters are getting more advanced in their efforts to trick you and your clients out of massive payments, it’s crucial that you respond in kind. That means taking digital security more seriously than ever before. Fortunately, a few simple steps can go a long way in making your company less susceptible to wire fraud:

  • Many payoff frauds start by getting information from unwitting title employees. Because of this, employee education can be beneficial. Let your employees know the warning signs of fraud attempts, like changes in contact information and aggressive requests to wire money over ASAP.
  • Have a consistent, well-understood process for verifying payoffs. This step would include clear instructions covering how your employees should verify loan payoffs as well as an audit trail to ensure compliance with the process. If your verification process is ambiguous or not well understood it opens the door to fraud.
  • It’s equally important to make sure your customers understand the risks of wire fraud and how to avoid fraud attempts. Make sure they know not to send their financial information over email, to confirm wiring requests in person or a phone call with a known number, and to be careful when opening attachments.
  • During the real estate purchase process, all parties involved should be in close communication throughout. That means following up with other people involved in a sale to ensure they received the money you transferred to them.

 

If you do fall victim to payoff fraud, don’t panic. As soon as you’ve discovered what happened, reach out to the financial institution to inform them of the situation and ask them to contact the institution where the money was sent. Along with this, notify your local FBI office (if the fraud occurred recently). For a more in-depth plan for wire fraud incidents, refer to The American Land Title Association’s Rapid Response Plan

 

Payoff Verification Software

Unfortunately, none of these methods are perfect. Even if you’ve taken the time to educate your employees and clients, you’re dealing with highly skilled fraudsters. Given enough time, they’ll find a crack in your security and figure out how to exploit it.

With that in mind, it’s a good idea to incorporate payoff verification software like ClosingLock into your system. ClosingLock is a safe, secure way to share wire instructions and verify payoffs. With this software, your employees won’t have to deal with cumbersome safelists and time-consuming bank calls – instead, they can share highly sensitive financial information and wire requests in under a minute. 

ClosingLock creates a simple, easy, safe process that ensures funds are going to the right place. 

To learn more about protecting real estate transactions from wire fraud, contact ClosingLock today at (512) 270-3917.