This piece originally appeared in the November 2023 edition of MortgagePoint magazine, online now.
Real estate transactions have always carried a certain level of risk. In recent years, the rise of seller impersonation fraud has elevated these concerns even more.
While some fear that technology and the growing interconnectivity of our lives have provided cybercriminals with new ways to exploit unsuspecting buyers, sellers, and industry professionals, the truth is that technology may just be the antidote to these schemes.
Seller fraud in real estate transactions is a critical issue that warrants attention, particularly with the growing prevalence of data leaks and their severe consequences. Minimizing opportunities for impersonators to access sensitive information is of utmost importance, and digitization plays a pivotal role in bolstering security throughout the lending ecosystem.
The Rising Tide of Seller Impersonation Fraud: Compromised Identity at the Center
Real estate fraud, in all of its flavors, is not a new phenomenon. For example, a great deal of attention has been given to rising trends in wire fraud in real estate. Based on data from CertifID’s wire fraud protection and recovery business, the State of Wire Fraud report revealed that cybercriminals honed in on buyer cash-to-close payments as the primary focus of wire fraud in 2022.
The report highlighted consumer real estate payments as the most frequent target, emphasizing the prevalence of this type of fraud, but that is not the only type of fraud that we should protect against.
Since the beginning of 2023, real estate firms have experienced a significant surge in seller impersonation fraud attempts, with a staggering 73% year-over-year increase. These figures are alarming and shed light on the growing threat faced by the industry. The U.S. Secret Service also issued a warning earlier this year, highlighting a sharp rise in vacant land scams. Fraudsters are capitalizing on vulnerabilities within the real estate landscape, jeopardizing the trust and integrity of transactions.
At the heart of seller fraud lies identity impersonation, a technique used by criminals to deceive buyers and execute fraudulent property sales. The impersonators could leverage mass data leaks, compromising financial and personal information, to adopt the identities of legitimate property owners.
Mass data leaks provide a treasure trove for fraudsters. Impersonators can cross-reference addresses of occupied, rental, and vacant properties with stolen identities they have acquired, searching for matches. They can also resort to a myriad of phishing techniques, targeting individuals with the properties to extract additional information.
As a result, the real estate industry finds itself grappling with the challenge of protecting sensitive data while maintaining seamless operations in a fast-paced environment.
Seller Impersonation Fraud: A Crime of Opportunity
The pandemic had a profound impact on seller fraud with the real estate industry filing $893 million in losses between 2020-2021. The pandemic normalized remote transactions on a larger scale, reducing our sensitivity to unfamiliar business partners. While conducting transactions without meeting in person would have raised suspicion in the past, it is now the new normal.
However, seller impersonation fraud is not merely a consequence of economic downturns or financial hardships. It is a crime of opportunity. Impersonators are drawn to this illegal activity because access to sensitive information has become easier to obtain. The prevalence of data leaks and the growing digitization of the industry have inadvertently opened doors for fraudsters, demanding immediate action to fortify the real estate ecosystem.
Pressures and Due Diligence Gaps in the Real Estate Lifecycle
Today’s real estate businesses face immense pressure to attract clients and facilitate a greater number of transactions in an environment where speed and efficiency take precedence.
As a result, the extensive workload within the real estate lifecycle has resulted in process gaps, or a “diligence gap”—a situation where there is a shortfall in performing thorough due diligence throughout the various stages of a real estate transaction. The diligence gap can lead to increased risks and vulnerabilities, making it easier for impersonators to exploit opportunities and engage in fraudulent activities during the transaction process. Addressing the diligence gap is crucial for maintaining the security of real estate transactions and protecting the interests of all parties involved.
Technology’s Role in Combating Seller Fraud
As the real estate industry evolves, technology holds the key. Digitizing the entire lending ecosystem and financial services not only improves transactional security but also enhances data storage and access controls. Embracing technological advancements allows for the implementation of robust security measures that protect sensitive information throughout the transaction process.
Digital mortgage solutions, such as eClosings, have emerged as a robust counter to the increasing risks of seller impersonation fraud. When implemented effectively, the identity processes embedded within remote eClosings serve as a powerful deterrent against large-scale identity fraud.
Unlike traditional in-person transactions, where the authenticity of credentials relies solely on the judgment of the individual handling them, Remote Online Notarization (RON) eClosings leverage technology to validate cryptographic information and credential content.
While a notary is still involved, technology provides support in verifying authenticity, making it far more challenging for sophisticated forgeries to pass the authenticity checks—a proactive defense against identity impersonation.
This approach also prevents identity impersonators from enlisting fraudulently notarized documents in their scheme, which they typically do under the auspice of convenience.
Transforming Real Estate Closings and Securing a Digital Future
The adoption of technology in the real estate industry has the potential to revolutionize the closing process and bolster security measures against seller fraud. By removing the dependence on physical papers and signatures that require time-consuming transfers, technology paves the way for a more streamlined and efficient lending experience.
This enables industry professionals to expedite deal closures and execute official documents from any location, enhancing convenience and productivity while adding layers of security to each transaction.
Looking ahead, the future holds even greater promise as the entire closing process is reimagined, with a focus on eliminating physical documents and revolutionizing data communication. These advancements will fortify the defense against fraud, providing a more resilient and secure environment for real estate transactions.