Title companies need your help
Title companies do have some additional resources to help identify fraud, but they can’t be the only line of defense against these scams, says Leslie Johnson, Vice President and Texas State Counsel for WFG National Title Insurance Company.
Real estate professionals enter the transaction much earlier, before a contract is even signed, and their efforts to vet sellers can make a huge difference.
It’s easy to hit the ground running as soon as a new listing comes in. You want to start providing excellent service for your new client! But before you list that property on the MLS, take a few moments to make sure sellers are who they say they are.
Criminals are pretending to be owners of property to steal funds from innocent buyers. They’re also putting you at risk of lawsuits and even losing your license.
Seller impersonation fraud has exploded over the last nine months, says Leslie Johnson, Vice President and Texas State Counsel for WFG National Title Insurance Company.
Title insurance underwriters across the country are handling many claims for those attempts that succeed, according to Johnson.
“The risks here are real. We’re seeing fraudulent sales attempts across the state daily,” she says. “A lot of it can be stopped with common sense and due diligence on the front end. It comes down to knowing your customer.”
What’s the con?
The fraud usually goes like this: A criminal finds a suitable property—often unoccupied properties such as vacant land, short-term rental property, or a second home—and reaches out to a listing agent.
Then the “seller” will tell the listing agent that they aren’t available for an in-person closing because they are traveling or live out of state and need to do everything remotely. Oftentimes, they will want to list below market value and push for a fast closing.
“It’s very easy now to contact an agent and say, ‘I want to sell the property.’ And all of the communication is via email or text so you never meet the fraudster,” Johnson says.
If that agent doesn’t suspect foul play, the agent may take the listing, put it in the MLS, and market it to real buyers. However, any contract or deed signed by an imposter seller is void. So a buyer gets nothing.
How far can the fraud go? It can be discovered and stopped before a transaction closes if the proper steps are taken. But in the worst-case scenario, the full value of the property is stolen.
The buyer’s money is gone, including any borrowed funds from a financial institution. How much criminals can steal depends on the property, Johnson says. “However much the property is worth, that’s your potential for loss,” she notes.
The title company realizes full losses on the owner’s title and loan policies. The listing agent may not get paid and could be accused of helping to sell a property without the actual owner’s knowledge.
The actual property owner is also harmed by seller impersonation fraud. The incident creates a cloud on the title, which must be fixed before the owner can sell the property.
Watch for These Red Flags
Is the property vacant land or unoccupied?
Is it priced well below market value?
Does the seller:
- Refuse to meet in person or participate in a video chat?
- Ask to handle the entire transaction remotely?
- Communicate only by email or text?
- Claim to be out-of-state or overseas?
- Not live at the property?
- Refuse to give their ID?
- Request a cash sale?
- Have the property listed as a FSBO online?
- Urge a quick closing?
- Rush each step in the process?
- List no phone number or an out-of-area phone number?
- Want to use their own notary?
- Have difficulty answering requests a legitimate owner could?
Ask yourself if the sale feels normal. Does the situation sound plausible if you explained it to someone else? Ask if this is how people you know who aren’t involved in real estate would act if they were the seller.
It could happen to you
It’s hard to say why seller impersonation fraud is becoming more prevalent, Johnson says.
She points to the turbocharged market of the last few years. When demand was so high, red flags such as cash sales, out-of-area contact information, and communicating solely through email or text didn’t seem strange.
Seller impersonation fraud can happen in any market—urban, suburban, and rural—and to any type of property, including owner-occupied homes, according to Johnson.
Typically, criminals choose properties with less oversight: infrequently visited vacant properties or vacation homes where the owner isn’t there. But this type of fraud can even affect rentals with tenants living in them. Criminals also target properties for which the tax mailing address is different than the property owner’s address.
What can agents do?
The easiest and best way to prevent seller impersonation fraud is for listing agents to do due diligence at the beginning of every transaction, Johnson says. Create a process and use it every time so all potential sellers receive the same treatment.
Start by meeting the seller. “Set an appointment to meet in person or do a video call. Get your eyes on the seller,” says Johnson.
Ask for ID and confirm the seller is legitimate. Request a copy of the identification when meeting the seller in person.
“Try to confirm it isn’t a fake ID,” she says. Is it current and does it have a hologram and a gold circle with a star on the front? Some fraudsters are very sophisticated and can provide a fake driver’s license that looks as good as the real thing, Johnson admits.
But compare the physical appearance of the seller to the photo on the ID—do they match? Ask the seller questions about the information on the ID—while holding it. Can the seller answer those questions without looking at the ID?
Also try vetting the seller’s other information, such as phone numbers by using a reverse phone look up service online, or even just doing an internet search. You might request that the seller bring along utility bills or other records related to the property that only the true owner would have access to.
Confirm through the mail. Send a letter confirming the new listing to all available mailing addresses: the property itself, the address on file with the central appraisal district, and any other addresses you can find online. If the seller is fraudulent, one of your letters will reach the actual property owner and you will be made aware if the proposed seller is not the true property owner before moving forward with the listing.
Do your best to contact the true property owner. Ask the person associated with the tax records, “Are you selling the property? Is this a correct listing?” Again, it’s best to try to get confirmation before moving forward with listing the property.
Ask questions only the true property owner would know. Can the seller produce a property survey or a copy of the homeowner’s title insurance policy? Ask about local amenities or community characteristics. A fraudulent seller wouldn’t be able to describe them.
What Buyers Can Do
- Be suspicious of deals that seem too good to be true. Use common sense.
- Check for yourself. Visit the property. Is there a for sale sign? Talk with the neighbors. Knock on the door. “An additional benefit is that if the sale is legitimate, you can make friends with your new neighbors,” Johnson says.
- Buyer’s agents should also check with listing agents and the title company to help verify that the seller is legitimate.
What Property Owners Can Do
- Property owners can set up Google Alerts for their names and addresses.
- Some appraisal districts offer automatic alerts or email notifications for property activity. Third-party sites such as Zillow, Trulia, and realtor.com may also do this.
- If the property owner does not live at the property, make sure the appraisal district has a correct forwarding address.
What’s your recourse?
Once you suspect or confirm a fraud attempt, stop working with the imposter, Johnson advises. If a title company is involved, call the title company and tell them to stop working on the sale. If you’ve listed the property on the MLS, take it down immediately and reach out to the local MLS to notify them that someone is attempting to fraudulently sell the property, so that they are also on alert.
File a police report so law enforcement is aware of what’s going on. Johnson suggests filing an online complaint with the Internet Crime Complaint Center, at ic3.gov, for documentation purposes.
And make sure to call the Secret Service. “I was surprised to learn that the Secret Service is in charge of investigating these types of fraud,” Johnson says. “They have been extremely helpful, so call the local branch and start working with them, too.”
Johnson estimates that if you do your due diligence early and thoroughly, you can stop the majority of these fraud cases in their tracks before they ever reach the closing table.
You are at risk
You, as a real estate professional, are also at risk when these scams take place. Even if you didn’t know you were helping a criminal, your efforts in guiding a fake real estate transaction can amount to participating in fraud. You could get sued for fraud, negligence, or another tort claim, Johnson says.
Even worse, you could get your license suspended or revoked. A provision of the Texas Occupations Code bans license holders from selling a property without the knowledge or consent of the property owner.
Raising awareness
The real estate and title industries are working together to address the threat of seller impersonation fraud head-on, Johnson says.
The Texas Land Title Association (TLTA) has created a Seller Impersonation Fraud Task Force and has partnered with the Texas Real Estate Commission and Texas REALTORS® to educate real estate professionals.
While it should be obvious, Johnson reminds agents that once the fraud has been identified, they have to let the sale go.
“There’s no amount of curative action that can make it close. Don’t waste your time. If you do your due diligence, you’re out a little bit of wasted effort, but that’s a lot better than putting yourself in legal jeopardy.”
Be careful out there!
Nicole Lopez is Chief Operating Officer for Mark Dimas Properties. She says many of Mark Dimas Properties’ leads come through Zillow. So it was not unusual when a man contacted one of the firm’s agents through Zillow looking to sell a vacant lot in La Porte.
He claimed to own the property, and the information he provided matched the tax records. He said he was from New York and had a New York phone number to match. He seemed to own several properties in the area.
“We talked him through the process. We ran the comps and gave him a comp range,” Lopez says. “He said he’d like to move it pretty quickly. He aimed for the lower end of the range and said, ‘Let’s see what activity we can drum up.’”
The agent only ever spoke to the man by phone. “We never did a Zoom call, and that’s one of the ways we could have double-checked it,” Lopez says. “We never had any experience with this previously.”
The firm listed the property for sale at $30,000 and went under escrow. Many title companies give out seller intake forms to collect the information they need for the transaction. The buyer’s title company didn’t ask for one, so the title company didn’t verify the seller, either.
Because it was going to be a cash transaction, an electronic notary may not have caught the scam, either.
The only way the scam was discovered was when a landscaper saw a for sale sign on the property and called the actual property owner. The owner said he wasn’t selling and started investigating. “At this point, we were scheduled to close in a week,” Lopez says.
The owner reached out to the title company and the firm to stop the scam. The title company’s legal department got involved. Police reports were filed. The phone number was a Voice over Internet Protocol number, offering no clues about the caller’s identity.
The firm stopped communicating with the fraudulent seller. “He did reach out to us asking about wiring instructions but did not respond to further questions. He just disappeared,” Lopez says.
Fortunately for the parties involved, no money was sent and nothing was paid for, she adds. The actual property owner had had no interest in selling, but later connected with the buyer. “It turns out we are actually going to sell that property to that buyer after all,” she says.
Lopez described the entire experience, which took place over a couple of weeks, as very scary. She posted a summary online; she said she received a dozen responses from agents who’d had similar encounters.
“The scams were mostly on lots,” she says. “The most expensive was $500,000. The reason why they’re targeting lots is that they go for cash; financing is much more difficult to get for raw land.”
Lopez’s best advice is to listen to your intuition. If something seems off, pay attention. Ask questions only the actual property owner would know—things like how long have you owned the property or what are the relevant utility districts?
“If you own lots/land, keep an eye out and make a habit of searching intermittently for your property on market,” she wrote in her online summary. “Be careful out there!”