How to Detect Mortgage Payoff Fraud

In a time when average mortgage balances are reaching $346,339, mortgage payoff fraud has emerged as a growing and lucrative form of crime. In fact, mortgage payoffs accounted for a staggering 47% of all funds lost to wire fraud in 2022, making them the biggest contributor to real estate fraud and exposing the vulnerabilities inherent in this critical phase of real estate transactions.

Driven by the potential for huge financial gains, criminals have become increasingly cunning, employing advanced and creative techniques to carry out their crimes, ranging from social engineering and business email compromise to network attacks. In their wake, title and settlement companies are left picking up the pieces, suffering significant—if not irrecoverable—reputational and financial damage. 

This is why it’s more important than ever for title and settlement companies to know the red flags that signal potential mortgage payoff fraud and what to do when the unthinkable happens.

How to detect mortgage payoff fraud before it happens

Detecting mortgage payoff fraud requires a vigilant eye and attention to detail. Fortunately, a combination of experience, the right tools, and best practices can help.

Guard the digital gates

Implement robust security tools and access controls to identify and flag unauthorized access attempts to your email accounts and business systems. 

Go the extra mile

Thoroughly scrutinize all documents associated with the payoff, including the payoff statement and wire transfer instructions. Ensure that every detail is accurate and aligns precisely with the terms in the loan agreement, including the destination accounts and key points of contact. Have your team highlight anything that deserves a second look.

Trust, but verify

Pick up the phone and call the lender to validate the instructions. Verifying instructions directly with the lender is a standard best practice that adds an extra layer of protection against fraudulent activities. This can be time-consuming for your internal teams; vendors like CertifID can provide additional resources to take on this key element with the PayoffProtect product.

Look for warning signs and red flags

Be on high alert for red flags that may indicate mortgage payoff fraud, such as sudden changes in payment instructions, requests for urgent wire transfers, or pressure to expedite the transaction without proper verification. Any deviations from established processes or unexpected changes in involved personnel should raise a red flag. Here are a few signs you might be dealing with mortgage payoff fraud:

1. Last-minute or time-sensitive requests

Scammers may attempt to get you to send funds or provide sensitive information quickly, thinking the time crunch will make you overlook otherwise suspicious details that would otherwise give you pause.

Just remember that legitimate real estate professionals and lenders are required to give you the time you need to review your options, along with copies of the associated documents.

2. Deviations from known processes

Criminals may also try to get you to deviate from the standard processes for document or information submission that you previously discussed with your real estate or financial professionals.

Be wary of unusual requests to send money to specific destinations via specific methods or requests to “overlook” elements “this one time” that do not look correct. If you are unsure if a request is valid, do independent research to check.

3. Unusual communication methods

Scammers will attempt to establish separate lines of communication with you, using an email address or phone number that may look similar to legitimate sources but often with distinct differences.

These could include differences in email domain names, phone numbers from different area codes, requests via text messages, or messages with misspellings or unusual wording.

4. Offers that are too good to be true

As with many products and services, scammers are hoping that extraordinary loan terms, mortgage payment amounts, or offer prices will be enough to distract you from the reality of the situation.

Take the time to independently verify and research the validity of the business, offers, and terms of the products and services you’re presented with so you are not left picking up the financial pieces in the criminal’s wake.

5. Inconsistent or false information

For real estate professionals, documentation with false or misleading information, errors, or other inconsistencies can be a big warning sign of potential problems.

To meet both professional and regulatory standards, personal, financial, and regulatory information should be accurate, consistent, and verifiable.

Maintain strong lines of communication with partners

Don’t overlook the power of building strong relationships with lenders, banks, and other parties involved in real estate transactions. Regular communication and coordination will not only facilitate a smoother client experience, but also more holistically protect clients from various forms of fraud.

Leverage PayoffProtect

CertifID’s PayoffProtect is designed to quickly and independently verify the authenticity of payoff instructions. With just two minutes of effort from an escrow manager or case file manager, PayoffProtect compares the details against a comprehensive lender database that encompasses more than 95% of all payoffs, including major lenders. When potential fraud risks are detected, the CertifID team contacts lenders to ensure verification. Once validated by PayoffProtect, each payoff transaction is backed by $1 million of insurance.

Responding to mortgage payoff fraud: What to do next

If your transaction falls victim to mortgage payoff fraud, it’s vital to act swiftly to mitigate the damage. 

The first step is to contact your bank and ask them to stop or recall the wire transfer. In some cases, the bank can contact the receiving bank to freeze the funds, helping prevent the money from being forwarded to other banks—a common tactic used by fraudsters.

Once your team takes this step, it is time to initiate a coordinated response, which is where CertifID's Fraud Recovery Services division comes into play. CertifID has a strong  track record in combating fraud and can offer invaluable assistance in coordinating with law enforcement, participating banks, and other parties to the transaction. 

Safeguard your business with CertifID

When mortgage payoff fraud strikes your settlement or title company, every second matters. 

Although CertifID, law enforcement, and banking partners can help in the aftermath, it’s better to establish security processes, prepare safeguards, and implement CertifID’s PayoffProtect before cybercriminals can wreak havoc on your business. With these controls, your team can continue to serve clients with confidence and peace of mind.

Do you want to take your mortgage payoff fraud prevention to the next level? Then take a moment to download our comprehensive resource, Mortgage Payoff Fraud Is Rising; Here's How to Protect Your Business.

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