Why You Need ID Verification for Real Estate Transactions

Buying or selling a home should be an exciting process. It marks a new chapter for both the buyer and the seller. When all parties act in good faith, real estate transactions are  usually smooth experiences. However, excitement can quickly turn into devastation when fraudsters infiltrate the process.

Real estate transactions are magnets for fraud, especially identity theft. Fraudsters stand to make a lot of money impersonating a home buyer or seller. 54% of real estate professionals reported experiencing at least one seller impersonation fraud attempt between April and October 2023, and 77% saw an increase in seller impersonation fraud attempts within the same period.

That’s why it’s essential to verify the identities of transaction participants before money ever changes hands. ID verification ensures that documents used in home buying transactions are legitimate and haven’t been altered or forged and that the documents match transaction participants. Without proper ID verification procedures, it’s alarmingly easy for tech-savvy criminals to assume fake identities and commit fraud.

There are two types of identity fraud that are unique to real estate transactions: seller impersonation and buyer impersonation. Let’s explore scenarios in which these two types of fraud may occur and why having ID verification software in place is crucial to protect all parties involved. 

Scenario 1: Seller Impersonation

Seller impersonation occurs when a fraudster impersonates the owner of a vacant or unoccupied property to steal funds from the sale. The fraudulent seller takes advantage of the absent owner and attempts to sell the property. The “seller” walks away with the money, leaving the buyer and real estate agents without a new set of keys.

An example of seller impersonation fraud

A fraudster discovers a vacant house in a thriving neighborhood with high property values. He soon realizes that the actual owner lives abroad and seldom checks on the property. The fraudster decides to impersonate him.

To make the impersonation seem legitimate, the fraudster fabricates necessary documents, sets up fake email accounts, and creates a false ID. With these credentials in hand, he is able to establish a false identity as the owner.

The fraudster lists the property for sale, engages with a real estate agent, and finds an interested buyer. The buyer and real estate agent believe that the fraudster is the rightful property owner and complete the transaction.

After the completion of the transaction, the buyer reviews the recorded and filed legal documents only to find that they were actually dealing with an imposter. They unknowingly wired their life's savings directly into the fraudster’s bank account, dollars that will be incredibly difficult to recover. It may also take them  months or even years to fully uncover what happened, by which time the fraudster is long gone.  

Not only is the buyer severely affected, but the rightful property owner now has to deal with a legal and financial mess. They have to prove their rightful ownership, file a police report, and hire an attorney. Cleaning up the fallout from the fraudulent sale will require a lot of time, effort, and money.  

The buyer’s agent is not off the hook either. Aside from likely financial and reputational loss, there can be legal ramifications for not verifying the seller’s identity, which we dive deeper into in our Guide to Identity Verification blog. 

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Scenario 2: Buyer Impersonation

Buyer impersonation often occurs in the form of check fraud. This type of fraud happens when a scammer uses a physical or digital check to illegally gain money by:

• forging an account holder’s signature on a stolen check,
• altering a legitimate check to be for a different payee or amount, or
• writing a counterfeit check for an unauthorized or non-existent account.

Unless the fraudster is caught, the seller and title or escrow company are on the hook for this fraudulent transaction. 

An example of buyer impersonation fraud

A fraudster decides to impersonate a buyer in a real estate transaction. He is not looking to buy a property, but is instead looking to use it as an opportunity to illegally make a profit. 

He finds a target property and, pretending to be an interested buyer, approaches the seller. As a show of good faith and to prove his seriousness, he provides a large Earnest Money Deposit (EMD) check upfront, convincing the seller to take the property off the market and decline other offers.

Unbeknownst to the seller, a scam is in progress. It becomes apparent when the interested buyer backs out of the deal, claiming there is some kind of financial emergency. The buyer proclaims that he can no longer purchase the property and requests that his EMD be returned via wire transfer.  

The title or escrow company, assuming good faith, agrees to wire the funds back. But then the buyer’s original EMD check bounces. The fraudulent buyer has disappeared with the wired money and left everyone with a deficit.  

The seller is left with a huge financial loss since the sale is not legitimate. There is now no buyer and the whole process has to be started again to list the property and find a new buyer. 

While it is usually the financial institution that accepts the liability in these cases, the title or escrow company may not be off the hook. If the financial institution can show that there was a lack of due diligence, they can come after the title or escrow company.  

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The benefits of using ID verification software

These may seem like worst case scenarios, but seller and buyer impersonation fraud happens more often than you might think. 

If the real estate agents and title or escrow companies in these scenarios had ID verification software in place, the identities of the seller and buyer would have been thoroughly verified before any transactions even began. The software would have picked up on the red flags and warned the agent before the sale went any further. 

When using ID verification software, you are protecting yourself and your clients. The key is choosing the right software provider. That’s where CertifID comes in. With our ID verification feature Match, we offer a secure and reliable way to verify identities from the start. Combining state-of-the-art technology with expert knowledge and the human touch, we provide your business and customers with a fast, easy, and, most importantly, safe ID verification platform. 
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