|
The purpose of this alert is to promote awareness of the increase in recent deed/notary fraud scams involving mail-away executions and non-owner-occupied land. If you have a transaction that has any of these elements, closely examine the transaction for red flags and take the below precautions when necessary.
How it works:
- Remote Seller
- External Execution
- Unknown Notary
- Vacant or Non-owner Occupied
In this scheme, the fraudster impersonates the owner of the property and forges their signature to seller documents, including the deed to the proposed insured owner. Often, a legitimate notary’s credentials and seal are fraudulently applied without the notary’s knowledge. In cases where the true owner lives outside the U.S., the deed appears to be notarized by a U.S. Embassy official that turns out to be fabricated.
A claim arises when the true owner of the property discovers the fraud and comes forward to challenge the insured title. A forged deed may be void or voidable, so this claim can potentially result in a full failure of title. As the fraudsters are often hidden in cyberspace, it is difficult to find and prosecute these bad actors.
RED FLAGS: If any of the below elements are present, there should be heightened scrutiny in the pre-closing procedures. While a single red flag is not enough to halt a closing, it is enough to trigger additional precautions.
Seller:
1. Resides out of state and does not attend closing.
2. Only has a digital presence and only communicates by text or email.
3. Contacted the real estate agent on the internet or lists the property “For Sale by Owner.”
4. Demands that proceeds be wired (often to an account in a different location than the property).
5. Signature does not match or resemble previous signatures in the chain of title.
6. Refuses to meet online in a virtual video call.
7. Cannot produce identification.
8. Refuses to adhere to routine protocols and procedures put in place by the settlement agent.
9. Only wants to receive documents via email.
10. Uses P.O. box for address.
Notary
1. Notary is not known to the settlement agent.
2. Notary is in a state other than where the property is located.
3. Notary is in a state other than where the seller is located.
Vacant or Non-Owner-Occupied Property
1. Investment property, vacation property, or rental property.
2. Rental property where the seller does not discuss assigning the lease, pro-rating rents, or transferring security deposit.
Entity Ownership
1. Owned by a non-personal entity such as a corporation, limited liability company, or trust.
2. Entity may have been formed after the acquisition of the property.
3. Entity with the same name existed prior to the formation of the seller entity and is now dissolved.
4. Entity with very similar name also exists (e.g., Seller, Inc./Seller, LLC, or Property Owner, Inc., and Prop. Owner, Inc.).
Others
1. No outstanding secured debt
2. Below-market sales price – goal of a quick sale.
3. Back taxes unpaid.
4. Property offered for sale online by another real estate firm.
PRECAUTIONS AND MITIGATION EFFORTS
If any of the above red flags appear in a transaction, take these additional precautions and ask these questions to avoid falling victim to this fraud scheme:
1) Verify the seller’s identity:
a. Contact the seller directly at an independently discovered and validated phone number.
b. Ask the seller for a copy of their government issued identification.
c. Ask the seller to meet you online (Zoom or other platform) to share identification.
d. Use an identity verification platform, such as CertifID, to validate the seller’s credentials.
e. Check to see where the tax bill is sent and compare it to the seller’s contact information.
f. Ask a neighbor how to contact the property owner.
g. Upon receipt of documents, compare the seller’s signature to the seller’s signature in previously recorded documents (whether in the chain of title or, if an entity or trust, with the secretary of state or on trust documents).
h. If the property is leased:
i. Ask the tenant for the landlord’s (property owner’s) contact information.
ii. Ask the property owner or the tenant for a copy of the lease.
iii. Ask about the assignment of the lease.
iv. Ask about the rent payments.
v. Ask about the transfer of the security deposit.
i. If the property is owned by an entity:
i. Compare the address of the officer(s) and/or the registered agent to the seller’s contact information.
ii. If the registered agent is the seller’s attorney, contact them for verification of the seller’s legitimacy and authority.
j. If the property is owned by a trust, request a copy of the trust document and contact the beneficiary(ies).
2) Verify or select the notary:
a. Verify the notary’s credentials with the commissioning authority.
b. Contact the notary directly, at an independently discovered phone number, to confirm or arrange the execution of the documents.
c. Request a copy of the notary’s errors and omissions insurance or notary bond.
d. Require that the notarization be performed by a vetted and approved notary, which could include RON, if authorized in your state.
e. Arrange for the seller to go to an attorney’s office, title agency, or bank to execute the deed. (It is more important that the seller does not know the notary than it is for the settlement agent to know the notary.)
3) Control the disbursement:
a. Compare that wire instructions match account detail on seller’s Disbursement Authorization Form.
b. Require a copy of a voided check with the Disbursement Authorization Form.
c. Require that a check be sent for seller proceeds rather than a wire.
4) Investigate the property:
a. Search the property address online to see what information is available, such as whether it is publicly advertised as being on the market for sale.
Fraudsters continually look for areas in which we have become comfortable, complacent, or take things for granted, and this situation is no different. Chances are that just one of these precautions will flush out a fraudster, but it may take more than one to catch a particularly skilled imposter seller. If it simply takes asking a question or two to avoid the potentially significant losses, it is well worth the effort.
| 
