Wire and title fraud reaches an alarming high in Q2 2023

Amid depleted origination volumes in the first half of 2023, wire and title fraud risk were on the rise in the second quarter, with over half of the transactions analyzed by FundingShield having some sort of defect. 

The overall error rate for the quarter was 50.2%, compared to 41.6% in the second quarter of 2022. The analysis was based on a $68 billion portfolio of real estate closings, the fraud prevention solutions company said.

Per the report, there was a 22% increase in issues pertaining to document transfers between agents, title insurers and lenders compared to the previous quarter.

The second quarter also saw a 15% rise in agents failing to keep their licenses active with states and insurance commissioners. Additionally, the transactions analyzed had a 6.7% increase in errors found in closing protection letters.

On average, loans identified as problematic had almost two issues per loan, pointing to "the lack of appropriate controls by closing agents to identify and fix issues," the report said.

In comparing the first half of 2023 to the year prior, there was a 12.6% increase in the number of loans with issues, a 6.5% increase in closing protection letter-related errors and a 4.7% increase in issues with proof of insurance.

The report also points to the continued prevalence of email phishing, which is "one of the fastest and most effective ways that fraudsters scam parties in a real estate transaction."

Ike Suri, the CEO of FundingShield, challenged the Federal Bureau of Investigation's claim that 2022 saw $10.3 billion in fraud losses in the report. He points out that this number is "being grossly under reported based on [his company's] experience identifying, preventing, and remediating issues in real-time."

Business email compromise scams related to real estate set a record for dollar losses in 2022, as the number of cases reported to the FBI rose for the second consecutive year.The 2,284 complaints received last year, the second most ever, lagged the all-time high of 2,593 set in 2018. In 2021, consumers reported 2,149 incidents, per the government agency.