Real Estate and Fraud: Identity Verification for the Most Important Transaction of Your Life
May 2024
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The dream of a new home can become a nightmare if fraud is involved. Yet the real estate sector has the second-highest fraud rate of any industry — and the threat is only escalating. In 2023, the FBI received 9,521 real estate fraud complaints, with losses totaling $145,243,348.1 From identity theft to misinformation and wire fraud, real estate is ripe for fraud, with remote transactions, large sums of money and new tools to fool consumers and real estate professionals alike. The need for identity verification tools and procedures has never been greater.
Consumers and real estate professionals alike are often unaware of the risk of real estate fraud and even less aware of what to do about it if they become victims. The likelihood of becoming a victim of real estate fraud, however, is a reality many consumers will face. Bad actors target 1 in 4 consumers with fraudulent communications in real estate.2 One in 10 will end up victims of real estate fraud.3
The likelihood of becoming a victim of real estate fraud
is a reality many consumers will face.
What’s more, the awareness of the potential for fraud in such a significant process as buying a home is low. Fifty-one percent of consumers report being just “somewhat aware” of the risks of real estate fraud. Chris Mule, partner at The Title Group, a closing services company that focuses on examining and verifying titles, describes the urgency of consumers’ lack of fraud awareness: “They don’t know anything about wire fraud, and [their level of concern] is at a 4, but we need them at a 9 or a 10. This is real.”
40% of consumers do not receive any education or warnings about fraud risks related to closings.The relationship between a buyer or renter and their real estate professional plays into the risk and education of fraud. When it comes to moving real money in the closing process of a home, for example, 40% of consumers do not receive any education or warning about the risks involved, specifically for wire fraud — and wire fraud is a major concern.
Knowing who you’re dealing with — and verifying their identity — are key to protecting all parties in a real estate transaction.
The industry also suffers from fraudsters. Shady characters can hide behind remote transactions and real estate searches. Fraudulent communications can also stem from real estate professionals: 22% of consumers end up receiving fraudster communications from their real estate pro. Whether a broker or a buyer, knowing who you are dealing with is critical for any process in real estate. This is where identity verification is a pivotal tool for all parties involved.
“Real Estate and Fraud: Identity Verification for the Most Important Transaction of Your Life” is the first edition of this series, a collaboration between PYMNTS Intelligence and Intellicheck. This report explores issues of fraud and verification around the largest and longest-lasting purchases many consumers or businesses ever make — real estate. It also details current and future technologies and legislation, featuring real-world insights from an interview we conducted with The Title Group.
This is what we learned.
Types of Fraud
From wire fraud to fake actors, these real-world illustrations reveal how real estate is ripe for fraud.
The prevalence of fraudulent types in real estate fraud highlights an escalating need for reliable systems to verify the identities of all parties involved in a transaction or engagement. What follows is an overview of prevalent fraud in real estate.
Wire and Title Fraud
The last quarter of the year tends to be prime time for wire and title fraud — and Q4 in 2023 was no exception. Wire and title fraud risk reached an all-time high in Q4 2023, and 52% of loans had issues that led to a risk of wire and title fraud.4 Not only did more than half of loans prove to have issues, but, on average, these problematic loans had 2.2 issues per loan, indicating a lack of appropriate controls by closing agents to identify and fix issues.5
Wire and title fraud risk reached an all-time high in Q4 2023.
Human Scammers
From Las Vegas, Nevada, to Fairfield, Connecticut, seller impersonation fraud — a scam in which bad actors impersonate property owners and try to sell homes or vacant land they do not own — has been making headlines across the U.S.6 Victims of the scams could potentially lose their down payments if the fraudsters are not caught in the act. The steep increase in seller impersonation fraud caught the attention of the Secret Service in 2023, which took steps to issue an advisory warning to alert consumers.
“It’s a lot of properties where people are pretending to be the seller,” said Chris Mule. “In our market [Tennessee], there is a shared Excel spreadsheet of properties that seller fraud has been an issue with. It’s a couple hundred strong.”
The prevalence of seller fraud brought The Title Group to use real-time ID verification services.
“We have actually caught a few [fraudsters] just by nature of saying we are going to verify that you are who you say you are in real time,” Mule said.
Certain groups of consumers, such as the elderly, are especially vulnerable to human scammers. A ProPublica investigation found that some HomeVestors of America franchises used deception and aggressive sales tactics to persuade homeowners in vulnerable situations to sell their homes for far-below-market prices.7 It also unveiled that few jurisdictions have laws or regulations to protect homeowners from such aggressive tactics, leaving the onus on the consumer to protect themselves and their abode.
We have actually caught a few [fraudsters] just by nature of saying we are going to verify that you are who you say you are in real time.”
Chris Mule
Partner, The Title Group
Mortgage Application Fraud
1 in 123 purchase applications is estimated to have indications of fraud. Mortgage applications are becoming a hotbed for fraud in the U.S.: An estimated 0.75% of all mortgage applications contained fraud in Q2 2023 — or approximately 1 in 134 applications. One in 123 purchase applications is estimated to have indications of fraud, and the same can be said for 1 in 181 refinance applications.8
Mortgage application fraud is focused on pockets of the country that have seen rising rates of this type of fraud, including the East Coast, Florida and California. Massachusetts leads the pack with a 12% increase in fraud — a risk connected to the prevalence of 2- to 4-unit loans — more than five times the national average. Identity fraud, at a 12% rise, showed the greatest growth in risk in the area. Income risk, in which people lie about their annual earnings, also increased by 6.2% overall.
The notable increases in mortgage application fraud are due to factors such as borrowers reporting incomes that are at odds with where they live, their employment status, the years the individual has been working or even the location of the property in question.
Rental Fraud
It’s not just buying a home that is at risk of fraud, but also renting one. Rental scams are escalating in Pennsylvania and Washington, D.C., where the government has warned consumers of fake listings and other rental fee scams. Scammers are posing as landlords or property management companies, and they post fake ads for houses or apartments they do not own or that are not actually available to rent. With increasingly sophisticated means of coming up with fake identities and properties, local officials have added that these scams are often convincing and difficult to stop or detect.
Technologies to Foil Fraud
The reality of real estate fraud demonstrates a growing need for new technologies to protect consumers and verify the identities of the humans behind real estate transactions.
While the potential for fraud is ripe in a world of remote transactions and automated systems, some third-party cybersecurity and verification tools are becoming the norm for verifying identities in significant transactions, such as purchasing a home or renting a property. As an initial step in preventing title fraud, for example, verifying that the parties in the transaction are who they say they are helps halt fraudsters from stealing the proceeds of real estate transactions. With more sophisticated ways of creating fake IDs or stealing not only a person’s ID but their likeness and voice, ID verification is a pivotal process. Increasingly, multilayer verification will also include the real estate agent and real estate agency.
“We use ID verification for every single transaction for buyers and sellers,” said Jessica Warren, operations manager at The Title Group. “We do it for sellers to verify that that’s who they say they are. If there’s any question that it did not pass, the sellers will not receive a wire, they will only receive a check. If they negotiate that check and they say they are not who they say they are, that’s going to cause a greater spiral.”
We use ID verification for every single transaction for buyers and sellers.”
Jessica Warren
Operations Manager, The Title Group
The real estate industry has begun to recognize the crucial role of implementing identity verification technologies.
Of the National Association of REALTORS®, 30% said that cybersecurity technology tools were very impactful during 2023.
The industry at large agrees that the appropriate technology and tools to counter fraud can be effective. Of the National Association of REALTORS®, 30% said that cybersecurity technology tools were very impactful during 2023, and 35% said the same about personal safety tools.9
Infrastructure in the industry is gradually paving the way to implement such systems, but finding new ways of working is part of that battle. Sixty-one percent of real estate companies admit that their core technology infrastructures still rely on legacy systems, and nearly half are making efforts to modernize.10 In addition to the systems needed to safeguard homebuying processes, 90% of landlords in the rental market also say that updated technologies are critical to managing tenant relationships.11
Technologies such as digital identity document validation can increase security for all parties involved in a real estate transaction, as it can prove that an individual’s ID is real, weeding out the fakes and scammers from the professionals. As of May 31, 2023, and using the median U.S. house price of $436,800, Intellicheck, which employs such systems, reports having stopped $45.43 million in potential losses.12
Figure 1
The identity effectiveness framework
Relative importance of specific aspects of identity verification processes in the real estate and title industry
Real estate and title
Fraud detection
Postal address verification
Email verification
KYC compliance regulations
Photo ID bar code verification
Passport scanning
Criminal screening
NIST certified facial biometrics
PAD level liveness detection
OCR document comparison
Fraud and risk scoring
Global watchlist data screening
Proxy detection & IP address reputation scoring
OFAC, sanctions, PEP and criminal screening
Email validation and verification of email digital footprints
Bot, Tor, emulator and GPS spoofing detections
Adverse media monitoring
Phone carrier lookup
Device ID fingerprinting
Account onboarding
Postal address verification
Email verification
KYC compliance regulations
Photo ID bar code verification
Passport scanning
Criminal screening
NIST certified facial biometrics
PAD level liveness detection
OCR document comparison
Fraud and risk scoring
Global watchlist data screening
Proxy detection & IP address reputation scoring
OFAC, sanctions, PEP and criminal Screening
Email validation and verification of email digital footprints
Bot, Tor, emulator and GPS spoofing detections
Adverse media monitoring
Phone carrier lookup
Device ID fingerprinting
ID verification: Age verification
Photo ID bar code verification
Passport scanning
Looking at the Future
Artificial intelligence (AI) is an emerging trend in the real estate sector, yet professionals will need further AI education.13
AI advancements can be promising for the real estate industry, offering capabilities from enhanced property search to streamlining fraud detection throughout home-buying or renting processes. However, AI is only emerging in the industry, and many of its capabilities are still unknown to real estate professionals.
Plus, AI capabilities are not necessarily leveraged for good. Real estate professionals are also at risk of the potential ill-sides of deepfakes, in which AI impersonates a human’s voice or image. Chris Mule noted this, explaining that the technology is already sophisticated enough to possibly imitate less-public figures.
Real estate professionals are also at risk of the potential ill-sides of deepfakes.
“There are websites where I can say, ‘I need Chris Mule to make a phone call to Jessica Warren,’ and tell her to approve a wire that’s coming in and it will find my voice on the internet and create that dialogue and it will put my face on pictures for verification. It’s wild what this stuff is [capable of] doing,” Mule said.
Whether it’s become aware of the risks or benefits of AI, the real estate industry will need to embrace it. According to the 2023 REALTOR® Technology Survey, 54% of the National Association of REALTORS members are somewhat familiar with AI, and 44% report that AI is impacting the industry already.14 There’s a growing need for further education with AI, as a lack of understanding of its capabilities of AI and misinformation are still key barriers to its adoption among real estate professionals.
How Legislation Could Help
The real estate industry could benefit from new regulations, as the U.S. is falling short of protecting consumers in real estate.
From financial fraud to deceptive rental practices, consumers and real estate professionals need better protection with the enforcement of new regulations in the industry. Recent developments among new regulations are showing some promise, as the U.S. Treasury’s Strategic Plan for 2022 to 2026 focuses on such improvements. One marker of success in its plan is combating illicit actors’ abuse of the U.S. financial system by achieving an “updated regulatory framework for real-estate [sic] to effectively cover cash transactions.”15
From financial fraud to deceptive rental practices,
consumers and real estate professionals need better protection
with the enforcement of new regulations in the industry.
Further, the U.S. government’s Financial Crimes Enforcement Network is issuing new rules to assist the U.S. Department of the Treasury, federal, state and local law enforcement, and national security agencies in addressing illicit finance vulnerabilities in the country’s real estate industry and to impede fraudulent actors in the business.
Conclusion
Various types of increasingly sophisticated fraud may target the real estate sector, but the emergence of new technologies, from AI to identity verification systems, will help enforce stronger guardrails against real estate fraud and protect the individuals involved in one of the most high-stakes life decisions they will ever make. The industry will need to make efforts to educate its professionals, not just about the prevalence of real estate fraud but also about taking the appropriate action and education to protect consumers in the process.
Intellicheck (Nasdaq: IDN) is an identity company that delivers on-demand digital and physical identity validation solutions for KYC, AML, fraud and age verification needs. Intellicheck validates identities for financial services, fintech companies, BNPL providers, e-commerce, and retail commerce businesses, law enforcement and government agencies across North America. Intellicheck can be used through a mobile device, a browser or a retail point-of-sale scanner. For more information on Intellicheck, visit us on the web and follow us on LinkedIn, X, Facebook and YouTube.
PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multi-lingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.
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