Episode Transcript
[00:00:00] Speaker A: Foreign and welcome to the Bottom Line Me podcast where we like to explore topics that impact real estate and title professionals and everyone that's involved in the closing process. I'm your host, Ann Allard and today we're tackling an issue that, that continues to challenge our industry, wire fraud. Joining me today is Tom Cronkright. Tom is the co founder and executive chairman at Certified and he's here to share some key findings from a recent report that Certified released highlighting several factors that are contributing to the rise in cybercrime. The report revealed that more than one in four consumers are targeted by fraud during a real estate transaction. And startling to me that nearly one in 20 can fall victim to.
Also underscored that first time home buyers, along with other groups who have lower awareness of wire fraud risks, are especially vulnerable. So we've got a lot to cover today. So I'd like to take a minute now to welcome Tom. Tom, thank you so much for taking some time to join me today and talk about this important topic now.
[00:01:26] Speaker B: And thanks for having me on and just shedding more light on this, what I believe is a very important and ever trending topic. So happy, very happy to be here.
[00:01:35] Speaker A: Well, great, well, great. Well, before we dive in, could you just take a couple minutes and tell your audience, tell our audience a little bit about yourself.
[00:01:43] Speaker B: Sure. I'm a, I'm a licensed attorney by trade turned large title agency owner here in the state of Michigan, along with my business partner, Lawrence Stutler. He and I met in law school and kind of practiced in large law firms and corporate practice and real estate groups and then decided to enter into the title space and put our entrepreneurial hats on. So Sun Title was formed in 2005 and we've kind of grown ever since. Our inflection point with wire fraud took place when our title agency was victimized in 2015, which cost us right around $180,000. So we were kind of early to the, to the party, if you will. Hasn't been a great party, but it allowed us to, I would say intimately feel the impact of wire fraud personally and professionally. It ultimately led to the creation of Certified, which is a solution that protects all incoming and outgoing wire transfers through identity verification and the secure exchange of wiring information and now movement of money. We recently purchased payments at the end of last year. So that's kind of a broad, quick brush. Attorney, title agency owner, wire fraud victim and now we're out just trying to, trying to educate and provide solutions that will combat what I believe is the biggest Risk in a real estate transaction today is the loss of funds either coming into the transaction or being dispersed from a transaction after closing.
[00:03:23] Speaker A: It certainly is. And also, again, thank you so much for taking some time to share some of this information with us. I think perhaps a good place for us to start would be understanding the risk. So perhaps you could just give us an overview of some of the key findings in the report and why the first time homeowner is particularly vulnerable.
[00:03:48] Speaker B: Yeah, I guess I'd start by just framing the real estate transaction. So the real estate transaction is one of the most visible transactions that bad actors are able to not only identify, but source information on. And not just information on. Hey, and if I'm a real estate agent and I list your home. Oh, well, Tom, the real estate agent has a listing and it looks like Ann Allard is the property owner as the seller. But then open source information is this idea that they can quickly identify personal information on myself and you because of open public record and just, you know, all land and the records relating to land ownership are publicly available. So they can quickly say, hey, there's a real estate deal in play here. And I can identify the listing agent and the seller. And then they realize that, I mean, these are large sums of value. I mean, these transactions are incredibly large, especially with existing home prices now breaching near high 2020 levels, or 2022 levels, I should say, of over $400,000. So you kind of mix it, okay? It can easily be identified, the transaction, the parties are easily identifiable, large sums of money at risk.
And what's particularly interesting that the report showed is those that are entering the transaction for the first time are three times more likely to fall victim. And I think the reason for that is I refer to as like a lack of muscle memory, you know. So real estate transaction, you're in it once every several years, right? Used to be 12 years, I think, depending on the area in the country you're in. Let's call it years, not months.
But if you look at other activity, you know, e commerce, online banking, you know, I'm grabbing takeout through an app. We do that on a very regular basis. So if you saw something out of the ordinary. I saw something from Target this morning, right. That suggested my wife's red card was being reset or something. And I'm like, okay, well that's a scam. And then they retracted it later this afternoon. So my muscle memory is like, hey, that's not how they communicate. We don't have that in real estate. And I think Our first time home buyers are, they have this, I guess, understandable but yet outsized reliance on their real estate agent, their mortgage lender, if they're working on and us in title and you know, the closing attorney space. And I think that outsize reliance makes them more vulnerable because they don't know what to do with an email that is saying all the right things, that has all the accurate figures and is presenting them with wiring or payment instructions to send their money or their closing could be delayed or they could lose the house altogether.
[00:06:57] Speaker A: Yeah. And I suppose that, you know, the muscle memory isn't there because unlike going to Target, you're not buying a home, you know, once a week. So.
[00:07:08] Speaker B: No, no. And that's interesting. And, and you take a step back and you're like, well, everything's new. Your first time home buyer.
[00:07:16] Speaker A: Right.
[00:07:16] Speaker B: You have to assume this is the first time that they'll ever wire money in their lives. They never wired. Why, why would I wire funds? You know what I mean?
[00:07:25] Speaker A: Right.
[00:07:26] Speaker B: So it's like all, all new to them. And I think that that in particular creates more vulnerability. You were right in the sense when you, when you introduced the session. Our report found that one in four consumers that were in a real estate transaction last year saw something that was suspicious.
[00:07:47] Speaker A: Wow.
[00:07:47] Speaker B: In 1 in 20 became victimized at some level.
[00:07:52] Speaker A: That's pretty scary when you think about it is. I know, it really is. So let's talk about some of the red flags or warning signs. What are some common red flags that a home buyer should watch out for in, in, in addition to that, are there any specific points in the process where they might be more at risk?
[00:08:18] Speaker B: The report shows that consumers, and I think we can all take something and put this in our playbook. So a couple things that are very interesting about the report.
Consumers believe that the advisors that they are hiring to help them in this process should protect them from this risk.
That's number one.
Almost 80% of them, when asked, would you pay more in your transaction if you were protected at a higher level from this risk? 80% said yes.
So against that framing, I think first and foremost we, the brokerage industry, the mortgage lending industry, title and settlement, legal representation for consumers, owe a duty, for the lack of a better term. But I think it is a duty. It's forming as a duty in the courts that we educate and we empower consumers about this risk.
The challenge that we see when we help consumers recover stolen funds because we have a fraud recovery services division of Certified now get into some of those Stats is almost half of consumers are truly not read into this risk.
So when you say what are the red flags? I think the red flag sits on a continuum. Those that aren't educated, it won't be a red flag to them at all. Because this is the first time that somebody is mentioning the need to wire funds. They can't anchor it off of any education or empowerment that they've been given by their advisors and they just send the money. And when we speak to these victims after their life savings has been gone, the most common phrase that we hear as a team at certified is I didn't even know this was a thing. I didn't know this was possible right now. If they're educated and they're empowered, the red flags that they will see is a demand for funds to be wired when maybe the expectation all along was to bring in a certified check for closing, right? Maybe there was some excuse. I mean it always has certain elements to these emails, right?
It goes to if, if they're trying to, if they're trying to, if they're trying to defraud the consumer, it's typically the title company that's impersonated in the real estate agent that's compromised. That's just what we see. And it's not every time, but that's typically the flow, right? And the stat shows that almost 80% of the time the consumers are saying, look, the fishy email looked like it was coming from my agent, right? The title company is spoofed. The buyer then is influenced to wire funds that they believe is to the title company but is to somebody impersonating them. The construct. The red flags of those emails are several. One, if you look at the email header, it's probably a spoof of the title company.
But consumers need to know that if you're reading messages mobile, you have to click on that on that from and make sure you're looking with intention to understand is it actually the domain of the title company or is it somebody that registered a copychat domain or is just using Gmail and masking kind of the from id?
The other is it'll have a request for funds. There's tip typically an immediacy around the request and I need money, I actually need it today. And then there's always a negative consequence. If they don't act, hey, and I need the money, I need it today. And if I don't get it today or at least by noon tomorrow, then and then they fill in the blank, closing will be delayed. You won't get possession. They could cancel the contract, you know, whatever it happens to be. And then in most cases, depending on who they're impersonating, they'll say, hey, and by the way, I'm busy. And if you could just confirm when you send the money, I'll get back with you when I have a minute right now with Generative AI, it's going to the next level.
So what that means is if you record five to ten seconds of somebody's voice and you can find anybody's voice marker online, and I could have my assistant call your office line right now, because I know you're not going to pick up. And I could just record it on my iPhone. Hey, I'm in. I'm tied up right now. I'll get back with you in a minute. You can put that into a Generative AI filter, and you can essentially make that voice say whatever you want it to say. So what we're seeing is these. These bad actors are impersonating, let's say, a real estate agent.
They will then directly drop a voicemail into the client's, let's say the buyer's cell phone. It will show up as a message. They mask the caller ID to look like it's coming from the real estate agent. Right. And the real estate agent says something like, hey, and you know, I hope you're doing well. I know we were planning on a check for closing on Friday. I just got this email from the title company. They're saying for whatever reason, they need a wire because of the amount. And I'm sorry to do this, but, you know, you got to. I guess you got to send that out today. I looked at it. I called them. The wire information looks good. So just check your email. I'm in showings the rest of the evening. I. But I'll call you late tonight or first part tomorrow. But if you could just shoot me a text message and let me know when it went out that I can at least confirm with the title company. You're listening to this, and the caller ID says it's your agent. And then they redirect you to the email, and they essentially just soften that beachhead with all this trust and all this credentialing. And again, red flag. If you're not prepared for that, then you're just going to send the money like, hey, I got your voicemail. What do you mean that wasn't you? How is that even possible?
[00:14:35] Speaker A: Exactly?
[00:14:36] Speaker B: That's the advancement that we're seeing where AI is kind of augmenting a well developed playbook around the social engineering piece of wire fraud.
[00:14:47] Speaker A: It almost makes you think unless you're talking live to somebody. And I suppose at some point that's going to be a problem as well, that you can't rely on anything that comes.
[00:14:58] Speaker B: Well, I mean what we're recommending and what others are implementing, and this was an idea from federal law enforcement, I won't take credit for it, but I applaud it is some safe word or some passphrase. So if I'm onboarding you as a new buyer and I'm your selling agent.
Look, Ann, I can help you find the neighborhood. I can negotiate well on the price. I'm a really good contract drafter. Like, no problem there. But we need to talk about how you're going to safely get funds into closing and whether or not you wire or whether or not you intend to bring a check. We can decide that. Not today, we'll decide that later. You could be asked to wire funds and it could be coming from me or looking like it's coming from me. It could be looking like it's coming from the title company and it's somebody trying to defraud you. I mean, you say it that clearly. So what we're going to do is set up a passphrase, you know, pink, orange or something, whatever it is. Right. So. And no matter what, you cannot trust anything. Voicemail, you can't trust anything by email. And if you're going to essentially think about wiring funds, you need to call me back and I'm going to ask you for that passphrase and don't even or something. You know what I mean? And that's where, that's where everybody's getting tripped up.
[00:16:24] Speaker A: Yeah, that's a really, I think a really great suggestion too. And who would have ever thought we'd come to this? But here we are.
[00:16:37] Speaker B: What's funny to me is that the more we advance through technology and the expectation of digital payments and everything happening in real time, in a lot of ways we're like going back to these really old school trusted ways that the military and the intelligence community and all of that protected information and confirmed identity at like the last mile before people acted. And I think that's, it's almost like we're, I'm not say regressing. It's just like we're, we're just looking back at old, like the old ways. Because now I can't trust voicemail anymore.
[00:17:18] Speaker A: Exactly.
[00:17:18] Speaker B: Soon I won't be able to trust this. And because they can do deep fakes with video in real time now.
[00:17:22] Speaker A: Right, right.
Well, jeez, my head wants to explode.
As I, as I mentioned, are there any specific points, do you think in the process where the risk, you know, escalates or is higher or. I love your suggestion of having that conversation right up front with, with your buyer or borrower and setting that up right from the start because that is probably the best way to educate someone who has not been around this kind of a transaction before. Like I said, as you said at the beginning, it's not like going to target. So.
[00:18:01] Speaker B: Yeah, no, I think it's a great question. I guess I'd start by saying that they will come at any point in time, they'll come early to try to defer. We helped a gentleman on an earnest money deposit and a cash to close on a seller impersonation fraud recently.
So the earnest money deposit was 3,000. The cash to close was just over 50,000 on a vacant parcel state in the South. Right. They sat on both sides of it. So this isn't a day before closing or day of closing. Risk profile. This is a, throughout the transaction risk profile. I will say though that once you start to send and socialize preliminary closing numbers, the risk profile goes up exponentially because now they see an anticipated close date. Now they're starting to see payoff numbers in the shape of prorations and taxes and HOA and things like that. And they can get really pinpointed and close on what that obligation looks like.
Yeah.
[00:19:06] Speaker A: And I can see how someone might let their guard down a little when they get to that point. You know, you're, you're, you're rounding second, heading for third and then on your way to home. And so I think everything's looking. Yeah, that makes perfect sense.
[00:19:18] Speaker B: They're fatigued. I mean they're rounding home base and they're, they're, yeah, they're just lengthened. I mean they're fatigued by that point. You know, if you look at statistically and there have been recent articles on it, just what's the, what's the underwriting experience for first time home buyers for, for their mortgage? You know, what was it like to try to, to identify that house, go to 25 showings, miss out on your first eight offers until you just swing really big on an over asking price, you know, where you have to bring in more cash to close. So I think we have to have a tremendous amount of empathy that these people, especially first time home buyers. It takes a lot of grit and courage to just get through the process.
[00:20:04] Speaker A: It sure does.
[00:20:05] Speaker B: And they prey on that. Right. So at the last minute you're saying I gotta lose, I gotta wire my money or I'm gonna lose. I'll go back to square one. To your point, they're, they're more susceptible.
[00:20:18] Speaker A: Yep, yeah, yep.
You talked a little bit about one way to prevent it or to, you know, to sort of circumvent it, and that is by setting up that password. But are there any other preventative measures that you could share with us for, particularly for first time home buyers that they can do to protect themselves?
[00:20:38] Speaker B: Yeah, first time home buyers should really, I would think, as part of the due diligence and part of the selection of professionals that they're going to surround themselves with. So you think about, I need a mortgage lender. In a typical deal, I need a mortgage lender, I need a real estate professional that's licensed and I'll need a closing attorney or I'll need a title company and maybe there's both in there, depending on what state you're in and what role they're playing. But the most intimate or close of those relationships is between the buyer and their real estate agent.
And I think the buyer, it's almost like your own patient advocate in this way is that if the buyer sat down and said, okay, I understand that you might be a great agent Tom, in the earlier example. So, Ann, you're interviewing me, right.
But I'm really wondering what do you do to make sure that my funds are protected and my data is protected and our communications are protected in the process?
And I think I would be asking in terms of like email security, does, does everyone, that the title company and you and the lender, they have multi factor authentication turned on their, their emails? Do they have a data protection in policy in place? And it might seem silly because I'm trying to buy a house, but. And if somebody's exposed here, you know, who knows what can happen. And then walk me through how and when I'll be asked to send money for this closing and what success looks like, the timing of it, who would request it in what increments it would be requested. Because that's not, we're not doing, we don't. If there was one bookend that says this is what success looks like and then another bookend is coming in from a fraudster, well, there's something to contrast there. But if we're not setting them up with an idea and the education and empowerment, like that's what consumers should be, not just asking about but demanding to say, no, I'm really serious. Like, this is my life savings. We helped a gentleman on a cash to close recovery. It was over $2.2 million already this year, which is one.
Right. I mean, those are hard funds to get back once they're in the bad actor's hands.
And then asking them, okay, so if I am, at what amount can I bring a certified check, and at what amount will I likely be asked to send a wire? So if the loan amount changes, if I decide to bring more equity into the deal, as far as cash, like, is there that threshold? Because not all states are good fun states. Right, right. And then again, if you're sharing wiring information, how will I receive that? And how do I verify that? Like, how do I independently verify that? And the unfortunate part is this should all be part of the onboarding of a client. Lender should be doing this. The real estate professional should be doing this. Title should be doing it. Every client, every transaction, like, every time. Right.
And who cares if the agent by the time they get to title is like, oh, not again. I get it. Okay, I'll see you safely in 30 days at the closing. Like, don't shoot the messenger, but three times is a charm. I'm gonna say it again.
[00:23:59] Speaker A: Well, I. Yeah. And clearly it can't be said enough, but it almost sounds like, you know, we. We have to really interview all these people before we decide that we're going to select them to do business with. And I think, you know, to your point, you know, years ago, Tom, I'm a. I'm a great realtor. I, you know, I'll get your house on the market or I'll find you the place you're looking for. But none of those questions were ever asked because there was no need. I mean, I hate to age myself, but I can go back to the days when you sat down in the closing room and then the closer walked the file over to the bank and sat there and waited for the funds, the check to be issued, and then went back and made a deposit.
[00:24:43] Speaker B: Sure. Yeah, I get it.
[00:24:47] Speaker A: Incredible.
Any. Any emerging or future things we should be looking out for. How. What's new in the scammer world that you might be able to share that you're hearing about and anything else that you want to share about. What do you see coming next?
[00:25:10] Speaker B: The emergence from the scammers, again, is the use of generative AI. So again, just don't. Don't trust anything. Even if the voicemail doesn't even refer to the transfer of Funds, it's just directing you to an email. And then that's where they, they solicit, you know, the transfer with wiring or bank credentials. We're seeing more of that. We are seeing also where they're impersonating everyone in the transaction. We've dealt with some of these recoveries where literally everyone was impersonated. So they would set up Personas to impersonate the listing agent, the seller, the selling agent, the buyer, the mortgage lender, and the title. So when the real party thought they were communicating with the buyer, it was the scammer. And the scammer would communicate with a real buyer impersonating the title. So they literally just sat as almost like a node of communication, switchboard, if you will. They had all the information at their disposal. They sometimes just forwarded it right on like, hey, nothing to do right now. And then they get the information they need and bam, they call it the attack email. Then they'll solicit with the wiring instructions. Here's the closing statement. And the real email may have said, hey, you can bring in a cashier's check. They doctor it up. Here's your closing statement. We need a wire. This is why we need a wire. And we need it in advance of closing. Right. Almost 20% of all consumers learned that their money was gone at the closing table, based on our report. At the closing table.
And another 30% ish, it was just before. I mean, you can't learn. And I've been patched into these calls at the closing room and they're heartbreaking.
I think some of the trends that we'll see, money is moving faster than it has in the past. So funds that have been stolen are harder to recover. We've done a great job and so has federal law enforcement on information sharing and just the rapid immediate response to alert receiving banks of potential fraud. We're one of the leading kind of sources of that in the country. The certified Fraud Recovery services team. Real time payments will exacerbate that issue. So when we think about RTP or real time payments, that's the new payment rail, the first new payment rail in about 35 years. ACH was the last one. An RTP is essentially like a peer to peer, but on a much bigger payment rail, meaning you can move more money. RTP by design will settle in 120 seconds or it's rejected. So the promise of that Ann, is I have a buyer, I'm a closing agent. The buyer has an RTP enabled institution. I have an RTP enabled institution. They would be able to literally initiate send and I would be able to receive in real time essentially within seconds. And funds are secure. Okay. The problem is though, they're typically getting to them before the closing table. Right. So when I said they learn about it at the closing table, they're sending money well before that.
So now with wire transfers, because the Federal Reserve serves as this clearinghouse, we have kind of the benefit that the Federal Reserve goes offline and then it comes back online the next day. So money's not moving in that kind of evening to early morning hours. RTP is a 24, 7, 365 cycle. So now the chance of recovery, and I hate to say this, I think will be significantly shorter because they could RTP and RTP and then cryptocurrency. Right. Or overseas bank or whatever. So I think some of the emergence of this is while we want the benefit of a peer to peer speed of payment, that RTP promises it will cut off the ability to recover funds on the backside. I think the other trend we're going to see, and I'm participating in many of these discussions around the country, is this level is now rising to a consumer protection issue.
This is no longer simply protecting property rights. This is protecting consumers and their life savings or their life liquid liquidity, the biggest asset they're selling or the biggest asset that they're purchasing. You start to pierce in the consumer protection veil. And now legislation and more regulation is going to start to start to develop. And I'm not, I'm not necessarily a pro regulation guy. I think markets do a good job. But at the same time, I do firmly believe that states should have a just required disclosure that all of us, when we open up a real estate transaction should provide consumers about the risk of wire fraud in their transaction. It just seems like if I have to, as a seller have to disclose that the washer machine vibrates at high speed.
[00:30:33] Speaker A: Exactly.
[00:30:34] Speaker B: I don't have any requirement that I disclose as a professional that this thing is out here and you really need to be aware of it. It just to me is that's a pretty big disconnect in a simple solve.
[00:30:48] Speaker A: Well, hopefully that begins to happen because I think you're absolutely right. You can go back to the days when you were getting simple disclosures about lead paint and the foam insulation, all of those things. This is far more costly all the way around. So. Wow.
My goodness.
Anything else you want to share with us before we get to the bottom line? This has been a great conversation. I've learned.
[00:31:21] Speaker B: I Think for me it's, I don't think there's a silver bullet. I think at the crux of this it starts with education and engagement at the consumer level. I think it includes email security and, and data security on the professionals that are hired to represent them in the largest transaction and the most significant transaction of their life.
And I think identity verification and how we're sharing very critical information about funding and dispersing in and out of an escrow account are things that are here and now, this isn't futuristic. This is like these are table stakes right now. And I believe this. And I mentioned to you before we went on that I was speaking, I give a two hour continuing ed session earlier this afternoon to a large room full of agents and I said, you know, in a market where everything is so competitive, right. We're going to be in inventory constrained for a while. We're going to be in a higher rate environment. Everybody's looking for somewhat of an edge or a value prop that's unique. I think this is one of those, I think the real estate agents listening, this should be part of the narrative, right? Not only am I your guy or gal that can list or find or whatever, right. From a real estate agent and experience perspective, we're also going to keep you safe in the process. And here are the things that I'm doing and here are things that my partners are committed to doing on the title side and the mortgage side if you choose to use them. Right. And I, I think that also has somewhat of a curative effect because if you're, if you're pitching it, you're going to continue to subscribe to it.
And I guess the last thing I'd say, this isn't just any one person's problem, it's all of our problems.
So all of us need to work together. Nar, the NBA, alta, aba, like any breached account, anybody compromised, you're all exposed. And we just want to provide really great closing experiences. That's what we all want, you know.
[00:33:27] Speaker A: Exactly. Yeah, yeah, yeah. Well, I think that's a great bottom line that we are all in this together and that we've got to support and help each other along the way and educate each other whenever we can. So Tom, I can't thank you enough for taking some time today to share all this information with us and we'll have you back again, I'm sure, because there's still more to talk about. But again, thanks for joining me today and to our audience. Always appreciate your joining us. And until we meet again. Let's all keep learning, growing and prospering. Thank you.
