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MortgagePoint ยป Your Trusted Source for Mortgage Banking and Servicing News 54 November 2023 F E A T U R E S T O R Y IDENTITY CRISIS Here's how digitization reshapes the battle against seller impersonation fraud. B y A N G E L R . H E R N A N D E Z R eal estate transactions have always carried a certain level of risk. In recent years, the rise of seller impersonation fraud has elevated these concerns even more. While some fear that technology and the growing interconnectivity of our lives have provided cybercriminals with new ways to exploit unsuspecting buyers, sellers, and industry professionals, the truth is that technology may just be the antidote to these schemes. Seller fraud in real estate transactions is a critical issue that warrants attention, particularly with the growing prevalence of data leaks and their severe consequenc- es. Minimizing opportunities for imper- sonators to access sensitive information is of utmost importance, and digitization plays a pivotal role in bolstering security throughout the lending ecosystem. The Rising Tide of Seller Impersonation Fraud: Compromised Identity at the Center R eal estate fraud, in all of its flavors, is not a new phenomenon. For ex- ample, a great deal of attention has been given to rising trends in wire fraud in real estate. Based on data from CertifID's wire fraud protection and recovery business, the State of Wire Fraud report revealed that cybercriminals honed in on buyer cash-to-close payments as the primary focus of wire fraud in 2022. The report highlighted consumer real estate payments as the most frequent target, emphasizing the prevalence of this type of fraud, but that is not the only type of fraud that we should protect against. Since the beginning of 2023, real estate firms have experienced a signifi- cant surge in seller impersonation fraud attempts, with a staggering 73% year-over- year increase. These figures are alarming and shed light on the growing threat faced by the industry. The U.S. Secret Service also issued a warning earlier this year, highlighting a sharp rise in vacant land scams. Fraudsters are capitalizing on vulnerabilities within the real estate land- scape, jeopardizing the trust and integrity of transactions. At the heart of seller fraud lies iden- tity impersonation, a technique used by criminals to deceive buyers and execute fraudulent property sales. The imper- sonators could leverage mass data leaks, compromising financial and personal information, to adopt the identities of legitimate property owners. Mass data leaks provide a treasure trove for fraudsters. Impersonators can cross-reference addresses of occupied, rental, and vacant properties with stolen identities they have acquired, searching for matches. They can also resort to a myriad of phishing techniques, targeting individuals with the properties to extract additional information. As a result, the real estate industry finds itself grappling with the chal- lenge of protecting sensitive data while maintaining seamless operations in a fast-paced environment. Seller Impersonation Fraud: A Crime of Opportunity T he pandemic had a profound impact on seller fraud with the real estate industry filing $893 million in losses between 2020-2021. The pandemic nor- malized remote transactions on a larger scale, reducing our sensitivity to unfamil- iar business partners. While conducting transactions without meeting in person would have raised suspicion in the past, it is now the new normal. However, seller impersonation fraud is not merely a consequence of economic downturns or financial hardships. It is a crime of opportunity. Impersonators are drawn to this illegal activity because ac- cess to sensitive information has become easier to obtain. The prevalence of data leaks and the growing digitization of the industry have inadvertently opened doors for fraudsters, demanding immediate action to fortify the real estate ecosystem. Pressures and Due Diligence Gaps in the Real Estate Lifecycle T oday's real estate businesses face im- mense pressure to attract clients and facilitate a greater number of transactions in an environment where speed and efficiency take precedence. A N G E L H E R N A N D E Z is the EVP of Corporate Affairs at Stavvy. He leads public policy and government relations initiatives at the federal and state levels, as well as public relations and external communications strategy. Hernandez joined Stavvy from the Housing Policy Council, where he served as the VP of Capital Markets Policy. Previous to that, he led MBS Programs and Strategic Planning at Ginnie Mae, where he was responsible for the agency's policy framework, the implementa- tion of securitization platform updates, the agency's legislative and regulatory issues, and spearheading key strategic initiatives, including the agency's COVID-19 strategic response as well as the Digital Mortgage program.Hernandez is a Doctor of Law focused on banking, corporate, finance, and securities law from The Catholic University of America, Columbus School of Law.