Mortgage payoff fraud rises 532% quarter-over-quarter: CertifID

With home sale transactions down, fraudsters are turning to mortgage payoff fraud to secure bigger payouts.

Mortgage payoff fraud occurs when a title company mistakenly sends a mortgage payoff to a fraudulent bank account after receiving wiring instructions that appear to be from the mortgage servicer. The instructions, however, are actually from fraudsters.

From the first quarter to the second quarter of this year, the market saw a fivefold increase in mortgage payoff fraud, according to a new report from fraud prevention tech firm CertifID.

The firm caught $1.9 million in attempted mortgage payoff fraud in Q1 2023. By Q2 of this year, that number rose 532% to $12 million, according to CEO Tyler Adams.

Grand Rapids, Michigan-based CertifID, whose identity verification toolset aims to secure mortgage payoffs, first began seeing instances of mortgage payoff fraud three years ago, said Adams, who noted that an increase in fraudulent activity was likely due to a “breakdown of processes and technology”.

Adams suggested the stark increase in mortgage payoff fraud was likely the result of a cooler housing market with fewer real estate transactions. Mortgage payoffs, which average more than $236,000, typically yield much higher payouts than wire fraud. They often are initiated through a business email compromise, with the target being the mortgage lender, he said.

“Fraudsters are really crafty when it comes to mortgage servicing, because a lot of the time they are able to send an e-fax to a title company and it replaces the current statement they have on file,” he said.

In the mortgage servicer environment, minimal communication between title firms and mortgage servicers open up opportunities for fraudsters. It’s also common for mortgage servicers to change the banks they use to receive mortgage payoffs, which, sometimes, can make it difficult to distinguish whether a change in wiring instructions is fraudulent or legitimate.

A lack of frequent communication between mortgage servicers and title companies also can mean successful mortgage payoff fraud attempts don’t get caught until the seller receives a late payment notice from their lender on a loan they believed was paid off at closing. The delay in discovery can make it nearly impossible to recover the lost funds.

As mortgage payoff fraud increases, CertifID said it’s expecting to see a sizable quarter-over-quarter increase based on preliminary numbers for July.

Adams advises that firms be vigilant against anything that appears unusual.

“Always be wary of last-minute changes or updates to wiring instructions,” Adams said. “If you end up with two payoff statements and you can’t tell which one is right, make sure to call the lender first, no matter how long you need to wait on the phone to get verification.”