The closing table is one of the most financially significant moments in a real estate transaction and one of the most frequently targeted by fraudsters. Title insurance fraud and closing-related wire fraud are growing threats that borrowers, buyers, and investors need to understand before entering any transaction.
Wire Fraud at Closing
Wire fraud targeting real estate closings is one of the fastest-growing fraud categories in the country. It works through email compromise: a fraudster intercepts email communications between a buyer and their title company or real estate attorney, then sends the buyer a fraudulent wire instruction appearing to come from the legitimate party. The buyer wires their down payment or closing funds to the fraudster's account. By the time anyone realizes the error, the money is gone and recovery is nearly impossible.
The protection is straightforward but must be enforced: always verify wire instructions by phone using a number you look up independently, not a number provided in the email. Call before you wire, every time. A legitimate title company or attorney will not object to a verification call.
Title Plant Fraud
Title plant fraud involves tampering with title records to obscure liens, judgments, or prior claims on a property. A fraudster might remove evidence of an existing mortgage from public records so that a new lender funds a loan on a property that already has significant encumbrances. The new lender's lien position is not what they believe it to be. Discovery typically happens at default or sale when the competing lien surfaces.
Manufactured Deeds and Deed Theft
Fraudsters can file fraudulent deeds transferring property ownership without the owner's knowledge. Once a fraudulent deed is recorded, the "owner" can take out loans against the property. By the time the actual owner discovers the problem, there may be liens that complicate title restoration. Title insurance is the primary protection for lenders; homeowners benefit from owner's title insurance as well.
Why Title Insurance Matters
Title insurance exists specifically to protect against losses arising from title defects, including fraud-related ones. Lender's title insurance protects the mortgage lender's interest. Owner's title insurance protects the property purchaser's equity and ownership rights. While lender's title insurance is typically required as a condition of the loan, owner's title insurance is often optional and sometimes skipped to reduce closing costs. Given the fraud risks described above, that is usually a false economy.
Related: mortgage fraud and deed theft in Michigan.