Most investors spend a tremendous amount of time evaluating the quality of a deal before wiring funds.
They review the borrower’s financials, inspect the property, analyze market conditions, verify valuations, and carefully structure their investment to reduce risk. Those are all essential steps. But there is one simple verification that is often overlooked, and it has nothing to do with the property itself.
It involves confirming that the title and escrow companies handling the transaction are exactly who they claim to be.
It may sound like a minor detail. Unfortunately, it is not.
We have seen firsthand how sophisticated fraud schemes have become, and one particular incident permanently changed the way we approach every purchase transaction.
When Everything Looks Legitimate
Several years ago, one of our investors, John, agreed to fund what appeared to be a completely legitimate purchase loan. The documentation looked professional. The parties involved appeared credible. The transaction moved through escrow exactly as expected, and the funds were wired.
Everything seemed perfectly normal.
Only after the transaction closed did the truth begin to emerge.
The entire transaction had been infiltrated by fraudsters.
Because it was a purchase transaction, John was required to work with the title and escrow companies selected for the transaction rather than the firms he had built relationships with over the years. That single circumstance created an opportunity.
The fraudsters established a company whose name was almost identical to a well-known title company. The difference was incredibly subtle. It may have been one additional word, one missing letter, or something as simple as using “Company” instead of “Companies.”
At first glance, nothing appeared suspicious.
They had their own website. Their own email addresses. Their own telephone numbers. Their own wiring instructions. They even had people answering the phones and communicating professionally throughout the process.
Everything looked authentic.
Unfortunately, the escrow officer involved in the transaction was also part of the scheme. Once the funds were wired into the fraudulent account, the money was quickly converted into gold coins in an effort to conceal and move the proceeds.
Recovering the funds became an enormous legal challenge.
Fortunately, John eventually recovered his investment.
The process, however, took more than two years.
During that time, there were attorneys, investigations, legal expenses, uncertainty, and countless hours devoted to resolving an issue that could have been prevented with a simple verification process.
The Verification Process That Changed Everything
That experience fundamentally changed the way we conduct our due diligence.
Today, every purchase transaction goes through an independent verification process before funding is approved.
Rather than relying on the information contained within the file, we independently locate the title company ourselves. We confirm that the exact legal name, physical address, and publicly listed telephone number all match the information shown on the preliminary title report.
Then we call the company using the phone number we independently located.
Not the number shown on the title report.
Not the number listed in an email.
Not the number provided by escrow.
The publicly listed number.
During that call, we do not ask whether they are handling a transaction for a particular borrower. Instead, we provide the title order number and ask them to identify the transaction, the insured parties, and the title officer assigned to the file.
We also independently verify the title officer’s contact information before moving forward.
Every detail must match.
If there is any discrepancy, even something that appears insignificant, we stop and investigate before any money leaves the account.
That may sound overly cautious, but experience has taught us that fraud often hides in very small details.
For example, two companies with nearly identical names can appear interchangeable to someone moving quickly through closing documents. A slight variation in spelling, an unfamiliar email domain, a different suite number, or a new phone number can easily be dismissed as an innocent mistake.
Sometimes it is.
Sometimes it is not.
The cost of assuming everything is legitimate can be devastating.
Trust, But Always Verify
The encouraging news is that since implementing this verification process, we have not experienced another issue involving title or escrow fraud.
The procedure adds only a few minutes to the funding process, yet it provides a significant layer of protection for everyone involved.
As fraud schemes become more sophisticated, investors and family offices cannot assume that professional-looking documents guarantee a legitimate transaction.
Technology has made it remarkably easy for criminals to create convincing websites, email addresses, business names, and communications that closely resemble legitimate companies. Even experienced professionals can be deceived when they rely solely on the information presented within a transaction file.
The responsibility ultimately falls on those wiring the funds.
Before approving any purchase transaction, independently verify the title company. Confirm its exact legal name. Verify the address. Call a publicly listed telephone number. Confirm the title order number, the assigned title officer, and carefully compare every wiring instruction before authorizing the transfer.
These are not complicated steps.
They require only a few extra minutes.
But those few minutes can prevent years of litigation, substantial financial losses, and the disruption that follows when a fraudulent transaction succeeds.
In today’s lending environment, careful underwriting remains essential. So does evaluating the borrower and the collateral.
Just remember that protecting your investment also means verifying the people and companies responsible for handling your funds.
Sometimes the smallest verification becomes the most valuable part of the entire transaction.