GRAND RAPIDS — Rising incidents of fraud and cybercrime led CertifID LLC to introduce a new service designed to protect loan payoffs in real estate transactions.
The Grand Rapids- and Austin, Texas-based CertifID brought PayoffProtect to market at the urging of clients who were asking for more protection when executing loan payoffs electronically. The service verifies the identity of mortgage lenders and other parties, authenticates payoff instructions, and ensures the information that parties in a transaction share is accurate.
Tyler Adams, CertifID co-founder and CEO. COURTESY PHOTO PayoffProtect builds on the service that CertifID launched four years ago to provide real-time protection and prevent fraud in wire transfers in real estate transactions.
“The first part of our journey we really targeted trying to protect the buyers and the sellers,” said CertifID co-founder and CEO Tyler Adams. “CertifID as a platform was focused on making sure that the movement of money from a buyer into a title company (and) from a title company out to a seller was absolutely secure and that we validated each one of the parties involved in that transaction and we made sure their money moved appropriately. What we learned in the early years of launching that product was that there was a movement of money that we needed to spend time and focus on, and that was the lender payoff.”
The cybercrime that CertifID seeks to prevent with PayoffProtect occurs when cybercriminals impersonate a lender in a real estate transaction and are able to redirect funds intended to pay off an outstanding debt. That typically happens when a cybercriminal identifies a pending transaction and hacks into the email account of one of the parties, enabling them to send false electronic wire instructions and intercept a payment, according to the National Association of Realtors.
Scammers have learned that real estate transactions involve a “huge pool of money” that goes to pay off outstanding mortgages, Adams said. They have been targeting title companies by emailing or faxing fake instructions that direct the money to a fraudulent account, he said.
The cybercriminals of today are highly organized and sophisticated operators who have the ability to create fake email domains, signatures and web pages that look “almost completely identical to some small-town mortgage lender, to the point where the title company can’t tell the difference between a real one and a fake one,” Adams said. “They’re up against an organized crime ring.”
In citing the need to better protect wire transactions and the ever-increasing threat of cybercrime, Adams cites how CertifID’s recovery services team has recovered $50 million in the last 12-18 months for clients victimized by mortgage payoff fraud. He noted a recent case where a title company got taken for $1.7 million, “and we hear stories like that every single week.”
Adams formed CertifID in 2017 with business partners Thomas Cronkright II and Lawrence Duthler, who own and founded Grand Rapids-based Sun Title. The company fell victim in 2015 to a social engineering scam resulting in wire fraud that cost it nearly $200,000.
CertifID launched PayoffProtect in early August with the backing of a $12.5 million Series A growth capital round with Minneapolis-based Arthur Ventures that closed last spring. The company first beta tested the new service with three title companies and has so far provided protection for more than $750 million in mortgage payoffs, Adams said.
While an FBI annual report on cybercrime does not break down reported incidents specifically for real estate loan payoffs, it does show that scams involving business email compromise and email account compromise accounted for $2.39 billion in losses in 2021 in the U.S. through 19,954 reported incidents. That compares to $1.86 billion in 2020 involving 19,369 reported incidents.
Phishing scams that lead to compromised business emails are often the leading type of fraud that target real estate mortgage payoffs, where parties are often communicating for the first time and doing it electronically, Adams said. The FBI noted the nearly 324,000 complaints about phishing scams in 2021 that cost victims $44.2 million. The number of phishing scams nearly tripled since 2019.
The real estate industry remains a top target for phishing scams, Adams said. Once an email account gets compromised, cybercriminals “are just listening” and can wait, figure out who the players are in a transaction, and then attack and redirect a wire transfer for a mortgage payoff, he said.
“These underground crime rings have figured out that if they want to make a lot of money on targeting transactions, they come after real estate because it’s a lot of money and it’s completely open to anybody from a public perspective. You can go online and figure out who the real estate agent is on a multi-million dollar property in any town in Michigan,” Adams said. “This has all become a really fruitful breeding ground for these fraudsters where they just target anyone involved in a real estate transaction.”
The FBI’s Internet Crime Report also counted 11,578 incidents in 2021 involving the loss of funds from a real estate investment or fraud involving rental or timeshare property that cost victims $350.3 million.
