With the number of fraud incidents rising and becoming more sophisticated in the title insurance and mortgage industries, companies are enlisting the assistance of software firms to stop these scams.
Lydia Pelegrina, post closing department manager and marketing director at Florida-based McNeese Title, and Andy White, Closinglock’s CEO and co-founder, spoke with The Title Report about McNeese’s use of Closinglock’s software to catch and stop fraud attempts.
Pelegrina said her firm has used Closinglock’s technology for about three years and noted the software helped McNeese workers flag and prevent some attempted fraudulent transactions.
Earnest money deposit scheme uncovered
One type of incident rising in prevalence is an earnest money deposit (EMD) fraud scheme, where fraudsters impersonate either the buyer or seller to try to get their target to “refund” a fake deposit.
Pelegrina described an incident where the buyer was impersonating the seller in an EMD fraud scheme in January. One red flag, according to Pelegrina, was the amount of the EMD the buyer was pledging to put down: $125,000 on a contract that totaled about $300,000.
“Normally it’s…1 to 3 percent (of the total cost) that they put down. … It was definitely above the norm,” Pelegrina said.
Other red flags were the fact that the buyer never sent the EMD funds and the buyer’s refusal to use Closinglock’s ID verification system, which caught the attention of McNeese staffers. Pelegrina explained her staff typically sends out forms to collect the client’s name, address and other non-public personal information, and then use the Closinglock system to provide wiring instructions to the client.
“This buyer did not access either one of those things,” Pelegrina said. “They were not willing to go into that system … and then we were not receiving the earnest money deposit.”
The client’s inaction prompted McNeese staff to examine the potential transaction a little more closely and the deal was halted when their underwriter shared concerns.
“I believe our underwriter caught the name, they ran the name and found … the buyer had multiple instances where they had tried to run the EMD scam …he never actually sent the earnest money deposit. … We were able to … locate the true owner of the property and found that she was not selling her property.”
As was the case in the situation recounted by Pelegrina, White noted the presence of Closinglock’s software on a title company’s platform can serve as a deterrent from the get-go.
“Maybe occasionally there are some reasons somebody can’t use it, but in general, it works for 99 percent-plus of all your transactions,” White stated. “… The 1 percent that refused to do it, those really stick out like a sore thumb.”
White noted it is “very common” for fraudsters to balk at doing an identity verification.
“Good, legitimate people don’t typically have a problem with it because it’s pretty easy, it’s pretty straightforward, and it’s pretty reasonable when you have hundreds of thousands of dollars on the line here,” White said. “… We hear a lot of that from other customers … The first giant red flag is they’ll refuse to do the identity verification to begin with, and there’s not usually a good reason to not do that.”
Seller impersonation fraud revealed
Pelegrina also credited Closinglock’s “Know Your Customer” portion of the identity verification system with helping her company catch a fraudulent seller last year.
“Some of the information (provided by the seller) varied and that was 100 percent Closinglock (that) started the red flags for that with that ID verification system,” Pelegrina said. “… We closed the transaction when the true owner bought it 12 years ago, and we keep all of our records. We were able to pull a signature sample as well as true contact information for the actual seller, but Closinglock with the ID verification started the whole (process).”
How does Closinglock’s system work?
White explained that Closinglock’s software is set up to protect real estate transactions by focusing on two components of the deal: data sharing and the technology used to move money from one party to another.
White explained the initial goal was to create a platform where the parties involved in a transaction could exchange information with one another in a “trusted and secure manner.” That meant removing the data exchange from email systems, which are vulnerable to fraudsters’ schemes.
The next step was creating an online payment tool where the customer can make a payment by linking their bank account through Closinglock’s platform.
“Once they’re inside of Closinglock, they click ‘pay,’ they link their bank account, and then we take care of everything on the back end,” White said.
He noted the Closinglock system, which processes EMDs and down payments, as well as closing-cost transactions, is “the future of where real estate transactions need to go because you can stop people from sending money to the wrong spot. … You take it out of their account (and) get it over in a compliant manner to the escrow account.”
White discussed the layered approach his company takes to cybersecurity. He explained that Closinglock’s technology analyzes dozens of risk signals — such as user behavior, identity data and device patterns—and uses a proprietary, AI-powered risk-scoring model to determine the likelihood of fraud.
“Our system combines advanced analytics, biometrics, and real-time monitoring to help title companies identify and stop suspicious activity before it becomes a problem,” White said.
A lot of Closinglock’s customers conduct identity verification for potential sellers, but White noted he encourages them to engage in the same process with prospective buyers. White emphasized the software offered by companies like Closinglock will verify both the seller’s and the buyer’s identities.
“If you receive money through ways like Closinglock … then you can know where the money came from because … the buyer links their bank account, so we know the account owner’s name. We know their account number and their routing number … and we can check to make sure that matches up with the buyer,” White said. “But also if McNeese Title needs to refund money to that buyer, we know which account (it’s supposed to) go to. That’s how you close the loop on losing money. The problem happens if the money comes from one place but it returns to somewhere else.”
Pelegrina noted McNeese creates forms, prints them out, and uploads them to the Closinglock platform. She explained Closinglock then creates a fillable form that asks customers for the information that aligns with the data McNeese requests through its information sheets. McNeese then uploads wiring instructions to the Closinglock system.
“(They) then do a call back to me to verify the instructions are accurate before they post them to our Closinglock profile for use,” Pelegrina said. “… We also don’t include our full account number on those wiring instructions. Even the ones that are in Closinglock do not contain our full account number as another measure to try to get the clients to communicate back with us to verify those instructions. Closinglock does have the full account number for the payment portion … so it is still an insured transaction.”
A solid relationship benefitting both parties
Pelegrina and White said the professional relationship that has been forged between McNeese Title and Closinglock has been beneficial to both parties.
“We know the fraud exists,” Pelegrina said. “We don’t like it, but we need help trying to thwart it, or pinpoint and figure it out, especially when you’re closing numerous deals a month … and that’s why it’s important to us to have … Closinglock in our pocket to help us with that.”
White said he enjoys the partnership that his company has with McNeese Title and other firms.
“It’s a nice symbiotic relationship,” White said. ”You guys focus on what you know and do well, and I’ll focus on what I know and do well. We can partner together and make sure we get real estate transactions done.”
“And sleep easy at night,” Pelegrina added.