- June 29, 2010
- All Issuing Offices
- Check Fraud Schemes
This bulletin reminds you of the potential perils of relying on checks. Schemes based upon fraudulent checks continue to be a source of potential losses for our industry. Losses can occur even if a settlement agent has complied with applicable requirements for "Good Funds". Any check - bank check, cashier's check, certified check, and teller's check - can be counterfeited. Watermarks and routing numbers can be forged.
Some check fraud schemes involve checks drawn on foreign banks and/or checks drawn on behalf of persons located outside of the United States. These should be handled with extreme caution. But check fraud can also be accomplished in person, with counterfeit checks drawn on well-recognized United States banks.
Check fraud schemes frequently induce a victim to accept a check, and then to rapidly disburse funds before the bogus check is discovered. Shortly after a victim accepts a check, a fictitious urgent reason materializes and the victim is pressured and persuaded to immediately disburse real funds to the perpetrator or an accomplice, before the original check has been collected. Afterwards, the victim discovers that the original check was fake.
Check fraud schemes continue to evolve. Their perpetrators are inventive, devious and sophisticated. Some check fraud schemes involve the perpetrator opening a fake title order by delivering a bogus contract to the title office. A counterfeit check is also delivered. The delivery of the check may precede or accompany the contract. To induce the victim to rely upon the check, the perpetrator may also provide counterfeit bank statements to support the fake check, and/or government-issued identification (e.g., a foreign passport), which may or may not be authentic. Shortly after opening the order, and before the check is identified as counterfeit, the perpetrator cancels the fake contract, and demands immediate return of the bogus deposit.
In other check fraud schemes, a fake title order and counterfeit check are delivered by or on behalf of a person living outside of the United States. In this scheme, an additional party (who may be an accomplice or may be the same person, claiming to be a third party) is also involved. Before the check is identified as counterfeit, the third party (possibly claiming to be a foreign attorney or an official of a foreign government) contacts the agent and pressures the agent to return the funds, purportedly to comply with foreign government regulations or foreign currency restrictions.
In another variation, the victim is induced to accept and deposit a check for reasons unrelated to the transaction (e.g., to purchase furniture). Before the check is identified as counterfeit, the perpetrator claims that the furniture order is cancelled, and demands return of the funds.
In most cases, the fraud is consummated when the victim yields to the pressure, and issues a check to the perpetrator or wires funds to the perpetrator's account, before sufficient time has passed to discover that the original check was counterfeit.
There is no substitute for diligence and skepticism when handling checks. Where feasible, you should require that all funds be wired to you. If you accept a check - any check - you should require and make copies of government-issued picture identification. Where feasible, you should contact the bank upon which the check is drawn and attempt to confirm that the check is authentic and supported by adequate funds. It is always the best practice, where feasible, to request and obtain written confirmation from your bank that the funds from that specific check have been fully collected and unconditionally credited to your account, before disbursing any funds.
If you have questions related to this bulletin, please contact Stewart Legal Services or your local underwriting personnel.
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