- June 08, 2015
- All Issuing Offices
- CLAIMS AVOIDANCE - Fraudulent Earnest Money Deposit and Request to Release Funds Early
We previously advised you of a check fraud scheme involving a bogus inspection contingency and a request to disburse funds shortly after the deposit of an earnest money check.
We recently received reports that such schemes are continuing and evolving.
In a recent manifestation of this scheme, an Issuing Office received an email request, purportedly from the buyer, advising them of an impending sale. A contract was delivered to the Issuing Office together with a substantial earnest money payment in the form of a cashier’s check. The contract contained a provision authorizing the Issuing Office to release the earnest money to the seller, upon notice from the buyer, when certain inspection contingencies had been satisfied. Shortly after the funds were deposited, the Issuing Office received an email from the buyer advising that the inspection contingency had been satisfied and instructing the Issuing Office to wire the earnest money funds to the seller.
All of this is fake. The scheme is designed to induce the Issuing Office to distribute funds, by wire, before the Issuing Agent discovers that the earnest money check is counterfeit. A fake cashier’s check was delivered in order to make the scheme appear more legitimate. The wiring instructions, whether in the contract or elsewhere, will direct the funds to the perpetrator’s account, not to the real owner, who likely has no knowledge that anything is awry. In reality, the subject property may not even be offered for sale, and the perpetrator is merely pretending to be a buyer. The perpetrator may also impersonate the seller – by phone or email - in order to induce the Issuing Office to wire the funds to the bogus account.
Some common features of this scheme appear to be:
- No in-person contact with either the buyer or the seller.
- No realtor involvement.
- A check (which may be a cashier’s or bank check), not a wire, is sent or delivered.
- An instruction from the “buyer” to release funds to the “seller” shortly after the earnest money is deposited, purportedly upon the satisfaction of a contingency in the contract.
It may be possible to reduce the likelihood of becoming a victim of this scam by being vigilant regarding a request to disburse funds prior to closing (whether large or small amounts, for an inspection contingency or otherwise), particularly if the earnest money deposit is a check (of any type) and the customer is new.
One possible deterrent may involve contacting your bank to confirm that the funds have fully cleared (not just that they are “available”) before making any disbursements. Another possible deterrent may involve contacting the bank that issued the check to confirm its authenticity. Another possible deterrent, where possible, may be to request that customers appear in person with their government-issued picture identification before releasing any funds.
As a reminder, before closing a transaction, all issuing offices must search the names of the parties to the transaction, including the seller, buyer/borrower, payoff lender, and new lender, using the Special Alerts database, which may be accessed at http://specialalerts.stewart.com/ or as a link from Stewart.com and/or Virtual Underwriter.
If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.
For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.
- Bulletins Replaced:
- Related Bulletins:
- SA2014024 SPECIAL ALERT - Arkansas Counterfeit Check Scam
- SLS2010013 Check Fraud Schemes
- SLS2011005 Disbursement Practices: Good Funds vs. Collected Funds [Revised 04-27-12]
- SLS2014015 CLAIMS AVOIDANCE - Check Fraud Involving Large Overpayment
- SLS2014016 CLAIMS AVOIDANCE - Check Fraud Involving Identity Theft, Inspection Contingency, and Early Disbursement
- Underwriting Manual:
- Exceptions Manual: