Social engineering fraud has long plagued the title & escrow industry, but recent developments have dramatically intensified the threat landscape. The proliferation of advanced AI tools has empowered cybercriminals to craft increasingly sophisticated and convincing scams, challenging even the most vigilant professionals. As a result, incidents of business email compromise (BEC) and attempted wire fraud have surged to unprecedented levels.
According to the FBI’s Internet Crime Complaint Center (IC3), over 9,500 real estate-related BEC complaints were filed in 2023, resulting in more than $145 million in losses. That’s more than the amount of money lost to each identity theft, extortion, ransomware, and malware.
Understanding Social Engineering Fraud
Social engineering fraud is a deceptive practice where malicious actors exploit human psychology to manipulate individuals into divulging sensitive information or following fraudulent instructions to transfer funds to fake accounts.
Scammers frequently employ these tactics against the title & escrow industry to intercept and redirect funds involved in the closing process. Their methods often involve sophisticated phishing emails, spoofed communication channels, or even direct phone calls, all designed to trick unsuspecting professionals or clients into taking actions that benefit the scammer.
Common Social Engineering Tactics
- Phishing: Cybercriminals send emails that appear to be from trusted sources, such as clients or business partners, requesting changes to wire transfer instructions. Now, AI algorithms are making these phishing attempts even more targeted. AI can analyze personal data from social media and other online sources to craft hyper-personalized phishing emails (spearphishing). These messages are tailored to each target’s interests, writing style, and personal circumstances, making them extremely difficult to distinguish from legitimate communications.
- Spoofing: A criminal impersonates an individual or trusted organization to accomplish a malicious goal. Spoofers hide their identity using various technical measures: IP spoofing, where a criminal copies an IP address so that systems believe the source is trustworthy; URL spoofing, where a criminal replicates a website to create a look-alike website to collect sensitive information; and caller ID spoofing, where a criminal falsifies the information transmitted via caller ID in order to disguise their identity.
- Business email compromise (BEC): Spoofing and phishing are precursors to BEC, which refers to a kind of data breach where a perpetrator gains access to a participant’s email account involved in a real estate transaction. The perpetrator then monitors the real estate proceedings and requests changes in order to have funds wired to a fraudulent account. BEC targets the real estate market so frequently that the FBI issued a comprehensive report just on BEC and real estate wire transfer fraud.
- Deepfakes: Advanced AI voice synthesis can clone voices with just a small audio sample. Attackers use this technology to impersonate executives or clients in phone calls, often requesting urgent financial transactions. Combined with caller ID spoofing, these attacks can convincingly simulate highly convincing impersonations of executives or trusted figures to manipulate their targets.
- Automated social engineering: AI-powered chatbots can engage in prolonged, convincing conversations with targets, gradually building trust and extracting sensitive information. These bots can operate at scale, targeting numerous individuals simultaneously.
- Search engine optimization attacks: Attackers use search engines like Google to capitalize on global events that people may search for online. For example, after the recent global Crowdstrike/Microsoft outage, threat actors started pushing malicious websites to the top of search engine results pages to entice people to click on phishing links.
The Impact of Social Engineering Fraud on Title & Escrow Businesses
The consequences of falling victim to social engineering fraud can be severe:
- Financial loss: Title & escrow companies often handle large sums of money during real estate transactions, making them prime targets for social engineering attacks. The economic losses can be substantial, including direct monetary theft by the fraudulent transfer, costs associated with investigating and mitigating the fraud, and potential legal fees and settlements. Qualia’s 2024 special report on wire fraud found that 1 in 10 title & escrow professionals reported financial loss due to wire fraud in the past 12 months. Of those companies, over 35% reported losses of more than $100,000.
- Reputational damage: Title & escrow companies are trusted to safeguard funds and secure transactions. A single incident of successful fraud can be catastrophic for a business’s reputation, resulting in lost business and negative publicity that can be difficult to recover from.
- Legal and regulatory consequences: Title & escrow businesses may face legal action and regulatory scrutiny following a social engineering fraud incident, including lawsuits from affected clients, regulatory fines for inadequate security measures, and increased oversight and compliance requirements. A recent 2024 report analyzing more than 100 real estate wire fraud cases found that title companies, law firms, banks, and real estate professionals increasingly bear liability when client funds are diverted into fraudulent accounts.
- Disrupted operations. Social engineering fraud can temporarily suspend services during an investigation or divert resources from day-to-day operations to address fraud and its aftermath. These disruptions can impact your service levels, cause employee burnout, and further damage your reputation.
Safeguarding Your Business
In the face of evolving social engineering threats, title & escrow companies must adopt a multilayered approach that integrates people, processes, and technology to protect their operations, clients, and reputation.
Employee education
Social engineering fraud directly targets people and their inherent vulnerabilities. Therefore, comprehensive employee training is the foundation of any effective defense strategy. Regular, up-to-date education sessions are crucial to keep staff informed about the latest social engineering tactics and how to identify suspicious requests. These training programs should be interactive and scenario-based, allowing employees to practice responding to potential threats in a safe environment. By fostering a culture of security awareness, businesses can transform their workforce into a first line of defense against social engineering attacks.
Client education
Embed education about fraud prevention into your workflows and processes, ensuring that you consistently remind all parties involved in transactions about the risks of social engineering and wire fraud and best practices for mitigating these risks. Use specific, real-world examples to demonstrate how fraud can occur and encourage clients to take additional steps to verify information during high-risk moments, such as when wiring funds.
Implement robust verification processes during wire transfers
Establish a strict policy requiring confirmation of any changes to wire transfer details through a known, secure channel. This process should involve multiple checkpoints and require approval from senior staff members for transactions above a certain threshold.
Use secure communication channels
BEC is one of the primary ways bad actors infiltrate communications and carry out wire fraud attempts. FBI data shows that BEC scams targeting real estate are rising. From 2020 to 2022, there was a 27% increase in victim reports to the IC3 complaint center.
To mitigate this risk, businesses should invest in secure client portals, like Qualia Connect, to share and store confidential data. In addition to providing a secure method of communication, secure client portals can also help encourage the use of multi-factor authentication (MFA) by end-users and allow businesses to implement other security controls, such as centralized logging.
Invest in a robust cybersecurity infrastructure
While many title & escrow companies rely on add-on security tools to mitigate security threats, reducing your attack surface begins with consolidating your systems. A unified real estate closing platform with built-in security features enables you to reduce the risk of attacks and create a streamlined closing experience for all transaction parties.
Regardless of your approach, all of your technology and tools should align with ALTA Best Practices Pillar 3 and be certified with the highest industry standards (ISO 27001). Your technology providers should also be able to provide a report drafted by independent auditors (SOC 2 Type II) that verifies the robustness of their security protocols.
Turn on multi-factor authentication (MFA) across all systems
Microsoft reports that over 99.9% of account compromise attacks can be prevented with multi-factor authentication (MFA). MFA should be implemented across all systems and accounts, not just for financial transactions. This approach can significantly reduce the risk of unauthorized access, even if a fraudster manages to obtain login credentials through social engineering tactics.
Develop a rapid response plan
Offer clear, step-by-step protocols for employees if they suspect a social engineering attempt. The plan should include procedures for immediately reporting suspicious activities, isolating affected computer systems, and notifying relevant parties, including law enforcement and cybersecurity experts. Regular drills and simulations ensure that all staff members are familiar with these procedures and can act quickly in a real-world scenario.
Collaborate with industry peers
For years, discussing cyber attacks and wire fraud has been taboo in the real estate industry, as companies feared reputational damage and loss of business. However, at Qualia’s 2024 Future of Real Estate Summit, Victor Kabdebon, Co-founder and CTO of Truework, emphasized the importance of transparency in addressing these issues. By openly sharing insights about wire fraud and social engineering attacks, the industry can collectively learn and implement strategies to avoid similar incidents.
Insurance coverage
Carefully review your insurance coverage to ensure it adequately addresses the risks of social engineering fraud. Many standard errors and omissions (E&O) policies now exclude these claims, making it essential to seek out specialized cyber insurance that includes coverage for funds transfer fraud and social engineering. Some insurers offer policies tailored specifically to the title & escrow industry, providing comprehensive coverage for the unique risks connected to real estate transactions. Make sure you understand what constitutes a covered loss under your E&O policy.
Stay ahead of rising threats
As social engineering tactics evolve and become more sophisticated, individuals and organizations must remain vigilant and proactive. By staying informed about the latest scams, implementing robust security measures, fostering a culture of awareness, and breaking down walls to collaborate on solutions, the industry can collectively work to stay one step ahead of these rising threats.
To learn more about Qualia’s commitment to security, visit our Trust Center.
