Protecting Your Seller’s Mortgage Payoff

Attorneys' Title Guaranty Fund, Inc. has seen a new type of wire fraud in real estate closing transactions: altering of the seller’s mortgage payoff letter. Fraudsters are intercepting the mortgage payoff letter and altering the document, changing the wire instructions. The amount of the mortgage payoff amount remains unaltered so someone only reviewing the first page of the payoff letter would not detect the fraud.

If the fraud is not discovered before the wire is sent, the funds intended to pay off the seller’s mortgage will be sent to the wrong account. If successful, the fraud may not be discovered until after the closing when the seller would get the next statement from their mortgage lender or worse, when the seller receives notice their loan is in default.

In a recent Massachusetts case, King v. Wells Fargo Bank, U.S. District Court D. Massachusetts 19-CV-10065-ADB), the buyers sued Wells Fargo Bank after the money they sent to pay off a portion of the seller’s mortgage, per the terms of the sales contract, was sent to a fraudster’s account based on a fraudulent payoff statement. The buyers attempted to argue that Wells Fargo should have released the mortgage when the bank received the funds, regardless of the account the money was sent to. The court held that Wells Fargo did not have to release the mortgage since the money was sent to a fraudster-owned account, not an account made for the benefit of Wells Fargo. As a result, the buyers have two mortgages recorded against the property.

ATG members, closers, and staff need to be aware of what to look for in mortgage payoff letters in order to better protect against this new type of fraud.  

Please click on the link below to watch a video about how to spot a fraudulent payoff letter and to see some real life examples.

 ATG members can get 0.75 hours of CLE credit by clicking on the link below:

 Anyone not seeking CLE credit can watch the video by clicking on the link below:

Posted on: Tue, 09/17/2019 - 12:38pm