Mustafa Bhutto is a Business Development Manager (BDM) at FCT. He’s also one of our Certified Fraud Examiners (CFEs), working with customers to help keep ahead of the rising levels of fraud in the real estate industry. Today, Mustafa sits down with us to discuss some of the common trends to watch out for, the importance of underwriting, and the best ways organizations can fight fraud.
The CFE designation is divided into four components: fraud investigation, fraud prevention, fraud governance, and fraud schemes. The first two are very important for underwriting, and I’ve found knowledge of the other two has really helped to support and educate customers. Having my CFE helps me explain to clients why we underwrite, and why it’s so important to have that second set of eyes.
In a hot property market, law offices are often under pressure to get deals out on time. They may feel like they don’t have enough time to talk to their customers, and fraudsters can take advantage of that. When a deal goes into underwriting, our experts look at all the entities that are involved in closing that deal to make sure all parties are protected.
If something is being escalated as a rush deal, that’s something to watch out for. Something sent the day the deal closes, or the day before creates a sense of urgency that works to the fraudster’s advantage.
Private lenders can also be a tempting target for fraudsters. Private lenders often don’t have the resources to underwrite deals on their end, which can create openings for fraud against them. We work with private lenders and apply the due diligence needed to make sure everyone in the transaction is properly protected.
As a BDM, I often speak with lawyers that are acting on a deal where the client may not be local. This can be a reason to be on guard because when you’re doing a real estate transaction, you need some sort of contact with the parties involved. If you’re doing deals outside your area, that means a lot more virtual meetings, which can add more risk. This just means that you need to be extra cautious as it’s easier to commit fraud virtually than in person. That’s not to say that in-person deals are totally safe. Fraudsters who don’t want to be recorded on camera might prefer to go into an office and meet face to face.
Right now, fraud is about forging I.D.s and impersonation. It can be as simple as someone holding up a fake I.D. on a virtual meeting or as sophisticated as someone creating a synthetic I.D. Fraud perpetrated with synthetic I.D.s is when a fraudster takes a stolen Social Insurance Number (SIN) and combines it with a fabricated name, date of birth, and address. They create a whole new fake identity to commit fraud with, and they can even use the same SIN to create multiple fake personas.
In order to move ahead into the 21st century, more processes will become virtual, even after the pandemic. That carries higher risk of impersonation and fraud, so it’s a tough balance for lenders and lawyers. Law firms are competing with each other, and a big competitive factor they use is speed and convenience.
An important step to prevent fraud is to ask the buyer more questions, which creates more chances for a fraudster to slip up. The question to solve is: how do you offer that convenience, while still protecting yourself and your clients? I see investment in lots of different software to help verify I.D. and prevent fraud, and that’s a great start.
For a fraudster, being involved in fraud is often a full-time job. They have a team and a network that they’re working with. Imagine you’re spending nine or ten hours of your day with other people, trying to come up with a way to defraud someone. That’s what we’re up against. We have to stay vigilant and never stop learning, because fraudsters never stop learning either. That’s one of the things I’m proud of FCT for—everyone here works to stay on top of fraud.
In addition to watching out for red flags and asking more questions, an effective way to prevent fraud is for an organization to cultivate a strong reputation as being difficult to defraud. But an organization can’t market the details of how they prevent fraud—that’s information a fraudster would definitely want to have. You can talk about examples or stories of how you prevented fraud, or how much in losses you’ve prevented, for instance. You associate your brand with vigilance and expertise, and it actually helps keep your organization safer by discouraging fraudsters from targeting you in the first place.
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