What can a Title Agency do to prevent escrow wire fraud?
One of the most common sources of professional liability claims against a title agency is when one of the title agency’s employees falls prey to an escrow wire fraud scheme. Fortunately, there are many ways that a title agency can mitigate the risk of these claims from happening to them. As title agency business overall has slowed down in 2023 due to higher interest rates, now is a great time to employ some of these appropriate strategies:
Employee Education and Training - First and foremost, provide comprehensive training programs to educate employees about the risks of escrow wire fraud and teach them how to identify and prevent potential scams. Training should cover common fraud tactics, email phishing awareness, and proper authentication procedures.
Strong Authentication Processes – A title agency should establish robust authentication protocols for wire transfers, including call back verification of wire instructions. This is especially important if any changes to the wire transfer instructions or recipient accounts are received later in the transaction. In addition, a title agency should work with their outside IT vendor to implement multi-factor authentication (MFA) protocols.
Secure Communication Channels - Encourage the use of secure communication channels, such as encrypted email or secure file transfer systems, when sharing sensitive information with clients, lenders, or other parties involved in the transaction. Avoid using unsecured methods like regular email or fax if possible.
Positive Pay and Payee Verification - Utilize positive pay services provided by banks, which match the payee on checks or wire transfer instructions with a pre-authorized list. This helps prevent fraudulent payments to unauthorized parties.
Strong IT Security Measures - Strengthen the security of computer systems and networks with firewalls, antivirus software, regular software updates, and intrusion detection systems. Conduct regular vulnerability assessments and penetration testing to identify and address potential weaknesses.
Escrow Account Controls - Implement stringent controls for escrow accounts. The more a title agency regularly reconciles accounts, conducts internal audits, and segregates duties to prevent unauthorized access or manipulation of funds, the better off you will be.
Incident Response Plan - Develop a well-defined incident response plan that outlines the steps to be taken in the event of a suspected or confirmed escrow wire fraud. This plan should include protocols for reporting incidents, notifying appropriate parties, preserving evidence and engaging law enforcement if necessary. Speed is critically important when an escrow wire fraud event occurs, so having a plan ahead of time will save you time to help mitigate any potential losses.
Cyber Insurance Coverage - Obtain comprehensive cyber insurance coverage that includes coverage for losses related to escrow wire fraud if available. Cyber insurers are aware of the high risks that title agencies face, and thus obtaining coverage can be tricky and expensive. Review the policy carefully to ensure it adequately addresses the specific risks faced by the title agency. Try to find an insurance agent that is well versed in cyber coverage to help you evaluate coverage and carriers.
Crime Insurance Coverage - Crime insurance policies may provide coverage for various criminal activities, including fraud. However, the specific coverage can vary depending on the policy's terms and conditions. To determine if a crime insurance policy covers claims of escrow wire fraud for a title agency, review the policy details or consult an insurance professional. Such policies generally cover financial losses from theft, embezzlement, forgery, or computer fraud. Wire fraud involving escrow funds is a form of financial fraud, and if the policy includes provisions for computer fraud, it might provide coverage.
Professional Liability Coverage – Make sure you obtain professional liability insurance from a well-regarded carrier with a high A.M. Best rating. Coverage should be provided on a “title agency” specific coverage form rather than under a more generic “miscellaneous professional liability” policy form. But even then, most professional liability carriers do not provide “social engineering” coverage for escrow wire fraud claims. Instead, they point their insureds to look to their Cyber or Crime Policies. The Vanguard Specialty policy for Title Agents provides up to $150,000 of coverage for these types of claims if appropriate call-back and documentation protocols are followed (see policy specimen for more details). It is advisable to use an insurance agent that specializes in providing coverage to title agencies to make sure that the various insurance policies you purchase interact together to provide the coverage that you need.
Remember, these techniques are general recommendations, and it's important to consult legal and insurance professionals to tailor risk management strategies to the specific needs of your title agency and comply with relevant regulations and industry best practices.