Mortgage Escrow Fraud: What Homebuyers Need to Know

When you’re buying a home, there are tons of steps you have to complete. One of the more important ones is making your down payment and closing on your home, which occurs when you’re in the final stretch of the homebuying process.

This step in the homebuying process is one of the most — if not the most — critical, as mortgage fraud and scams are often perpetuated during the closing process. Escrow fraud is a real issue — and it can cause you some serious financial problems if you fall victim to it.

Don’t let the excitement of your new home purchase keep you from noticing the signs of escrow fraud. By being vigilant throughout the process, you can reduce your risk of becoming a victim of one of the biggest mortgage scams that can happen to unsuspecting homebuyers.

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In this article

    What is mortgage escrow fraud?

    Purchasing a home can be an exhausting experience, but the reward is being handed the keys after signing your loan documents. Some home buyers aren’t that lucky, though. They become victims of escrow fraud, which is a nightmare that happens before they get to the finish line. The reality is that mortgage escrow fraud is big business for scammers, and the prevalence at which it happens is increasing year after year.

    If you’re not familiar with what escrow is, it’s a contractual agreement that a third party will receive a sum of money that is passing between two transacting parties. This money is held in an account and distributed once the agreed-upon conditions are met. When it comes to home purchases, the escrow account generally holds the buyer’s earnest money, which is money that’s paid to the seller once the contract is accepted.

    Once the mortgage is approved, the purchaser receives wiring instructions from the escrow or title company to send their earnest money to. After those funds are received, the buyer will need to complete the rest of the loan process, including inspections and appraisals. After these steps are complete, the buyer will get a date for closing at the title company, which is when they’ll sign the loan documents and be handed the keys to their new home.

    Escrow fraud occurs when the money that should be sent to the title company for the escrow payment is sent to hackers or cybercriminals instead. This causes a ton of issues for the buyer, who rarely ends up getting the money back after it lands in the hands of criminals.

    According to the FBI’s 2019 Internet Crime Report, 11,677 people fell victim to mortgage escrow scams during 2019, to the tune of $221 million in total financial loss. These numbers have increased since 2018, when 11,300 people lost out on $150 million to these types of scams.

    [ More: Steering Clear of Car Insurance Scams ]

    How to stay safe from mortgage escrow fraud

    Mortgage escrow scams are perpetuated by hackers who are looking to intercept sensitive information to cash in. These frauds use phishing techniques to pose as the title companies or other real estate professionals to get the email recipient to open their email.

    The issue arises when hackers are able to intercept the wiring instructions for the escrow account. This is often done by hacking into the title company’s system and retrieving information on upcoming home purchases.

    With that information in hand, a dummy title company site is set up to look like the real one, along with fake emails that look legitimate. The scammers are very skilled at making the emails and websites look legit. They may only make slight changes, like adding punctuation where there isn’t, or making a singular name plural (Son to Sons).

    [ See: Mortgage Escrow Account Pros and Cons ]

    Scam emails are sent to the home buyers with instructions to wire the escrow or closing money or other home-related payments to the wrong accounts. Wire transfers are commonly used because they are one of the safest ways to send money.

    At this point, the homebuyer wouldn’t suspect anything is wrong, and the buyer uses those instructions to wire the agreed-upon amount of money into the wrong account. Without realizing it, the buyer has then become a victim of mortgage escrow fraud.

    Once the funds are wired to the hacker’s account, the money is usually irretrievable. The hackers simply withdraw the funds and disappear, leaving no trace of their whereabouts and no way to recover the money.

    Tips on avoiding escrow fraud 

    To avoid becoming a victim of mortgage escrow frauds, it’s important to be aware of the risks and know what to look out for. If you want to decrease the risk of being defrauded during the homebuying process, be sure to:

    • Put safeguards in place. Prior to mortgage closing, select one or two people involved in the transaction to discuss the closing with, in person or over the phone. Discuss the closing process and transfer protocols they have in place. Create a code phrase that only they know so you can confirm identities. Keep their contact information in a safe place.
    • Confirm over the phone. If you get wiring instructions by email, always confirm them over the phone with your trusted contacts. Never use the phone number listed on the email, especially if it differs from what you have saved.
    • Pay attention to the email details. If you have to reply to the email for any reason, review it closely and make sure the email address and signature match prior emails. Note any discrepancies and take them as a clear sign that something may not be right. Another precaution is to forward that email to the recipient, rather than reply directly to the email. Never click links unless you’re positive it’s from a trusted source.
    • Never email financial information to anyone. This rule is not limited to purchasing a home. You should never send financial information to anyone through email, unless it’s through a secure server that you have vetted beforehand.
    • Be skeptical of incoming phone calls. If you receive a phone call from someone working on your home purchase and they want to verify sensitive information, hang up and call them directly. 
    • Ask for proof of cyber liability insurance. With mortgage escrow fraud becoming more prevalent, your title and escrow companies should have cyber liability insurance. Request a copy of their policy showing this coverage so you know you’re covered in case it happens.

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    We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

    Mandy Sleight

    Contributing Finance Writer

    Mandy Sleight is a freelance writer and has been an insurance agent since 2005. She creates informative, engaging, and easy-to-understand content on the topics of insurance, personal finance, sustainability, and health and wellness. Her work has been featured in Kiplinger, MoneyGeek and other major publications. Learn more about Mandy and her writing on her website or by connecting on LinkedIn.

    Reviewed by

    • Angelica Leicht
      Angelica Leicht
      Mortgage Editor

      Angelica Leicht is an editor at The Simple Dollar who specializes in mortgages, mortgage refinancing, home equity loans, and HELOCs. She is a former contributing editor to Interest.com and PersonalLoans.org.