From subtle name alterations to false ownership claims, train (and re-train … then train again) your team on the biggest bottom-line-busting misrepresentations.

In the labyrinthine world of investment real estate, the complexities of transactions provide fertile ground for sophisticated forms of fraud. Cybercrimes (phishing, wire fraud, etc.), flipping/equity stripping schemes, identity fraud, appraisal/valuation fraud schemes, and title fraud are common.

One form of identity fraud involves individuals creating fake borrowing entities with names that closely resemble those of legitimate property owners, making it difficult to detect and posing a significant risk. In the real estate sector, this deceptive strategy is often referred to as “entity and title fraud.” This type of fraud can often be overlooked until it unravels into a costly mistake that can significantly impact lenders, investors, and other stakeholders.

Two Real-World Examples

Let’s assume you are the legitimate owner of a property, according to title documents and appraisal reports. and your company name and owner is listed as “33 Center Place, LLC.” A loan application for a transaction for 33 Center Street, LLC is submitted to a lender.

At first glance, the lender may not catch the difference in names because it is so trivial, or the lender might assume it’s a simple human error and continue to process the paperwork. But upon closer inspection, the lender realizes the person attempting to submit the loan paperwork is not the rightful owner of the correct legal entity, revealing a deliberate attempt to mislead or defraud the lender and other parties.

Another variation of this tactic, known as the “straw borrower” scheme, occurs when a property owner arranges for someone else—often a relative—to create a similarly named entity. The goal is to deceive the lender into approving the loan without realizing the entity is fraudulent.

Upon closer inspection of the name variance, the lender would realize the underlying party is not the original owner of the similarly named entity. The scheme has been perpetuated to mask underlying negative credit data that would have caused the lender to turn the loan down had the true and original owner applied. This slight alteration in the entity’s name could result in significant financial losses.

Red Flags

To consistently identify red flags in transactions involving entity names, you must be vigilant and understand common fraudulent tactics. You and everyone involved in the process must be aware of the following indicators that can suggest foul play.

Inconsistencies in Documentation. The entity’s name should be the same across all submitted documentation. Discrepancies between the entity names on different documents (e.g., title, loan application, appraisal or other official correspondence) may indicate fraud and should always be checked directly with your known contact at the firm or verifiable third-party diligence information providers. Inconsistencies should be called out and guidance by a manager should be requested.

Unverified Changes in Ownership. If paperwork is submitted with recent amendments to the entity’s name or structure shortly before the transaction without clear justification or corroborating legal documentation, go directly to the source. Find the appropriate legal documentation directly through the filing entity on the state or local level. Verify continuity of ownership in refinance transactions, and request all legal documents to validate any changes.

Lack of a Physical Presence. The borrowing entity may not have a physical office, or its address might not correspond to any legitimate commercial operations. Individual investors may not have a unique office space, but every investor should have a legal mailing address that stays consistent over time. If paperwork is submitted with a new or unknown address, you should review and document all changes in the loan file.

Unusual Rush During Transactions. A push for unusually quick decisions or the bypassing of standard verification processes can sometimes indicate fraudulent activities. Investors know the general time for closing, and most of them also know the general process. Speed is of the essence but not at the risk of hasty mistakes.

New or Unknown Contact. You may encounter instances where scammers have stolen personal information and attempt to act as a contact for an entity. Always confirm directly with the person or contact you have on file that they are the person initiating or finalizing the transaction you are currently working.

Request for Funds via Wire Transfer. Your team should always personally verify wiring instructions on both sides of the transaction to ensure any request for funds is legitimate and going to the proper entity. Your team should also implement two-factor authentication for sending wires and require extra scrutiny for international transfers.

Because wire transfers include sensitive information (e.g., bank account numbers), never send wire instructions via a typical email to confirm receipt. Finally, any wire should follow all standard procedures, and no member of your team should feel pressured to get a wire done without all the appropriate checks and balances completed.

Mitigating Risks

For every transaction, take these due diligence steps designed to uncover discrepancies and validate the legitimacy of the entities involved in every transaction.

Review Entity Documents Carefully. Your team should diligently compare the entity documents with public records and the current name of the owning entity. This involves reviewing the articles of incorporation, registration documents, and any recent amendments filed with state agencies. Your team should also verify the identity of the entity’s officers and their authority to conduct transactions on behalf of the entity. For refinance transactions, compare the current ownership listed on the appraisal, title, and entity documentation carefully for any discrepancies.

Utilize Online Tools for Diligence. A team member should conduct simple online searches to validate physical addresses, track the historical mentions of the entity, and assess the consistency of the entity’s presence in business registries or commercial databases.

Tools like Google Maps can help verify the physical location of any business. Often, fraudulent entities claim addresses that are nonexistent or residential. You might also check the Better Business Bureau website. Even if the company does not have a rating, they may still be listed.

Also consider using AI software to review documents for inconsistencies. AI can spot things our human eyes might miss (e.g., signatures that are slightly different), and it can help identify areas that just don’t fit together across the hundreds of pieces of paper necessary for one deal to close.

Likewise, third-party vendor reports often provide cost and time-effective solutions to vet and verify public records information, relationships that may exist between people or parties in the transaction.

Closing Attorneys and Title/Escrow Agents. Establish working relationships with a group of closing attorneys and title/escrow agents that you trust to independently verify the authenticity of the entity involved. These professionals should cross-check entity names and details against multiple sources of information.

Your closing attorneys can be a critical partner in scrutinizing the legal paperwork and ensuring the entity that appears at the closing table matches the one in the property title and other relevant documents.

Mitigating Loss/Initiating Recovery

When you or your firm find entity and title fraud after you’ve completed a transaction, a shift of focus to mitigating losses and recovering diverted funds may include the following:

Title Insurance Claims. You may be entitled to file a claim with your title insurance company. Your title insurance company is equipped to handle legal battles that may arise from title disputes and fraud.

Legal Action. Engage legal counsel to pursue recovery through the courts. This might involve suing for damages if fraudulent activities are proved or initiating steps to unwind the fraudulent transactions. Your legal team will advise on necessary steps and will help in tracking down and organizing your action plan for recovery.

Enhanced Due Diligence for Future Transactions. Audit and discover where and how processes failed. Educate your entire team, and incorporate lessons learned from the fraud event into future due diligence processes. Communication and continued training across all your teams is critical to ensure fraud instances decrease over time. You may enhance checks and balances and use advanced fraud detection software as part of your efforts.

As an investor or lender, you understand that fraud in this industry is a real threat. Lenders, investors, and legal professionals must work together closely to verify the authenticity of every entity. Leveraging both traditional and innovative tools helps safeguard your firm, financial interests, and the overall integrity of the real estate market.