Orchestrating the Right Technologies to Stop Fraud in Housing

Since the pandemic, interest rates and housing supply issues have dominated the conversation around housing in America. But while many Americans wait for the right opportunity to buy their first home or upgrade to a new one, generative AI impersonation attacks are taking a toll on the market, leaving homeowners, prospective buyers, and everyone in between ravaged by fraud. Fraud in homebuying represents a $30 trillion problem. As the key to unlocking the American dream, it’s imperative for the industry to come together to protect homeownership.

Recent advancements in AI technologies have strained the housing industry's ability to respond to attacks against nearly every corner of the homebuying process, from deed fraud to wire fraud to application fraud. The FBI recently reported a 500% increase in fraud cases involving vacant land over the last four years. High-profile cases involving fraudulent deeds, such as for Elvis’ Graceland estate, have alarm bells ringing.

Generative AI has accelerated fraud in the housing market by making it easier to impersonate buyers, sellers, and even mortgage and title companies. In one recent example, a fraudster was brazen enough to use an image of a missing woman to create an AI-generated deepfake to attempt to sell a home they did not own.

To combat this, we need to enhance identity verification and trusted records at every stage of the real estate process. From listing, to signing contracts, closing, and recording the property, each step presents an opportunity to narrow the aperture of fraud. And, any weakness in the chain creates a threat to the entire industry.

Over the last decade, the housing industry has led financial services in digitization, making considerable progress in improving document execution, records management, and identification. What we need to do now is tie the threads between all of these technologies.

For both prospective buyers and sellers, the first place many of us start is with a real estate agent. As our trusted guides in the housing market, agents can play a central role in helping to stop property-related fraud by pulling identity verification closer to the start of a sale. When agents meet with prospective buyers or sellers, verifying identities ensures they are interacting with real, legitimate individuals. They can confirm the seller actually owns the home and has the right to sell it, putting a stop to deed fraud. This not only stifles fraudulent home sales but also protects agents’ reputations and avoids costly delays.

To address wire and application fraud, official communication and documentation must be issued by verified sources and executed by verified identities. For example, embedding emails or wire authorization forms with metadata can instantly prove their authenticity and detect any alterations. Similarly, banks can use the same processes to verify that income statements and W-2s submitted by applicants are genuine and unmodified.

When it’s time for a customer to sign something, they should sign with the same identity profile they created when they first engaged in the sale. The identity profile should then live within that document as it's transmitted between recipients, eventually recorded, and sold on the secondary market.

If we are going to stop bad actors from submitting fraudulent loan applications, the industry must face the reality that they have an inconsistent relationship with the account holder. For instance, when a property owner requests a HELOC years after the initial mortgage, the property owner's identity should be compared against the same identity profile they used when they first applied for the mortgage. This consistency helps verify their identity and prevent fraud over the 30-year life cycle of a loan.

If we require consumers to verify their identities and create an identity profile when they first engage in the sale, consumers can leverage unique identifiers to reauthorize their identities and execute subsequent transactions. Meanwhile, in the background, software can be leveraged to analyze the context behind every interaction, utilizing real-time behavioral analytics purpose-built to detect suspicious activity and attempted forgery. If a homeowner decides to work with a different bank for refinancing, the new bank should be able to compare the identity verification from the loan documents and compare it against the identity profile used in the new application in a privacy preserving manner.

Introducing these technologies in the home buying process will also help to address the fraud that’s occurring further upstream in the property recording process. Many of the cases involving fraudulent home sales begin with a fraudster recording a fraudulently executed deed, giving the fraudster’s claim over the property an air of legitimacy. If identity information is pulled through and lives within property records when they’re recorded, it will provide a county with a much richer sense of whether the person attempting to submit a quitclaim deed is really the same person who owns the property - not just that the name on the deed matches the name on the record.

Existing technologies like online notarization that have already transformed homebuying play a central role in stopping these upstream impacts as well. Online notarization has many benefits over traditional notarization, such as enhanced identity verification, video recordings of meetings, chain of custody, and digital certificate technologies that confirm a notary's identity and secure documents. Unfortunately, many of the technological benefits of online notarization are not fully leveraged by the public sector in the same way they are by the private sector. If we can improve the coordination between online notarization vendors and governments or their vendors, the technology that’s already in play can deliver instant verification that notarized documents are legitimate, providing certainty that the document was completed by the signer and the notary in question.

The sophistication of the housing industry today and critical investments made to digitize transactions and improve documentation make it easier for us to address these challenges. As an industry that has proven itself a leader in financial services, rising trends in fraud present an opportunity to come together and model how technology can be used to solve these problems.

At Proof, we are dedicated to solving this problem with our partners.