00:01
Welcome to episode five of season 14 of the growing empire show today I'm here with my special guest Bill Himmelreich from Stewart title, and we're going to discuss fraud and the real estate and title business.
So stay tuned.

00:16
Welcome to Growing empires hosted by real estate entrepreneur and trusted Investment Advisor Jennifer de Jesus’ Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate
portfolio.

00:37
So welcome Bill to the Growing Empires show. I'm so glad that you're here. Let's kick off this episode with just sharing a little bit about yourself and the work that you're doing now with Stuart.

00:45
Sure. My name is Bill Himmelreich. I grew up in Philadelphia, I went to college at Gettysburg, law school of Wider I was in private practice for a few years, and I've been in the title business for 40 years 28 of
those with students last a long time.

So what do you actually do for Stewart?

Well, I wear a lot of hats. I still do a fair amount of underwriting. But I oversee the agency division for
Pennsylvania and Delaware. My job is to try to develop and grow the agency base for Stuart. So task
one is to find quality agents who want to write for Stewart. And then my next goal is to try to get them to
give a certain wheelchair highest or better to Stuart, because there are other choices with underwriters.

01:44
Okay. And just to give a little bit of background for our listeners on who Stewart is in the whole title
game, right stewardess, the underwriter? So give a brief explanation of how that plays a part in a
transaction.

01:56
Well, let me tell you a little bit about Stewart. They've been around for 130 years, developed from a small company in Houston, Texas, and now does business all across the country. And, and the world.
Actually, we're we're trying to develop title insurance in third world countries that never had an idea of what title insurance was. Stewart is probably the fourth largest title company, and in probably a national
market share in the range of about 10%. So Stuart is the underwriter the best comparison I can make is if you go to buy auto insurance, you can get it from State Farm, you can get it from Allstate, that would be the underwriter. So if you if you purchase a policy, it would be on one of those companies. But you would go to your local agent to place the insurance. And it's just like, Steel Abstract. They're the agent. And the policy is ultimately written on Stewart or another underwriter. The underwriter takes the risk of
loss.

Okay, great. So today, we're actually going to talk about a lot of risk, because we're going to talk about a very hot topic in real
estate, which is fraud. And it's both it's both in the real estate industry, but also in Title work. And I've asked Bill to join me to share his wealth of knowledge he's gained throughout his years in the title insurance business, as we talk about fraud. So let's talk a little bit about what title insurance is, and why do you need it as an investor?

03:42
Okay, well, the most important aspect of title insurance is that if there is a claim, and you get sued, the
legal fees are covered by the title insurance policy. So you realize that you retain a lawyer at X number
of dollars an hour, it's not going to take long before that that has some significant financial impact. So
that's probably as the main thing or main benefit that you will have a lawyer defend you if you are sued.
And and people talk about are there really claims in title insurance? And the answer is yes. And the
biggest issue today, as you said, Jen is really involved in fraud. That is the biggest concern for it from
the underwriter standpoint, aim standpoint. And so the consumer fraud is a major, major problem.
Okay.

04:43
So what does title insurance actually cover and not cover?

04:48
Well, when when you buy a home, one of the conditions in a title insurance policy is that you have good
and marketable, that's the most important thing so that when you buy a home, the person who is selling
the home, does own it, and has the ability to sell it to you. And that when you buy the home, that you
own it free and clear of any liens, that it does not necessarily cover the legal description, but it does
make sure that you're going to buy the home, and it's going to own it free and clear. And from a lender
standpoint, they're going to lend money to the buyer. The lender wants to know that their mortgage,
their lien is going to be in a first lien position, that the lender has to know that there's not a judgment or
another mortgage ahead of them, in case there ever is.

05:49
Okay, in title insurance is for the length of your ownership, right? That

05:52
is correct. And if you own the house, believe your entire life. You don't have to pay for it once

05:57
one time. What are some of the things it does not cover? I mean, it's definitely not like homeowner's
insurance policy and the fact that you know, there's fire and it doesn't cover anything like that. So what
does it actually not die, we talked about covering, you know, the life of the ownership and covering,
making sure that you are buying a property free and clear. Or there are some really specific exemptions
to the policies

06:24
that are title insurance is different than any other kind of insurance because title insurance goes back in
time. So if you buy health or fire or auto, your premium is based on the chances of something
happening in the future, that would cause a claim no different than life insurance, when you buy life
insurance. If you're healthy and 40 years old, the life insurance is much less than someone who is not
in good health. And in their 60s, the insurance companies have a program to figure out what the
chances of having to pay a claim. Title insurance goes back in time to make sure there are no liens
against the real estate. So as again, as when you buy it, you buy it free and clear. And the lenders in a
first lien position. So we as the title insurance industry, we insure up until the time the deed is recorded,
and the mortgage is recorded. So we're destroying everything in the past. That's what's different about
insurance. Okay.

07:35
So we had mentioned that there are claims and that fraud is a big part of this industry. So are there
claims in this type of insurance? That are and how similar are they to like a claim that you'd have on
your auto policy or your homeowners policy?

07:52
Let's talk a little bit about about fraud, because it is the biggest source of of losses. And fraud comes in
a lot of wearing a lot of different hats. One of the major issues that we're having are hackers getting in
to the title insurance system and trying to divert funds to the bad guys. So the first thing is a consumer,
a consumer is going to come to closing and going to need to bring $20,000 to close the transaction.
Well, the bad guys hack into the system, they can determine who the buyer is. And they will then
contact the buyer unbeknownst to the buyer, wearing the mask of the title insurance company and
saying, Oh, this is where you're to send your $20,000 deposit. And it's not the bank account of the title
insurance company. It's the fraudsters bank account somewhere else money gets forwarded, a buyer
comes to closing all of a sudden they realize that the money is gone. That is that is probably what
number one for the consumer. The second PSU that all of us in the title insurance side deal with both
as an underwriter and mainly the agents. The agents have a considerable amount of money that's run
through their what they call someone trust account escrow account. And the bad guys are always trying
to get in and and hack into the system and divert funds away. So one of the ways of doing that is that
the fraudster will act as if they are the mortgage company that's being paid off. So they'll write the email the title agent and say, Hi, I'm ABC bank. I understand you're going to pay off $147,000 mortgage.

Here's all the information send them money. This is our wiring instructions send the money to this
account. And it's the fraudsters account and not the mortgage company. So we this is a issue that we
deal with every day to verify that the money is going to the right place. So one thing that we will always
tell the consumer, and we can't stress it enough, that when your title agent gives you wiring
instructions, that those wiring instructions are not going to change. So if you get another email, it says,
This is the new wiring instructions, the consumer has to contact the title agent to verify that the the
wiring instructions are the same. So I mean, this is these are the biggest areas where a fraud has hit.
Now we can, if you want it, we can talk about some other crazier fraud stories. But I'll let you leave with
the question.

10:55
We're gonna get into a lot of fraud stories, because there's a lot but actually, I personally have an
experience with one that you just mentioned. And it was a very long time ago. So, you know, I think it's
important for people to understand that fraud didn't just happen last night, right. I know, we're hearing
about a lot of things going on the world with, you know, the interest rate hikes, and we're hearing about
banks closing. But fraud is not something that happened last night in the real estate industry, or the title
industry. As a matter of fact, it's been decades of things that have happened that have led us to where
we are today.

11:31
I mean, but it's actually become worse. Because technology, yes, is is becoming more sophisticated.
And the bad guys are really good at what they do. They're bad. And that's their full time job. Yes, 24/7.
Yeah, how can I get into either the title agents bank account, and act as if I'm the innocent party here.
And if you can see some of these emails, I would challenge anyone to see where the change was
made. Very, very subtle differences that you can make in a email that the, the human eye can't see.
Kind of an example, if you put an R next to an N, and you change the email address from the R and the
N to N m, they look exactly the same. But the difference between an r and an N and an N is a
difference of where the money goes to the fraudster or to the right spot, very, very subtle changes,
allows the fraud fraudster to tap into an account. And again, they are very, very good. Now, one of the
ways the fraudsters get in is that the firewalls at some point in the chain of emails is not protected. So
once the fraudster gets into the system, they'll see everybody's email email address, they'll have the
entire transaction in front of them. Their goal is to figure out how they can make these very, very subtle
changes to divert funds, so you're only as protected as much as the weakest link in the chain. Some
folks don't have that protection exposes the entire transaction.

13:33
The episode will continue in just a moment.

13:37
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14:35
So one of the experiences that I've had, and I've definitely come across quite a few in the years that
I've been doing this, but I had one where, you know, I want to use the word hack, right very loosely
because they don't always hack, right. They duplicate they mimic. They pretend right? They are
somebody that they're not, but they You don't actually hack in, like, if you think like a computer hacker,
right? Everything goes defunct, right, you've got to go back and change your passwords. That's the last
thing that they actually want you to do is go in and change your password, but they're really good at
mimicking and duplicating people and their actions. Right. So the one that happened to me was, again,
going to a closing exactly as you were saying, they found a way to intercept kind of a chain of emails,
right, going back and forth between the title company, the client and myself about getting ready for
closing. And they had sent an email that made it look like it was coming from me, to my clients with
another set of wire instructions. Now, my clients were smart enough to know that we just had these
conversations via phone. So this email looks super suspicious. So of course, they called me and they
said, Hey, we just got an email from you. And I was like, No, you didn't know you did not. We just talked
about this on the phone. And sure enough, it was it was the slightest change. And it even took me a
while to figure out what had happened. But they changed, as you mentioned, one letter in my email to
make it look like it was coming for me. But it was one letter off just one letter. And it appeared like it was
coming for me, it appeared like it was had to do with the transaction. And you know, good thing they
call it because that was a perfect example of, you know, the system wasn't hacked, it was duplicated,
right. And, you know, had we not already taken the measures to prevent fraud, this particular client
could have been very susceptible to that fraud, right. And they could have very easily wired, you know,
a sizable amount of money. And this, you know, they're not always targeting the $20,000 transactions,
they're targeting the $100,000 transactions, or, you know, they're they target all types of things. So, you
know, in any case, any loss to any client who thinks that they're sending a wire, to, to a clothing
company, the title company for closing, find out that their money is now gone. And everything that they
had saved for, is out the door. That's devastating, right?

17:09
Yeah, they don't forget, you're correct. They don't, they don't want to draw attention to themselves.
They know. You see, sometimes on the news, where a bank or a large organization gets hacked, and
they demand a ransom no hand to, to release it. A business would make a decision, it may be cheaper
to pay the ransom, than be out of business for a week or whatever. Finances they lose, pay the
ransom. I mean, very, very sophisticated. Banks and medical systems and schools have been hacked.
But in our business, it the bad guys would rather go through the transaction without ever being seen.
Money gets sent, money has gone within two minutes once it hits that account. So that's what they
would prefer. And they are very good at what they do. It's a full time job. So though, you mentioned
about the history of fraud, fraud has been around for a long time, but that the technology has gotten so
much better I am. I've told this story quite a bit. The movie Catch Me If You Can. Yeah. And that's true
story. And they may have exactly a little bit for the, for the movie, but a guy named Frank Abigail was
the and he was only 16 or 17, at the time, figured out all these ways of defrauding the government. And
he ultimately worked for the government in exchange for doing some time in prison, but many things.
So that goes back 50 years ago, 60 years ago. And a lot of the things that Frank Abbott now came up
with, taught the government how to prevent the future. And it affects us today. If you look at your
checkbook, if you look at the dollar bills, all these things that he figured out how to convert money to
himself, they're still in effect today. So the ways of doing it from 5060 years ago, are different.
Ultimately, somebody's trying to steal money. And the old days of doing it in a bank with a gun, it's a lot
easier just to do it with technology and wire the money rather than trying to hold the bank, but
ultimately, the fraud is still being around today. Sure. So besides like
email interception and sending wire instructions, I mean, you know, title companies, I assume, have to
worry about all kinds of things like, you know, any kind of internet based you know, so wire fraud,
identity fraud, you know, I'm sure you've got stories about all different types of things that that you could
share.

19:59
Yeah. I have a, I do one hour presentation around the state where this, I let people know that these are
true stories about how people have been ripped off and funds are stolen. And I'm not teaching people
how to seal I'm teaching people have to be aware that these things go on, I'll give you a couple
examples. Sure. Husband and wife are not getting along very well. And husband wants to sell the
property. wife does not want to sell the property. Wife is in Florida, taking care of her sickly mother. Just
so happens that husband has a girlfriend, and girlfriend just happens to look like the wife comes to
closing with all the ID so that a person can look real quickly and say, Oh, that's our sign the documents.
They take the proceeds, houses sold when it comes back houses and their houses there but somebody
else is living in it. Now ultimately, we as Title industry protect against that you're protecting against that
the person who was selling you the property, actually is the person in this situation. It was someone
else. So we always stress that the importance of having ID and you can't have an ID from the casino it
has to share. And we've had people say, Well, I don't drive, well, you can go to the motor vehicles, and
they will give you a non driving ID. And so it's just something that the consumer should plan ahead that
you can't come in with your casino ID or your work ID. It needs to be government issue. So we stress
as an industry that we're going to be looking at these IDs, we have situations where the property is
owned by a William Smith. And we have Smith may have bought the house in the 80s. Let's say, well,
William Smith and his son are not getting along. And the son's name is William Smith. So Jr comes
along and says, Dad, I you know, I don't like that I'm angry with him. I'm going to sell this property. And
I'm going to pretend that it's that I'm him to come to closing. He's got the ID. Well, William Smith, Jr. happens to be 35 years old, and they've owned the house for 38 years, I don't think he was by the
property before he was born. So we run into problems with senior and junior when they have the same name, and they have a lot of the ID. You just never know what's going on. In a family. We've had claims involving powers of attorney. So the parents are elderly. And children go to the parents and say, give me a power of attorney in case you get sick. Well, that power returning gives the child who is now the attorney back the ability to sell that property. So whenever I get a call from an underwriting risk standpoint, I have a power of attorney. I always say Why can't the parents sign the deed? Well, they're in a nursing home. Okay. When did they sign a power of attorney yesterday? So we have to look at every time a power of attorney is used. Was it? Was it issued under duress? Was it issued fraudulently. Any Is it legitimate that the parents wanted the kids to do it? They have families that get along forever. All of a sudden when money comes into play, especially if the children are struggling financially. They'll do they'll do desperate things because a phrase I always use is desperate people will do desperate things. And I've seen powers of attorney used improperly when we understand that there are there yes, if the parents get sick to the future they can sign for which always have to think about the fraud side of it. Awesome.

24:38
I hope you enjoyed the first part of my discussion with Bill from Stewart title regarding fraud in real
estate entitled transactions. Please make sure you stay tuned to our next episode, where Bill and I
continue our discussion. And until next time, take care.

24:59
For more information Learn about how Jennifer can help you plan develop and manage a strong real
estate investment portfolio visit growingempires.com