Disconnected systems fueling title, wire fraud risks

A Q1 fraud report from FundingShield found that 43.72% of transactions within a $106.7 billion portfolio were flagged for issues posing significant wire and title fraud risks — with each problematic loan showing 2.2 issues on average.

The report showed closing protection letter (CPL) related discrepancies in 43.49% of transactions, with defects concentrated in borrower data, vesting information, titleholder details and property identifiers.

Wire instruction defects were present in 6.92% of transactions, while licensing irregularities remained at 2.37%.

Despite a 10.86% quarter-over-quarter improvement in CPL issues, FundingShield President Adam Chaudhary said disconnected systems will continue to present challenges.

“It really comes down to disparate systems, inconsistent definitions of what the data is that we’re supposed to be opting into and using, and also the manual nature of data movement,” he said. “There is no single central repository in the title world as to how you generate docs and how the title insurer systems allow and permit those docs. It’s very disjointed on that side of the world.

“Lenders and investors often do not realize there is a lot of trust being placed in title companies to produce and generate those documents, but there’s not a lot of controls around it.”

The solution, Chaudhary said, is getting into the data flow earlier.

“We’re clearing up discrepancies earlier, before you close, not letting that become a post-closing trailing doc issue,” he said.

Agent liability for title company breaches?

The report noted that new federal directives increased pressure on lenders to strengthen data accuracy and vendor oversight — with heightened scrutiny of vendor layer cyber resilience as attacks on title and settlement firms continued to rise.

When asked whether a real estate agent could face regulatory exposure or liability for recommending a title company that later suffers a wire fraud breach, Chaudhary said the legal landscape remains unsettled.

“The biggest source of driving a regulation is if there’s recourse that can actually be collected,” he said. “If you have a regulation that has teeth and penalties and a party can’t be collected against, there’s really no point. It’s all fluff.”

He noted that since the post-crisis era, banks have taken on much of this liability, but the proliferation of independent mortgage bank transactions has shifted some risk.

“There’s still not a hard line, no direct regulation in most states that says that party is responsible on the real estate side or the title side,” said Chaudhary. “If they’re doing consumer-direct activities, that’s a little bit different. But typically, the real estate side is directing it.

“The [real estate professional] is saying, ‘Hey, let’s go open escrow. I know this person, let’s do this transaction in this fashion.’ That gap still exists in terms of where the recourse is for the consumer.”

Chaudhary said consumer protections for real estate fraud could widen in the near-future.

“We do think that there needs to be a baseline element of reasonable levels of diligence,” he said. “We’re seeing the bigger platforms talk about that. On the real estate side, is there some sort of basic check they can do, or validation source they can hit? We think it’s important for that validation source to not be paid for by [real estate professionals] to vet or approve title companies. We don’t think having a pay-for model to be approved like Angie’s List works.

“We think it has to be a diligent system that’s paid for by the parties themselves. So, there’s a fee or something else that gets assessed to access and confirm the parties you’re working with have been validated.”

Embedded solutions expand title access

The report highlighted growth in FundingShield’s TitleKnight and TitleShield offerings as lenders sought standardized, embedded solutions.

Chaudhary clarified that “embedded” does not mean steering borrowers away from independent title agencies.

“When we say embedded, we don’t mean providing access to one title company or one party,” he said. “We mean building in these verification flows and validation flows allowing parties to freely operate using a trusted intelligence layer. We’re an embedded infrastructure layer within the actual production system that’s tying those two disparate worlds together — title and lending worlds.

“It improves the chances for compliant, good standing, properly licensed, high quality producing agents to get the deals and have them go through faster, not the other way around.”

The cost of reputational damage

The report concluded that lenders are increasingly adopting real-time, source-data validation frameworks, with clients seeing return-on-investment (ROI) of up to 400% across 2025.

Chaudhary said the single most cost-effective control for agents is real-time, transaction-level risk remediation.

He broke down the risks into financial, reputational and insurance-related costs — with reputational risk overriding all others.

“When these events happen, the true cost of ROI of not having one of the events versus having one is hard to quantify for most boards until they have one,” Chaudhary said. “It’s Secret Service and FBI involvement in your operations. It’s reinstatement of insurance policies, if you can get them back. In the lending world, can I sell to Fannie and Freddie?”

He added that even if funds are recovered, there are hard dollar costs and considerable time spent rebuilding trust with counterparties and auditors.

“That’s why we think a per transaction, per data change — that our clients can adjust and calibrate the way they want done in real time with traceable and trackable data, leveraging source data — is the way to go.”