A guide to real estate fraud prevention: Best practices, guidelines and software solutions

In September 2024, Cullen Brown was days away from finalising the purchase of his new home in the Chicago area. He received an email that appeared to be from his title company with instructions to wire his downpayment.

Everything seemed legitimate, so Brown wired nearly $60,000 – almost his entire life’s savings – only to soon discover that he had been scammed. The email was fraudulent, and the funds were misdirected.

Fortunately, with prompt action and assistance from fraud recovery services, Brown was able to recover most of his money within a week. But many people aren’t as lucky.

Real estate fraud is no longer an occasional risk; it’s a sophisticated, multi-billion-dollar problem worldwide. Criminals are exploiting vulnerabilities in property transactions, leveraging email phishing, email interception, identity theft, and payment fraud to syphon millions from unsuspecting buyers and businesses.

For real estate lawyers and conveyancers, property managers, and escrow officers, the challenge is clear: How can you safeguard client funds, verify identities, and prevent fraudulent activity before it happens?

This guide explores the most pressing fraud risks in real estate, the latest prevention strategies, and the role technology plays in securing transactions.

The rising threat of real estate fraud

Fraudulent activity in real estate is increasing at an alarming rate. In the US alone, real estate-related cybercrime cost victims over $350 million in 2021 and $396 million in 2022, according to the FBI’s Internet Crime Reports. This dropped to just over $145 million in 2023 as the American housing market slowed, but fraud is likely to pick up again as activity increases.

Property transactions are particularly vulnerable due to the large sums involved and the complexity of verifying multiple parties in a deal. When these transactions are across borders – spanning different jurisdictions, regulatory environments, and financial systems – it adds yet another layer of risk.

The most common forms of real estate fraud include:

Wire fraud – Hackers infiltrate email systems or intercept emails and impersonate attorneys, agents, or sellers, tricking buyers into wiring money to fraudulent accounts.

Title fraud – Criminals forge property documents to illegally transfer ownership, often using stolen identities.

Rental deposit scams – Fraudsters create fake property listings, collect deposits from prospective tenants, and then disappear.

Invoice fraud – Scammers manipulate invoices or payment mandates for escrow payments or closing costs, altering account details to divert funds to a fraudulent account.

Even well-trained legal and property professionals can fall victim to these scams. So, how can firms strengthen their defences?

Real estate fraud prevention: Guidelines and best practices

Legal professionals and real estate agents play a critical role in fraud prevention, ensuring transactions remain secure and compliant with regulatory AML (anti-money laundering) and KYC (know your customer) frameworks. As fraudsters become more sophisticated, lawyers must take proactive steps to protect their clients and mitigate risks.

Strengthening identity verification

One of the most effective ways to combat fraud is by implementing robust identity verification measures. Multi-factor authentication (MFA) should be required for all sensitive communications and transaction approvals to prevent unauthorised access.

Lawyers should also conduct thorough identity checks by cross-referencing government-issued IDs, proof of funds, and legal documentation for all parties involved in a transaction. For high-value transfers, video verification calls provide an additional layer of security, ensuring that individuals are who they claim to be before any funds are moved.

Securing escrow accounts

Escrow accounts have traditionally been a key safeguard in real estate transactions, but they can be vulnerable without proper controls. An alternative approach is to replace traditional escrow accounts with a dedicated payments platform like Redpin. Such platforms centralise funds in a secure digital environment, offering built-in fraud protection and real-time tracking, which traditional escrow systems can lack.

If you do continue to use escrow accounts, client funds should always be held in dedicated, segregated accounts to prevent mismanagement and reduce risk. Any changes to wiring instructions should require strict dual verification, including obtaining verbal authorisation and approval of these changes, and you should regularly audit accounts to help identify anomalies early.

Implementing fraud prevention training

Fraud prevention training is essential for both employees and clients. Staff should be trained to recognise phishing attempts and fraudulent communications, which are common attack vectors for cybercriminals. Clients should also be educated on best practices, such as verifying payment details through a secondary channel before initiating wire transfers.

Additionally, establishing clear internal reporting protocols ensures that any suspicious activity is escalated and addressed swiftly, minimising potential damage. Clients should also be reminded to verify payment instructions using secure and verified channels – ideally through secure portals, but verbally as a last resort – and to always conduct their own due diligence before authorising large transfers.

Ensuring compliance with AML and KYC regulations

Legal professionals must ensure strict compliance with AML and KYC regulations to prevent financial crime. Verifying the source of funds in property transactions is essential in detecting and preventing money laundering. Maintaining comprehensive records of all customer due diligence (CDD) checks ensures regulatory compliance and protects firms from liability.

The role of technology in fraud prevention

Even with stringent safeguards in place, real estate fraud remains a persistent challenge. Criminals continuously evolve, probing for weaknesses and developing new tools and tactics.

This is where technology plays a vital role, offering advanced tools to detect and prevent fraudulent activity before it can cause financial or reputational damage.

AI-powered fraud detection

Artificial intelligence can play a key role in identifying fraudulent activity. AI-driven systems detect anomalies in transaction patterns, flagging unusual behaviour before funds are moved. Tools like Snappt use AI to verify documents in rental applications, reducing the risk of forged financial statements and identity fraud.

Secure document verification

Fraudulent documentation is a common tactic in real estate scams. Platforms like CertifID use biometric and cryptographic authentication to verify the identities of buyers, sellers, and agents, preventing impersonation fraud.

Escrow management and wire fraud protection

Wire fraud is one of the biggest threats to real estate transactions. Some software companies provide secure wire transfer verification, ensuring funds are only sent to verified recipients. By integrating escrow management with fraud prevention tools, firms can better protect against misdirected or intercepted payments.

Secure payment platforms

Secure payment platforms, such as Redpin, are an exciting development in safeguarding real estate transactions from fraud, bypassing the need for escrow accounts and wire transfers entirely. Our recent survey of Spanish property professionals found that direct, secure payments were one of the most sought-after software features among both lawyers and estate agents.

By centralising payments in a controlled, digital environment, Redpin reduces reliance on unsecured communication channels, minimising the risk of cybercrime. The platform has built-in security and compliance features, including MFA, encryption, detailed payment records, and identity checks to further enhance security.

This purpose-built solution for legal and property professionals also improves efficiency. With Redpin, firms can manage transactions with confidence, adjusting payments in real time without disruption.

Selecting the right fraud prevention software

Choosing the right fraud prevention software isn’t just about security – it’s about ensuring seamless operations, regulatory compliance, and fraud detection capabilities. Before adopting a solution, firms should ask:

How will it fit into our existing processes? Make sure you can integrate it effectively with your current workflows and software systems.

Does it meet industry regulations and compliance requirements? Non-compliant software could expose your firm to legal risks.

How does it enhance fraud detection and prevention? Look for AI-driven monitoring, identity verification, and secure transaction features.

Will it reduce manual workloads? The best solutions streamline compliance checks and approvals, freeing up valuable time.

By selecting fraud prevention software that aligns with both security needs and business operations, firms can protect client funds while improving efficiency.

Strengthening your fraud prevention strategy

Fraud prevention isn’t a one-time effort – it requires continuous adaptation and vigilance. Regular audits of internal fraud prevention policies ensure that security measures remain effective against evolving threats. Educating both clients and staff on fraud risks is equally important, as informed individuals are less likely to fall victim to scams. Leveraging technology and software solutions further enhances protection, providing real-time monitoring and proactive defence against emerging fraud tactics.

By implementing a proactive fraud prevention strategy, real estate professionals can mitigate risk, safeguard client assets, and maintain trust in an increasingly digital market.

Take the next step in fraud prevention

While managing fraud prevention and compliance in real estate transactions can be complex, Redpin simplifies it. Speak to an expert today to discover how our secure payment platform protects client funds, prevents fraud, and streamlines your processes, so you can focus on closing deals with confidence.

And remember: no matter how robust your systems, clients should always verify bank details using secure, verified channels and exercise caution before sending funds.