Distressed Assets, Ai Fraud Complicating Title Insurance Risk

HousingWire sat down with Todd Jones, senior vice president and director of corporate underwriting at First American Title, about the evolving risk landscape confronting professionals across the industry.

An uneven real estate cycle, rising fraud sophistication, distressed assets and faster transaction timelines are reshaping how underwriters assess authority, defects and exposure.

HousingWire: What emerging patterns in title insurance claims are signaling new or shifting risk exposures across different property types and regions?

Jones: “This has been an unusual real estate cycle, as there is not a single, overarching economic challenge or asset class that has been in distress. For example, the office market has been uneven, with Class A office space in New York City setting record rental rates, while Class B and C office space is experiencing some of the worst market conditions. However, as commercial real estate lenders end the cycle of ‘pretend and extend,’ we are seeing an uptick in desperate borrowers taking desperate measures. As a result, we are seeing more bad actors in the commercial real estate market.”

HW: How are fraud schemes — especially wire fraud, impersonation and fake identity — evolving, and what countermeasures are proving effective?

Jones: “Fraud schemes are getting sharper and faster, driven by AI and stolen data. The most effective countermeasures are clear processes, advanced technology tools and the continuous education and awareness of employees, partners and customers. Between stolen data, AI and tech tools, fraudsters are pushing the limits on how convincing their schemes can be. The uncomfortable truth is there’s no single answer to threats this varied, so countermeasures must be designed to confront fraud risk with layered defenses. It’s not a singular threat anymore, so there’s no singular solution.

“The strongest defense comes from the tightly synchronized orchestration of countermeasures working in concert. At First American, the simple concept of layered validation has had outsized impact. Each layer reinforces the next, and together they help prevent fraud that might slip past any single control. The reality is all parties to the transaction, from the real estate agent to the lender to the buyer and seller, are vulnerable to the rising threats from fraudsters, so it is imperative each party remain hyper-vigilant.”

HW: In what ways are distressed assets, investor-driven transactions and rapid resales introducing new underwriting challenges?

Jones: “One issue that investor-driven or rapid resale transactions involving distressed assets have in common is the impact to the various equity investors that helped fund the initial acquisition of real property that is now being sold. Since one of the risks covered by a title insurance policy is that the party or entity conveying the insured interest had the authority to do so, these transactions present an underwriting challenge to the title insurer.

“The insurer and their insured will want to avoid a post-closing attack on the sale by any of the investors who lost any equity that they contributed. In order to mitigate that risk, the authority requirements of the owning entity will be reviewed and considered, and it is frequently common for the title insurer to require the approval of investors that are not identified decision makers under the owning entity’s formation documents.”

HW: What adjustments are underwriters making to guidelines, risk scoring or due-diligence expectations to prepare for the coming year’s risk environment?

Jones: “As access to data surrounding real estate transactions continues to improve, we are gathering more and more information about transactions earlier in the process. This enables us to identify challenges, such as fraud, authority issues, errors in the real property records and others, so we can flag the issues, craft solutions and keep the closing on schedule without causing delays. Ultimately, this results in a better experience for our customers and helps reduce fraud risk.”