Escrow frauds and ways to prevent it

Escrow is a financial service in which there is a transaction between the two parties, but there is still some doubt with regard to the fulfilment of the obligation. In such a case a third-party (escrow agent) account holds amount / assets of transaction between two parties.

Escrow service, in which the third-party account temporarily holds the asset before concluding the transaction, is recommended when a vital transaction occurs in an agreement between two parties where the assets to be transferred are crucial for both. Before the transaction is completed, escrow provides both parties a chance to complete their respective ends of deal. It can be seen as a mediator of the transaction in a deal.

Escrow is commonly used for contracts that have the following characteristics:

1. A large transaction value
2. quality of work
3. Assurance of payment

If there is requirement for a transaction to be completed in steps, in such cases escrow is quite beneficial. The best example of escrow services is in the case of a real estate deal. It would be wiser for a buyer to first check out the property to be bought before making the payment to the seller, but at the same time, the seller will also rightfully ask for the complete or partial amount. In situations such as the one above, an escrow account held by a third party holds the amount to be transferred to the seller before both parties are satisfied with the deal.

Escrow Frauds

As with the exponential growth of escrow services in high-value purchases and cross-border transactions, several kinds of fraud practises have been observed to make way and cost either of the parties or both a great amount of loss.

Fake escrow occurs when a dishonest business creates a false company and passes itself off as a real business to scam customers. A common fraud can involve a prospective buyer suggesting the use of an unidentified escrow company or a business that is impersonating an actual escrow company.

The scammer may pose as a buyer or the winning bidder in an online auction and tell the seller to use a particular online escrow company. Scammers may even impersonate legitimate buyers or sellers and use the resulting identities to conduct fraudulent transactions. In doing so, the chances of getting caught and arrested get minimal, and the person whose identity has been stolen is at a loss now.

A scammer may use a scam tactic called ‘Payment Reversal’. In such a case, the buyer receives the item and files a dispute with the escrow service, claiming that the item was never received. The escrow service reverses the payment, and the seller loses both the item and the payment.

Ways for prevention of Escrow Fraud

Escrow services are of great use in big transactions like cross-border transactions. But a person using any escrow service should keep in mind how a scammer can manipulate to extract money and information that is very crucial for a business to run. Following are the ways to prevent such escrow frauds:

1. Unless the online escrow company is verified with a licence and proved authentic, never disclose financial or personal information like a social security number, credit card number, or bank account information.
2. A buyer or seller who insists on using a particular online escrow company is probably trying to steer the other party towards a fraudulent escrow services site.
3. Sites of Escrow Company that do not have an address or phone number listed should be pointed out. If the site does list a phone number, confirmation of the authenticity of an escrow service can be obtained by calling the number and speaking to a live person. A generic voicemail is a sign that the company may be fraudulent.
4. Doing business with escrow companies that do not reply to emails should be avoided.
5. Legitimate escrow companies do not use person-to-person money transfers or directs to send the payment to an individual rather than a corporate entity. Sites that do not process the transactions but require users to set up accounts with online payment services instead should be avoided.

Escrow services can provide a secure way to conduct transactions, but fraudsters are evolving with time and can still find ways to scam. It is essential to be vigilant and take the necessary steps to prevent escrow service fraud. By doing so, assets can be protected from financial loss.