Fighting Fraud in Default Servicing

Editor’s note: This feature originally appeared in the November issue of DS News.

In addition to his role at the Michigan-based firm of Schneiderman & Sherman, PC, Neil Sherman is also the President of Best Homes Title Agency, based in Michigan and licensed in 12 states. Sherman is responsible for the day-to-day oversight of both companies and has over 17 years’ experience representing the mortgage servicing and investing community in the areas of foreclosure, bankruptcy, asset recovery, mediation, title curative, and REO conveyance.

Sherman is also the past Chairperson and current Advisory Board Member for the Legal League 100, a consortium of default servicing law firms, which advocate on behalf of its membership and the industry at large.

Sherman recently spoke with DS News about the possibility of an impending recession, technological changes in the industry, and what can be done to combat fraud.

What are your thoughts on a possible recession in the near future?

As usual, none of us have a crystal ball. We do the best we can to anticipate things by looking at metrics. But in reality, our job today is to operate in the environment we’re in, to be the best partners that we can be, the best legal services providers we can be, while also preparing for the future. And how we prepare for that future is through additional training of our people, cross-training, and investment and technology.

I have practiced in our space for almost 20 years. It was clear that when the Great Recession hit, the entire industry was not prepared for the volume and the operational and legal complexities that came with it. There has been an incredible evolution over the last number of years as our industry has developed better technology, tremendous efficiencies and new pathways throughout the default process.

We have also seen a significant amount of consolidation in both the bank and non-bank servicing space, the technology vendor space as well as legal services providers. As a result of the significant decrease in overall default volume, the consolidation and general aging patterns in our industry, the great recession is starting to be a period that many read about but did not live through.

That is a concern moving forward as it is imperative that as our economy slows we don’t relive some of our industry’s greatest mistakes. The solution is truly quite simple: education, participation, and implementation. We cannot wait until the last minute to invest in our default operations. Right now default departments are lean and have the ability to implement new strategies. As volumes increase, it will become a far greater challenge.

What are some of the biggest hurdles the industry has seen in combating fraud?

Our weak link, when it comes to fraud prevention, at the end of the day, is people and education. Our job is to educate everybody on our teams about the possible risks associated with fraud.

There is no simple fix in the area of fraud prevention. If there were, some of the greatest minds in technology and at our Fortune 500 partners would have already solved it. The Federal Trade Commission, through the Consumer Sentinel Network, a group that tracks consumer fraud and identity theft, reported three million fraud complaints in 2018.

Our continued reliance on convenience technology such as smartphones and other mobile devices and expectations of ever-increasing efficiency has impacted the growing fraud issues we are encountering. If you are working at a feverish pace and lack substantial fraud prevention training, simple, every day emails or tasks that pose risk of identity theft or fraud may be missed. I think that the industry needs to continue investing in education internally. Fraud prevention cannot be a “gotcha” form of education alone. We try and tell a story when it comes to teaching our team about fraud prevention. We bring in speakers, provide presentations along with internal penetration testing. We also highlight how everything we learn about fraud and identity theft prevention can be applied at home with our families.

From an industry standpoint, as custodians of our customers’ personal and sensitive information, we have a responsibility to share our knowledge in the field with the consumer. We need to do so, not in boilerplate legalese, but rather through informative brochures, videos, and other educational opportunities.

What are the new technological developments that are changing the way you do business?

A lot of the technology that we’re implementing today, we’re implementing for multiple reasons. Some of it is for streamlining process, some of it for overall efficiency, some of it is for fraud protection. The reality of the environment that we’re working in today is that we have to be incredibly protective of all the information that is being transmitted back and forth. We do that through the education of our people. We do that through the implementation of technology.

Why are industry events that facilitate communication between different industry stakeholders so important?

We are obviously operating today in a low-volume environment, and more and more we are seeing individuals that don't have a history, or sense of history, of where we came from during the Great Recession. That is concerning because at some point—again, no crystal ball—we will enter an environment of increasing default work again. Our industry is concerned, both on the legal side, the servicing side, and the vendor side, of the preparedness of those individuals. And how we can prepare them is through education and participating in things like the Legal League 100, and the Five Star Institute events, and that’s why they are so imperative for our growth as an industry.

There is a real sense of collaboration. There is an understanding of the state of the industry, from all the parties involved, and an eagerness for everybody to work together, not only for the environment we’re in, but for the environment that eventually we will be in.