Wire fraud is a growing problem in real estate transactions, costing consumers millions of dollars. Often, we think of victims of these sorts of crimes as vulnerable and naïve, but truly, anyone purchasing or investing in real estate is a potential target of scammers. As a title company handling commercial and residential transactions, we are keenly aware of the rising threat wire fraud brings to real estate transactions. But most people are unaware of how they capture email accounts and use the information they find, to steal vast sums of money.
Lessons from a first-time homebuyer
John was a business savvy first-time homebuyer working as a CPA for a real estate investment firm. He spent three years saving up a $75,000 down payment so he could buy his first house. The process ran smoothly. John found his ideal home, negotiated with the seller and entered escrow. As the time to close approached, John received an email with wiring instructions. He carefully followed the directions, wired the money and prepared to pop the champagne.
John’s family and friends stood by ready to celebrate with him. He thought with that wire transaction he was now a homeowner. In actuality, John hadn’t sent the funds to the closing agent at all. He had unknowingly wired every cent of his down payment overseas and into the account of a hacker.
Buyers beware of hackers
Over the last few years, closing agents have started to require that actual funds be in their account before closing a transaction. Buyers and lenders, then have to send funds via wire transfer. In some states buyers can come to the closing with a small amount in a cashier’s check, but the bulk of the balance must be wired.
Anyone can be victimized
John is not like most young homebuyers, new to the world of real estate. He works in accounting for a real estate investment company. Yet, he did not see anything in the email instructions he received that appeared unusual. The lesson here is that if he can be tricked, anyone can.
The criminal minds behind wire fraud are very sophisticated. They capture email passwords and snoop around private messages, looking for anything that might be related to a real estate transaction. They also recreate realistic email communications that will look just like the bank, real estate company or title company handling the transaction.
How do scammers hack your email
Scammers look for someone just like John, in the process of buying a home. The hackers get key information about the sale, including the buyer/seller names, escrow or title company name; even the closing date. With this information, they create a fake email address that looks very similar to the real address of the agent, title representative or attorney. Many times, just one letter is changed. This fraudulent email arrives right before closing and states there has been a last-minute change to the wiring instructions. When the victims follow the updated directions, they wire their money right into the hackers’ accounts where it vanishes in minutes.
Unfortunately, these wire fraud scammers often succeed in duping buyers. Millions of dollars disappear this way, and once the money is gone, it’s almost always gone forever. The theft of John’s $75,000 was not the only thing he lost. The theft of his down payment seriously jeopardized his ability to the buy the house. Not being able to fulfill the contract with the seller, meant the seller could possibly sue John.
Precautions to protect against wire fraud
Despite the sophistication of these hackers, you can avoid them by taking some very simple precautions to protect yourself and keep all your transactions secure.
- Be careful from the beginning. Make sure your e-mail signature includes a disclaimer telling your client exactly how any financial transactions will be handled.
- Before any financial transaction takes place, communicate with your clients about your process. Walk them through it step by step and explain why you have that process.
- If you or your agents engage in a wire transfer with a client, call them on the phone immediately prior to the transfer of funds so they know they’re sending money to the legitimate source.
- The National Association of Realtors suggests brokers consider employing a staff person who is responsible for monitoring, updating, and implementing information security systems and procedures at your company.
For Agents and Clients
- Stay away from free Wi-Fi with no firewall. Unsecured WI-FI opens up email accounts and other sensitive information to capture by hackers.
- Always use strong passwords and change them regularly. In fact, consider changing your password before wire instructions are sent.
- Verify independently, any information you receive through an email. Use the phone number you have been using for your closing agent and ignore the information in the email. You don’t want to inadvertently call the scammer and have them “confirm” the information. Be skeptical of being told to send money to a financial institution out of the country or with no logical connection to the location of your transaction. Most closing agents use local or regional banks to handle their money. A huge red flag should pop up if instructions arrive to transfer funds to an institution across the country or the world for an Arizona deal.
- Make sure your institutions or advisors require at least two authentication steps before wiring money out. Most of the time, one phone call to verify any request would have stopped a scam.
At Landmark Title Assurance Agency, we encrypt emails to protect against wire fraud incidents such as John’s. We also work closely with residential realtors and their clients, through the escrow and title process to make sure that proper steps are taken to successfully close. If you have questions about title insurance or escrow services, please contact our office at (602)768-2800.