10/20/2019 – Protect yourself from Wire Fraud

As real estate professionals, the “finish line” of what we do as professionals is watching a seller or buyer sit down in a title company’s conference room to close a real estate transaction.

A real estate closing is the culmination of hard work in assisting clients with navigating offers and counter offers, inspection repairs, appraisal, amendments and addendums, temporary occupancy agreements, special lender requirements, etc. Closings usually result in happy and appreciative buyers.

Unfortunately, there are some closings that “come off the rails” when unknown and devious outsiders interfere with the final step required to sell or purchase a home: the money.

There is an ever-increasing number of closings where clients discover the funds they were going to use to purchase or sell their property suddenly disappeared because an online criminal stole their money before the settlement of the transaction.

Legal experts call these internet thieves “phishermen.” Phishermen are those who intentionally scam innocent people out of money needed to purchase or sell a home. This practice is called phishing.

What is phishing?

Phishing occurs when a scammer uses fraudulent emails, texts or copycat websites to get someone to share valuable personal information such as bank account numbers, social security numbers, email addresses, username logins and passwords to intercept funds transferred electronically.

According to the 2018 FBI Internet Crime Report, one in every 99 emails is a phishing attack. The FBI received 301,580 wire fraud complaints in 2018 while the total number of victims reached 78,617, with losses exceeding $2.9 billion.

Thirty percent of phishing emails make it past installed security programs and server firewalls. The success rate of these attacks emboldened scammers over the past couple of years to launch more of them. The FBI reports a 1,100 percent increase in fraud reports since 2017, while reported losses to BEC scams have increased by 2,200 percent. The problem is getting bigger and bigger as each day passes.

Earlier this year, I was asked to serve as a professional expert witness in a lawsuit involving a well-known Nashville-area real estate brokerage whose agent was being sued by buyer clients who lost several hundreds of thousands of dollars as a result of an online phishing attack a few days before closing.

The clients were forced to liquidate retirement investment assets and take out a home equity loan on the new house so they could close. The buyers are suing not only the agent, but both brokers and title companies in the transaction. The case is moving into its third year and has not yet been settled.

How does wire fraud happen?

Throughout the United States and Canada, more and more incidents are occurring where buyers are losing hundreds of thousands of dollars to cyber thieves disguising themselves as the client’s agent or title company representative.

The client assumes the email is real and follows the written instructions. These emails usually contain specific wiring instructions for the buyer’s closing funds along with a wire transfer number/bank account number belonging to the scammer.

The emails appear very authentic and replicate names, titles, addresses, phone numbers, company logos and language structured like the “real” email sender. The differences between a genuine email and a fake email from a scammer can be very subtle and replicate the look of the legitimate addressor.

The scammer will manipulate the sender’s email address using a small change in the domain name along with misspellings in the email text and e-signature. These disparities can easily be missed by clients and agents.

Real estate professionals, their clients and other interested parties involved in a real estate transaction can protect themselves by following specific guidelines for sending and receiving communication relate to the wiring of closing funds.

The following seven tips can significantly reduce the chances of agents and their clients becoming the next victims of wire fraud.

1. Educate the client, particularly buyers, on the dangers of wire fraud.

   Agents should advise their clients that wire fraud is happening every day, and it could impact them. The agent must explain to their client to never accept wiring instructions from the agent or their broker. Clarify to the client they will receive wiring instructions prior to the closing directly from the closing attorney/title company or the lender.  If they are sent via email to the client, they should be in a secure method.

2. The funds need to be confirmed authentic.

   A client should never transfer any monies between their financial institution and the closing attorney/title company until they know the funds are genuine. They should be verified by at least one of the following means:

   1. Call the telephone number the client used on all of their prior calls (if the number came from a source they know or personally recognize), or
   2. Call the closing attorney/title company or lender to after the client verifies the telephone number from a known third-party source, such as the entity’s official website and/or public directory assistance.  (It is essential the client not take the telephone number directly from the wiring instruction email they received), or
   3. Make a personal visit to the closing attorney/title company or lender office.
3. Verify the financial institution representative wiring the funds.

   If a client emails their financial institution to wire funds to a closing attorney/title company, they should not have any funds transferred until they verify that the correct wiring instructions were received by a verifiable representative of the financial institution. They should follow-up with a phone call and ask for a written confirmation of the request.

4. Tell the client never to use public wi-fi networks to send wiring instructions.

   Many wi-fi networks lack security, and scammers are good at quickly intercepting email communications on unsecured networks. All emails containing wiring instructions should be sent only on secure networks.

5. The client should inform the financial institution that the wiring instructions sent by them are not to be substituted without their prior written consent.

   Tell the client to be aware of any telephone calls they receive from individuals whose behavior, speech or grammar appear to be questionable. These are signs of a potential scammer. Wiring instructions for closing attorneys/title companies and lenders are very unlikely to change. “Red flags” should be raised if any request to change to instructions are made.

6. It is ok to be suspicious.

   If the client suspects they may be a victim of wire fraud or they receive any communication they feel might be irregular and “out of the ordinary” (i.e., telephone calls, faxes, emails, texts, social media messages, etc.), they should IMMEDIATELY contact their financial institution or lender at a telephone number they used in all prior calls.  They then should contact their agent at the number they used in all previous calls.

7. Develop a “Wire Fraud / Internet Scammer Warning” disclosure form to share with the client.

   Many state and local Realtor associations are beginning to include these forms in their library of pre-printed documents for members. If an agent does not have access to a wire fraud form, they should create one with the points I noted and have the client sign and date it.

   As long as the internet is around, wire fraud and other forms of electronic criminal activity will continue to be an issue for agents, lenders, attorneys, and title officers. The more information a client has to the dangers of these scams, the less likely their funds will be intercepted and destroy their ability to close on a property.

   If a client knows their agent is watching out for them and their money, the chances are good they will always want to refer the agent to their friends, family, and business associates. And, that is what helps grow our businesses!