When it Looks Like a Strad but Isn’t: Protecting Yourself from Wire Fraud in Your Real Estate Transaction
Fine violins do not have serial numbers, but they do typically have a label inside identifying the maker and frequently the year and location where the violin was made. Many violin makers, or luthiers[i] as they are known, like to copy well-known instruments, sometimes even down to the label inside the instrument, and the most famous violin maker, Antonio Stradivari, is also the most frequently copied.
Usually, the luthiers do not try to pass their Stradivari copies off as originals. Even if they were to try to do so, the instrument’s age and sound quality of the copies usually would fall far short of a Stradivari and give them away.
Where there is a question regarding the origin of an old violin, modern technology provides additional tools, such as chemical analysis of varnish and dating of the wood, which can further aid in distinguishing genuine violins from famous makers from copies. Yet, identification of old instruments remains as much art and conventional detective work as it does science.
Unfortunately, in the banking world, fakes may not be as easy to detect. Many title and escrow companies have started putting warnings on their e-mails, which read something like this:
Online banking fraud is on the rise. If you receive an email containing Wire Transfer Instructions call your escrow officer immediately to verify the information prior to sending funds.
The National Association of Realtors has recommended that its members include the following language on their e-mail signature lines:
IMPORTANT NOTICE: Never trust wiring instructions sent via email. Cyber criminals are hacking email accounts and sending emails with fake wiring instructions. These emails are convincing and sophisticated. Always independently confirm wiring instructions in person or via a telephone call to a trusted and verified phone number. Never wire money without double-checking that the wiring instructions are correct.
Unfortunately, computer hackers are increasingly targeting real estate investors and home buyers for wire fraud via phishing. Unlike the luthiers who make Stradivari copies, the hackers in the real estate transactions can create realistic communications which can fool even the discerning investor.
In August 2017, a Washington, DC couple filed a lawsuit against their title company, claiming either title company fraud or lack of adequate security measures. The couple received an e-mail appearing to be from the title company requesting a wire transfer for their closing. Since the e-mail appeared legitimate, they wired more than $1.5 million. When the title company said it did not receive the money, the couple had to come up with an additional $1.5 million to close on their home purchase.
It sounds like this couple and title company may have been the victims of an all-too-common hacking scheme, which has been occurring in real estate transactions in recent years. Here is how the fraud is carried out:
A hacker gains access to the e-mail account for one of the parties of the transaction. Real estate brokers and title and escrow companies are common targets, because they advertise their services and conduct many transactions.
The hacker monitors the e-mail relating to one or more transactions, gathering detailed information about the transaction only known to the parties to those transactions.
When the hacker sees that the transaction is nearing the closing so that the buyer might be amenable to wiring funds into escrow, the hacker acts.
The hacker sends the buyer an e-mail, which appears to come from the real estate broker or title/escrow agent (and which in fact may be from the hacked account). The e-mail provides wire transfer instructions, along with detailed information about the transaction and the amount of money to wire into the “escrow account,” which make the request seem legitimate.
If the buyer wires the funds, they go into the hacker’s bank account, possibly in a foreign country, and the funds are nearly immediate withdrawn. It may be one or more days before the buyer shows up for his/her closing, only to learn that the payment is not in escrow and in fact has been stolen.
Given this very real and potentially expensive threat, every real estate investor should take the following steps to protect him/herself from these very convincing phishing schemes in real estate transactions:
When entering financial information into a website, be sure it is legitimate and that it is secure (it should start with https, rather than http).
If you receive wire transfer instructions via e-mail, call to verify the information.
Before calling to verify the wire transfer instructions, verify the phone number you are calling – do not use a phone number from the e-mail sending the wire transfer instructions.
Both real estate investors and professionals should take the following steps so that they do not become the “weakest link” in the security for the real estate transactions in which they participate:
Do not send financial or other confidential via unencrypted e-mail.
Keep your virus and malware software up-to-date.
Install all security patches to your computer’s operating system.
If you use your laptop or tablet on a public Wi-Fi be sure your firewall is turned on
Use complex passwords containing a combination of capital and lower-case letters and numbers, and do not use the same password for every account. Passwords consisting of the first letters of the words in a phrase you find easy to remember combined with a number may be a good option.
Do not open attachments to e-mails or click on links in e-mails unless you are expecting them.
Use an account that does not have administrator privileges for your everyday computer usage. That makes it less likely that malware will be able to make changes to your system.
Modern technology may provide tools which aid in the evaluation of old violins, but other modern technology also can be used by hackers to commit wire fraud in real estate transactions. By using a combination of old-fashioned detective work and the thoughtful use of technology where appropriate and being aware of the existence of copies or fakes, both string instrument professionals and real estate investors alike can prevent themselves from being the victims of fraud.
© 2017 by Elizabeth A. Whitman
[i] Music Geek Fact: The term “luthier” is used to describe someone who makes or repairs string instruments. Originally, however, luthiers made only lutes. The term “luthier” derives from the French word for lute, which is luth.
DISCLAIMER: The content of this blog is for informational purposes only and does not provide legal advice to any person. No one should take any action regarding the information contained in this blog without first seeking the advice of an attorney. Neither reading this blog nor communication with Whitman Legal Solutions, LLC or Elizabeth A. Whitman creates an attorney-client relationship. No attorney-client relationship will exist with Whitman Legal Solutions, LLC or any attorney affiliated with it unless and until a written contract is signed by all parties and any conditions in such contract are fully satisfied.