Real Estate Wire Fraud Hiding in Plain Sight
Bronislaw Huberman was one of the greatest violinists of the 20th century. He was a child prodigy who, until the 1930’s performed for Europe’s royal families and in concert halls worldwide.
Huberman is perhaps most famous for his rescue of European musicians and their families from the Nazi regime. The movie Orchestra of Exiles tells the story of how Huberman convinced the musicians to emigrate from Europe to join a new Palestine Orchestra (now the Israel Philharmonic).
Despite this, Huberman is not as well-known as his violin, a 1713 Stradivarius, which now is owned by Joshua Bell. The violin, then known as the Gibson Strad, was stolen twice. After a 1919 theft from a Vienna hotel room, the violin quickly was recovered.
The violin was again stolen, this time from Huberman’s dressing room at Carnegie Hall in 1936, while he was on stage performing on his Guarneri. Most believe that violinist Julian Altman (as he reportedly had done before) bribed an attendant with a fancy cigar to gain entrance through Carnegie Hall’s rear door. From there, he would have had easy access to the dressing room area and the violin. Huberman died in 1947, never having seen the violin again.
Altman then brazenly “hid” the stolen Strad in plain sight. He played it in New York and Washington DC until his death nearly 50 years later. Lloyds of London, which had insured the violin, paid a finder’s fee to Altman’s widow, leading to a much-publicized lawsuit by Altman’s other heirs, who claimed entitlement to the money.
Real Estate Wire Fraud is Increasing
Just as the stolen Huberman was hidden in plain sight, fraud in real estate transactions has moved out of the shadows and into plain view. Today’s real estate fraudsters pose as parties to the transaction and directly communicate with the other parties to steal funds intended to pay for the real estate.
Today, most real estate transactions involve sending funds via wire transfer. In typical real estate transactions, Buyers and mortgage lenders wire purchase funds to the escrow agent. And the escrow agent in turn wires payoff of the seller’s mortgage and pays the remainder to the seller.
Unfortunately, criminals are increasingly targeting the real estate industry through e-mail compromise and wire transfer fraud. Although home purchasers are a particular target due to the inexperience of most home buyers, fraudsters are tricky and no one is immune to their lures.
How Common Is It?
The Federal Bureau of Investigation (FBI) reported that between October 2013 and December 2016, there were more than 40,000 incidences of wire fraud using business email compromise (not limited to real estate business). Losses during that time period were more than $5 billion worldwide.
American Land Title Association (ALTA) reports that in 2018 alone there were more than 11,000 victims of real estate wire fraud in the US. Those victims lost nearly $150 million. Interestingly, even though 75 percent of customers had been warned about wire fraud, most were not worried that it might happen to them.
In July 2019, American Land Title Association (ALTA), Community Mortgage Lenders of America, American Escrow Association, Real Estate Services Providers Counsel, among others, announced creation of a Coalition to Stop Real Estate Wire Fraud (Coalition). The Coalition’s goal is to educate consumers and real estate professionals about the risks of wire fraud.
Most Common Real Estate Wire Fraud Scheme
In When it Looks Like a Strad but Isn’t: Protecting Yourself from Wire Fraud in Your Real Estate Transaction, I described the most typical fraudulent scheme It starts with the fraudster hacking one of the parties’ email accounts. That allows the fraudster to obtain information about parties to an ongoing transaction.
The fraudster then uses the hacked email account to email a request that one party wire funds into the fraudster’s account. Or, the fraudster sends an email spoofing the party’s email account with a similar request. Because the fraudster has access to detailed information about the transaction, the request appears legitimate–and frequently everything except the wire transfer instructions checks out.
The party wires the requested funds to the fraudster’s account, thinking they are paying into the closing escrow account. The parties may not discover the fraud until the closing, several days or weeks later, when the title company informs them it never received the money. By then, the money is long gone, often into a foreign bank account.
Best Practices to Prevent Fraud
For individuals, loss of their deposit money might end their dream of home ownership. For commercial real estate purchasers, losses can amount to hundreds of thousands of dollars or more. Those losses could force a small company into bankruptcy.
It’s important that parties to real estate transactions educate themselves about real estate wire fraud and how to prevent and detect it. Although real estate professionals and title companies might be obvious marks for hackers, every party to the transaction is a potential weak link that can provide information to fraudsters. And every party needs to use standard Internet and email safety, such as installing antimalware software, firewalls, installing security patches, and not clicking on links in suspicious emails.
Be Wary of Emails Requesting Changes in Information–Many fraudsters will spoof a mortgage lender’s or title company’s email address and send “updated” payment instructions.
Use Secure Portals for Communication –Many attorneys, banks, and title companies have secure communication portals they can use to communicate sensitive information. These portals require that the recipient log into a website to view communications using a unique password only the recipient knows.
Verify All Wire Transfer Instructions and Portal Invitations–Verify all wire instructions and portal invitations via telephone. Use a telephone number from the company’s website or another reliable source other than email. An email sending fraudulent wire instructions or a link to a fake portal is likely also to include a fake phone number.
Confirm Receipt of Wires–Your bank will confirm that a wire was sent, but it won’t confirm that the wire instructions were correct. Even if you have verified the wire instructions, also contact the recipient via phone or a portal communication to confirm receipt of the wire. If you catch a problem early, it’s more likely you might recover your funds.
Include Phone Numbers in Real Estate Purchase Agreements or a List of Parties Distributed at the Beginning of the Transaction–With most parties communicating via email, telephone numbers no longer are included in many real estate purchase agreements. By including buyer’s, seller’s, attorney, real estate broker, and escrow agent/title company phone numbers in the purchase agreement or a list of parties created simultaneously (i.e. before a fraudster is likely to gain access to transaction information), the parties will have legitimate numbers available when they need to verify wire instructions.
Initiate Phone Calls Relaying Financial Information–While phone verification is important, those calls always should be initiated by the party who will be sending the wire.
If You Can’t Verify Wire Instructions, Send a Check–Wiring funds is faster and is usually less expensive than using an overnight delivery service. But it’s even more expensive if funds are stolen.
Check Insurance Coverage–If you are in a business that regularly wires funds, check with your insurance company to see if you can obtain insurance to cover losses from wire fraud.
What to Do if You Are a Victim
If you are a victim of real estate wire fraud, all may not be lost. Quick action might result in return of the money, or
Contact Your Bank Immediately–If you notice the fraud quickly, the bank may be able to reverse the wire and recover your funds.
Report the Loss to the FBI– The FBI’s Internet Crimes section will investigate. Even if you believe your loss is too small to warrant FBI attention, if enough people report the same fraudster, the aggregated information might help the FBI stop the criminal.
Report the Loss to Local Police–Local police may not be the primary investigator, but they may notice a trend if multiple victims report losses. Your report might give the police information that can educate future targets so they don’t become victims. Plus, many insurance companies require a police report.
Check With Your Insurance Company–Your homeowner’s or business insurance might cover some of your loss, particularly if identity theft is involved.
Educate Others–Share your experience with others so they don’t fall victim to the same scheme. The Coalition has a section on its website where individuals can share their experiences to educate the public.
© 2019 by Elizabeth A. Whitman
Any references clients and their legal situations have been modified to protect client confidentiality
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.