Unscrupulous individuals engaging in fraudulent activity, cyber criminals, hackers, and scammers are targeting the real estate industry with increasing enthusiasm and effort. Real estate transactions are particularly attractive to cyber criminals because of the amount of personal information and financial details sent between the parties involved that can be used for fraudulent activity, and the large amounts of money that can be obtained through such actions.
According to the FBI’s 2019 Internet Crime Report, mortgage fraud affected nearly 12,000 victims in 2019 with $221 million in losses. 2020 has already surpassed those numbers, with predictions for a further increase in 2021.
Donna Gregory, the chief of IC3, said part of the reason the different types of real estate fraud are on the rise is because cyber criminals and scammers are using advancing technology to deploy new, sophisticated tactics and techniques, making it harder for their potential victims to spot the scams.
The phony escrow scam in particular is one that is becoming more difficult to detect. Falling victim to phony escrow companies and being tricked into sending money to a cyber criminal can be detrimental to your finances and places the whole real estate transaction in jeopardy.
What is Real Estate Escrow Fraud?
In a real estate transaction, buyers must place funds in escrow, typically for property taxes, homeowner’s insurance, and earnest money deposits. Escrow fraud occurs when the buyer or another party involved in a real estate transaction is tricked into sending money to a fake escrow service. And before anyone realizes what has occurred, the cyber criminal or scammer that sent the wire transfer details and the fraudulent escrow company information disappears with the money.
Email is one of the most common methods for cyber criminals to attempt to initiate escrow fraud. In addition to fake emails, known as phishing, scammers are also using fraudulent text messages, called smishing, and setting up fake websites, called pharming, to trick potential victims into giving up their private information or sending money to bank accounts set up by the criminal.
Through both phishing and smishing techniques, the victim will receive a message that appears to come from a trusted individual or organization. For the purposes of escrow fraud, the message may appear to come from the title company, the escrow agent, or a real estate agent. The message will typically ask the victim to verify their bank account details, or will ask the buyer to send money for escrow.
The message may even incorporate links to a fake escrow company website that appears legitimate, further encouraging the victim to provide the information that was asked for. The website may appear to have a name and look very similar to the escrow company you are actually working with, with a subtle change that can be hard to detect. Cyber criminals rely on busy real estate professionals and frazzled buyers to overlook the small details that might give away the scam, and this works more often than you might think.
The cyber criminals will provide instructions to have a sum of money wired for escrow, closing costs, etc. They might even email the title company to wire money to the seller. Regardless of who the target is, once the money is wired to the fraudulent account, it is quickly withdrawn, and extremely difficult to recover when the scam is discovered.
It is increasingly important for both real estate professionals and their clients to be extra cautious and vigilant regarding the exchange of personal information, credit card numbers, and any other financial information that is often sent between parties during a real estate transaction. Remaining in continuous contact with one another via phone, rather than email, is also important because it allows you to verbally verify information that may have been sent by email.
Phishing attempts that are successful in acquiring the username and password to an email account, bank account, or any other private account, can be thwarted by two-factor authentication, also referred to as 2FA. This requires a second authorization that hackers cannot guess or use programs to acquire.
Donna Gregory also agrees that 2FA is a necessary component of Internet safety and cyber security, and further states, “In the same way your bank and online accounts have started to require two-factor authentication—apply that to your life,” she said. “Verify requests in person or by phone, double-check web and email addresses, and don’t follow the links provided in any messages.”
If you are dealing with a new escrow company for the first time, take the time to thoroughly research the company by looking up reviews, certifications, and other details that can be used to verify that the company is authentic. It is also a red flag if an escrow company asks you to wire funds to an individual rather than a company bank account. This is a common scam with Western Union, but should never be done with real estate transactions.
Try to also choose to work with an escrow company that takes their own cybersecurity seriously, because cyber criminals will often target the companies as well and attempt to hack into their database. A company that utilizes strong cybersecurity will be able to further assist your own efforts in keeping scammers at bay.
You can also significantly reduce the risk of escrow fraud by using an ACH electronic money transfer system. This is because wire transfers are easier for scammers to use for fraud, while ACH transfers are subject to much more scrutiny and regulations. Some ACH money transfer systems, such as paymints.io, also utilize advanced identity protection, real-time tracking, and bank-level security and encryption to ensure that each transfer is performed only by the people who are who they say they are.
ACH transfers also keep the user’s financial information secure and well-protected, ensuring that hackers cannot access and use the financial account information to hack into the user’s account and cause further financial harm.
You can learn more about escrow fraud and other types of real estate fraud by visiting industry-related online forums and blogs.
To learn more about how using paymints.io can be safer and more secure than a wire transfer, as well as especially convenient for both the real estate professional and the home buyer, schedule a free demo today!