The real estate purchase process is complicated enough without the criminal element, which is why real estate fraud prevention is so important.
Imagine this scenario: After many weeks of conversations and correspondence between you, your client, and related parties, the deal is only days away from closing. You email the instructions for the funds to transfer to the home buyer, who replies not with confirmation but confusion. The would-be homeowner already wired the down payment — but the recipient was a cyber criminal posing as the client’s agent.
Real estate brokers, real estate agents, attorneys, and title officers need to prioritize real estate fraud prevention and learn ways to protect clients from wire fraud and similar scams.
News reports from across the country provide individual examples of preventable real estate fraud:
- An Atlanta couple was scammed of $24,000 in life savings. The Lerners complied with the wire transfer instructions contained in an email they thought was from their attorney. The attorney informed them a cyber criminal had spoofed the firm’s email. The money was gone, and the sale could not be completed.
- A California family wired $921,235.10 to a fraudster’s account. Using email addresses similar to legitimate participants’ email addresses, hackers inserted themselves into an email conversation between the home buyer, his real estate agent, and title company representatives. The cyber criminal emailed copies of the real closing documents along with wrong account information from the fake email account. The Fishers followed the instructions and became victims of fraud.
- The Fultons lost $130 million, their retirement money, to real estate scammers. After communicating for weeks with their real estate agent in person, via phone, through text messages, and with emails, they were preparing for their upcoming closing. They received an email from who they believed to be their agent. This email instructed them to make a wire transfer of the closing balance. Though they had planned to pay by check, they wired the funds at the fraudster’s insistence.
The scenarios above are not isolated instances, unfortunately. These are just a few among tens of thousands of stories and statistics.
The Federal Bureau of Investigation’s (FBI’s) Internet Crime Complaint Center (IC3) records complaints of cyber crimes in the United States. According to the agency’s 2020 Internet Crime Report, nearly $2 billion of funds reportedly were stolen through wire fraud in 2020.
The federal IC3 classifies the scenarios above as examples of Business Email Compromise (BEC) or Email Account Compromise (EAC), which are explained as: “sophisticated scams carried out by fraudsters compromising email accounts through social engineering or computer intrusion techniques to conduct the unauthorized transfer of funds.” The number of reported losses to this type of fraud has jumped more than 30 percent since 2018, up to $1,866,642,107 in 2020. Keep in mind these losses reflect only those crimes reported to the IC3; the actual figures, if known, would be higher.
BEC that leads to wire transfer fraud often begins with “phishing.” Phishing refers to a scammer using fraudulent emails, spoofed texts, or copycat websites to get someone to share confidential information, such as email addresses, account numbers, and username logins. The scammer uses this information to intercept funds that are transferred electronically.
- The fraudster scans real estate listings and online resources to discover parties involved in the upcoming transaction.
- The fraudster, probably through spear-phishing, compromises one of the email accounts used in coordinating the real estate purchase.
- The criminal monitors conversations between parties, learning sensitive information and necessary details for hijacking the upcoming closing.
- The criminal creates new email accounts that spoof real email addresses. These email addresses will look similar to the legitimate addresses, usually with just one letter or symbol changed.
- At the opportune time, the cyber criminal will send an email posing as the real estate agent, title agent, legal representative, or another trusted individual with specific wiring instructions.
- Because the fraudster duplicates the legitimate email signature, font, name, and other indicators to suggest authenticity, the client assumes the email is real.
- The client sends the requested closing funds via wire transfer to the specified account number, which belongs to the scammer.
- The client cannot recover the sent funds. The real estate deal usually cannot proceed.
Cyber criminals target real estate transactions for many reasons, including the following:
- Real estate transactions involve the transfer of a flurry of sensitive information between several parties across companies and communication platforms, which provides an abundance of opportunities for fraudsters.
- Real estate transactions typically involve very large sums of money being transferred between parties electronically.
- Most clients have never purchased a house or have limited home buying experience, which means they do not know what to expect with the home buying process and do not notice “red flags.”
You have an obligation to protect your clients from cyber fraud and practice real estate fraud prevention. How? Besides following general industry standards and recommended best practices for cyber security, keep the following in mind:
- Communication and education are key. From the very beginning, be sure all parties to the transaction implement secure email practices and are aware of fraud’s red flags. Establish protocols for sharing confidential information and transferring money.
- Independent verification of information is essential. If sending a wire transfer, the client should call the intended recipient immediately prior to the transfer to verify the instructions.
- Stay paranoid. If you or your client receive any questionable communications, don’t hesitate to ask questions. Verify verbally or in person with a known representative.
Perhaps the simplest way to protect your clients from wire fraud is this: don’t use wire transfers. There is a quick, digital, and secure way to send money during any real estate transaction: paymints.io. Paymints.io is a digital platform designed to relieve the stress caused by wire fraud and end the inefficiencies of paper checks. The proprietary ACH solution allows real estate brokerages and title companies to accept digital money transfers, helping home buyers and refinancing homeowners transfer funds safely.
Schedule a demo of paymints.io with one of our Account Executives, and learn a better way to help protect you and your clients from becoming another real estate fraud casualty. Real estate fraud prevention begins with you!