How to Protect Your Business from Real Estate Wire Fraud

The Federal Bureau of Investigation tracks, investigates, and reports on a variety of common crimes related to the real estate industry. These real estate schemes run the gamut, from air loans (mortgages on a nonexistent property) to equity skimming, loan modification schemes, and illegal property flipping. Perhaps the fastest-growing sector of crime is real estate wire fraud, which increased 480% in 2016 and continued that growth through 2018 (the most recent year with FBI data available as of the time of this writing).

More often than not, this fraudulent activity occurs via email when a criminal hacks into a lender or title company’s network and discovers sensitive details and financial information regarding upcoming closings. The perpetrator then emails bogus wire transfer instructions related to the listing.

The problem is so pervasive that financial trade associations, like the National Credit Union Administration, are becoming more aware of the trend. This awareness will eventually lead to proactive solutions to stop wire fraud in the real estate industry.

Until then, it’s important that everyone remain vigilant, as it can affect anyone in the transaction, from the buyer to the lender, agent, and more. Here’s what you need to know to safeguard your company, starting with a definition of the problem.

Real estate wire fraud involves one of two different acts. The scammers pretend to be either:

a.  A real estate agent, loan officer, or another member of the businesses funding and issuing the mortgage, someone from the title company, insurance, or other parts of the transaction, or

b.  The buyer/seller in the transaction.

The process starts when cyber criminals use “phishing” techniques to gain sensitive information that can give them access to internal company systems. This includes setting up phony websites, email addresses, company newsletters, or even calling employees pretending to be a trusted associate (or more likely superior). The scam is simple but often involves intricate work and inside knowledge of the mortgage and real estate processes.

Believe it or not, most people don’t understand how homeownership or mortgages work. That is part of what makes real estate wire fraud so effective. Nearly a third of Americans don’t know their own mortgage rates, so they don’t bother to shop around for a better one, according to the Consumer Finance Protection Bureau and other federal regulators.

The National Association of Realtors identifies real estate wire fraud as the biggest problem in cyber crime, with Business Email Compromise/Email Account Compromise (BEC/EAC) leading that pack. This means the fraudster will often gain access to a business email address (or utilize a fake one, via a hacker technique called “spoofing”) to send communications. When sent internally, they’ll impersonate a member of IT, HR, or some other corporate role, while external emails will simply represent the company. Either way, it looks like it’s from a trusted contact in relation to a large transaction that’s happening in your real life.

The end goal is to steal any closing costs, which can be anywhere from $3,000 to $7,500 on a $150,000 mortgage, according to real estate site Zillow. It equates to $4,500 to $11,000 on the average mortgage price of $226,800 listed on the site. This isn’t as high as the average American credit limit of $22,751 across all cards, but it’s easier for automated checks and balances to detect such red flags in banking based on spending habits. But how often do you buy a home?

We need to take actionable steps to avoid real estate wire fraud.

4 Steps to Avoid Being a Mortgage Wire Fraud Victim

Email wire fraud cost the U.S. $26 billion over the last half of the 2010s, according to the FBI. Once wired, it’s often impossible for law enforcement to recover. Organizations both large and small can end up bankrupted and closed because of this, so everybody is responsible for taking four concrete steps to help identify and stop real estate wire fraud.

1. Understand the Real Estate Process

It’s important to continuously educate people on all aspects of the mortgage process. Invite open communication and transparency between the buyer, seller, and everyone involved with every step that’s going on during the closing process. Be upfront about which communication avenues will be used the entire time. If you don’t use email, tell your clients to only communicate via telephone or in-person.

The weakest link in any security protocol is the people, so it’s important everyone is on the same page for each transaction. Make sure you only discuss sensitive account information and wire instructions over secure lines after verifying each other’s identities.

2. Verify All Contact Information

All contact information should be documented on business cards and any handouts or communications you send. When you stick to only using official lines, you’re training your clients and team to do the same. Whether it’s attorneys, banks, agents, or whomever else you need in your contacts, make sure you build these relationships and can spot the fakes.

When you only phone calls and other communications from trusted contacts and can verify them, you’ll reject a large part of phishing emails. This is because they often contain typos or other errors (including a lack of encryption keys for PGP-encrypted business emails) that can be automatically rejected by your email and phone filters.

3. Confirm All Payment Instructions

Don’t just allow any random wiring instructions to be given and followed. Be clear and up-front about only handling payments through secure and official methods. Two-factor authentication is industry-standard security, which means real estate personnel should have customers verify items like their social security number and birthday, while customers should ask the name on the account, account number, and amount due. This builds a trust relationship before communicating about the transaction.

4. Beware of Any Red Flags

If you do notice changes in behavior or other problems during a transaction, be wary. Contact people you can trust, and don’t accept any last-minute changes without verifying with all parties involved. This keeps the process concrete and makes it more difficult for fraud to occur.

What to Do If You Believe You’re a Victim of Wire Fraud

Some people will inevitably become victims of fraud schemes at one point or another. It’s a sad fact of life that needs to be reported to both the lender and FBI immediately to investigate. It’s never a good idea to attempt to resolve these matters on your own, as it could be life-threatening. The FBI will have the most information and data available in its archives to properly investigate the matter.

Real estate wire fraud is a serious problem that affects financial institutions and home buyers/sellers every day. Help protect yourself from becoming a victim using the industry’s leading encryption methods for financial transactions. At paymints.io, we understand the need for secure real estate money transfers, and our electronic money transfer solution is cost-effective and easy to implement. Don’t become a victim of wire transfer fraud — contact us to speak with a qualified payment security expert today.

You can discover more important industry-related information and resources by visiting real estate blogs and forums.

Get started using a secure money transfer system for earnest money deposits, closing costs, and other fees. Schedule a free demo of paymints.io today.

Add Comment