Real Estate Wire Fraud: Who Is Liable and Tips for Preventing It

Cyber criminals like a big payday, and real estate transactions offer them an attractive opportunity. During these transactions, large amounts of money often change hands, and wire fraud scams used by cyber criminals slip an unauthorized hand into that mix to divert payments to their own accounts. But in a situation of real estate wire fraud, who is liable?

Liability for losses associated with real estate wire fraud can actually come down to how the loss occurred. Keep reading to find out more.

How Does Real Estate Wire Fraud Occur?

According to the Consumer Financial Protection Bureau, wire fraud scams occur when cyber criminals create spoofed emails and send them during critical times during a home closing or purchase process.

Spoofed emails are designed to look like legitimate emails. For example, they might mimic the look and feel from emails that normally come from a real estate agent or broker. The person buying or selling a home can be easily tricked into believing these emails are from the person they’re working with. When that happens, they may respond to the email or follow instructions in it to initiate a wire transfer for the purpose of a real estate transaction.

The problem is that the spoofed emails direct people to wire money into the wrong accounts. And once the money is sent, the fraudster may withdraw it and disappear.

Real Estate Wire Fraud: Who Is Liable?

With the money gone and the real estate transaction now compromised, who is liable for the losses associated with the fraud? You might be surprised that the answer could be you.

Many people assume the bank will eat the cost of wire fraud. That’s because banks typically do provide some protections against authorized transactions. For example, if you have a checking account with a debit card and that debit card is compromised, the law says you’re not liable for losses if you report the issue in a timely manner.

The difference with wire transfers is that they’re not actually unauthorized. The consumer initiates the wire transfer, and it’s not the bank’s job to ensure the consumer has good account information or isn’t following fraudulent instructions.

Liability in these cases often comes down to a decision by courts or juries. And courts have found a variety of people liable for the losses associated with real estate wire fraud.

The home buyer themselves might be considered the liable party in some situations. For example, if the home buyer doesn’t take measures to secure their accounts or computer, that could lead to malware that opens the door for a cyber criminal to take action. In cases where the fraud can be traced back to home buyer neglect, they may be on the hook for the loss.

The National Association of Realtors highlights a case where the decision went the other way. In Bain v. Platinum Realty, the jury decided that the real estate agent forwarded a spoofed broker email to the buyer. That email may have led to the buyer falling prey to the wire fraud scam, and the jury found that the agent was 85% liable for the issue. That meant the agent had to cover 85% of the losses the buyer incurred, amounting to $167,129.

In another case, the victims of the wire fraud sued the title company, mortgage broker, bank, real estate company, and real estate agent. The victims were trapped by the same type of email that was used to defraud the Bains, and they contended that there was negligence on the part or one or all of the professionals in the matter. Ultimately, the case was settled confidentially.

These cautionary tales lead to an important conclusion: Title companies, brokers, agents, and others can be held liable for wire fraud losses.

Tips for Preventing Real Estate Wire Fraud

Protecting your clients from real estate wire fraud becomes more than a good customer service tactic, then. Taking measures to reduce the chance of this type of fraud can help you safeguard the real estate transaction — and your associated profits. It can also help you avoid being held liable for a major loss.

Here are some things you can do to help reduce the chance of wire fraud impacting your real estate transactions:

  • Educate your clients. Explain how real estate wire fraud works to your clients so they can be more vigilant about how they deal with emails and other communications during the process. Tell your clients how you will and won’t communicate with them so they’re more likely to discern when they receive a fraudulent communication.
  • Don’t use email for financial information or instructions. Avoid using email to send any type of financial information or instructions. Let your clients know you will never send them payment instructions or account information in an unsecured email. Assure them it’s fine and even encouraged to call you to confirm any wire transfer requests before going through with them.
  • Set up specific communication channels. Provide a business card and let clients know that you will never ask them to call you at a number that’s not on that card.
  • Set up a PIN or passcode for verification during phone calls. Ask clients to provide your office with a passcode. That way, they can ask for it on the phone if they’re not sure they’re dealing with a legitimate representative of your business.
  • Use a solution such as paymints.io. Our process is secure and lets you transfer funds directly from client accounts into your escrow account. Real-time tracking, high levels of encryption and direct disbursements make it easy to manage transactions while keeping cyber criminal hands out of the pot.

If you believe your client has been a victim of wire fraud, direct them to contact their bank immediately. When banks are able to act quickly, wire transfers may be reversed, saving home buyers and possibly you a lot of money and future hassle.

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