by Julia Gasc Beckman
Wire fraud and cybercrime are disrupting and delaying real estate transactions across the country on an alarming scale, and have resulted in over $15 million in losses annually since 2015 to purchasers and sellers of real estate, as well as third parties involved in the transactions. Advanced email phishing scams are affecting title companies, insurance underwriters, real estate agents, brokers, buyers, sellers, and their counsel, and there is little to no recourse for the parties, frustrated with the title companies, banks, and each other, to recover their losses.
As with any developing, modern crime, parties affected do not know what to do or who to blame. The first thought is often litigation, with seemingly any party in the transaction at-risk of being named. This is born out of the victim’s desperation to get such a large sum of money returned, with no way of determining who received the funds due to banking security restrictions and advanced cybercrime techniques.
Title companies are taking action in order to avoid being the target of these scams that become more advanced each month, real estate agents are educating their clients to safeguard their funds, and attorneys are taking measures to avoid allowing their clients to fall victim to these scams, but surprisingly, no industry-wide regulations in real estate, banking or title have been implemented to prevent these criminal acts.
As holders of funds in escrow for these transactions, title companies and insurance underwriters find themselves in a position that requires them to (i) be proficient in training their staff to recognize scams, (ii) take measures to ensure that losses are avoided, and (iii) when losses do occur, they must attempt to recoup funds for their customers in this uncharted territory that is just beginning to become apparent to individuals outside of the title and banking industries.
The typical scenario begins with one individual using an unsecured e-mail program such as a personal Gmail, Yahoo, or AOL account, to communicate with parties such as a title company, or real estate agent, regarding a transaction. Emails are monitored by unknown hackers that take advantage of an opportunity to instruct the individual to send funds to their bank account instead of the intended account such as the title company escrow account, or the account of the seller expecting proceeds, this is an act that falls into the category commonly known as phishing.
Advanced phishing tactics are identifiable by their convincing disguise as originating from a trustworthy entity, one such as an individual’s real estate agent or someone employed by the title company they are working with on a particular transaction. Those less familiar with the red flags of phishing scams, including a large number of the general public that is unaware of the existence of these fraudsters, are susceptible to them. In cases that are most concerning, that are resulting in staggering financial losses, are those in which individuals are instructed to wire funds, a common practice in real estate transactions, and their funds are wired to a fraudster’s account instead of the intended recipient. Many times, these funds are gone forever once the wire is sent.
Generally, parties will continue to ask if funds have arrived, and as hours and sometimes days, pass, parties realize they cannot determine where their funds are, nor can they get information from the receiving bank, or their own bank on the recipient account holder that stole their money. Horror stories of individuals losing their life savings and the equity in their homes that was to go toward a new home purchase, and businesses losing millions in acquisition funds that they cannot recover, have begun circulating as this problem worsens. Despite this, little to nothing has been done where change is desperately needed.
A disclaimer at the end of an e-mail signature block, and the vague mention of words like “wire fraud” and “cybercrime” are proving to be insufficient to educate consumers on the extreme risks they face when purchasing and selling real estate. There is a dire need for meaningful and preventative change across all members of the real estate industry, with few eager to work toward implementing change. Seemingly, the most apparent efforts are those of parties seeking to avoid liability.
With the responsibility being in the hands of realtors, title companies, banks, and attorneys, there are members of multiple industries in the position to implement change at different levels. The greatest difficulty in finding a solution likely results from the need for collaboration across these industries to come together with a solution.
Julia Gasc Beckman is a Commercial Closing Attorney and Assistant Vice President of MBL Title and she can be reached at firstname.lastname@example.org.