Property Transactions Real Estate
Why Is Money Wired In Real Estate Transactions Based

The Complete Guide to Understanding and Preventing Real Estate Wire Fraud

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“Yikes, a suitcase full of cash, I assume you mean “real money.” The reader needs to deposit the cash in a bank. Then she needs to check with the bank to find out how long they need to hold it before she can withdraw it. At the real estate closing, she needs to bring a cashiers check or arrange with the bank for a wire transfer. The buyer claimed he wired his closing funds, again. The buyer and buyer’s real estate agent called many times a day for weeks to confirm receipt of the wire. The buyer demanded the seller release the keys to the house – threatening to cancel. No one budged until over a month later, the first part of December.

These BEC scams often lead to wire transfer fraud and are particularly prevalent during a real estate transaction because criminals target the large sums of money that are transferred during a. Different wire transfer systems and operators provide a variety of options relative to the immediacy and finality of settlement and the cost, value, and volume of transactions. Central bank wire transfer systems, such as the Federal Reserve ' s Fedwire system in the United States, are more likely to be real-time gross settlement (RTGS) systems. The Pros and Cons of ACH Transfers and Wire Transfers: Two of the options available for home buyers to send money electronically in connection with a real estate transaction are ACH transfers.

Wire fraud is an epidemic in nearly every U.S. industry.
According to information recently obtained from the FBI, from June 2016 through December 2018, roughly $90 billion in attempted wire fraud was reported through the FBI’s IC3 division.

Because of this, it is crucial that companies are aware of how these scams work, and—most importantly—what you can do to protect your business and your customers from these types of fraud.

While wire fraud affects nearly every business, this article will focus on its impact on the real estate sector. We’ll cover:

01How Real Estate Wire Fraud Happens
02Parties Affected By Real Estate Wire Fraud
03Why Real Estate Wire Fraud Happens
04Fraud Strategies To Look Out For
05How To Prevent Wire Fraud
06How to Recover From Wire Fraud

Clear To Close

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How Real Estate Wire
Fraud Happens

If you work in the real estate industry, it’s essential that you know how wire fraud occurs. While no two real estate scams are the same, cybercriminals tend to follow a typical playbook that includes the following steps:

01Fraudsters find publicly available information of anyone involved in the transaction via social media, company websites, and online resources. This could target buyers, sellers, real estate agents, lenders, settlement providers, attorneys, or any other party to a transaction.
02Known transaction participants are targeted with phishing scams designed to gather email account details. Once the fraudster gains access to one email account, all other parties to the deal are exposed and may be individually targeted or spoofed by the fraudster.
03Armed with account access, fraudsters wait patiently and obtain intimate details about a transaction and the participants involved; particularly when someone is expected to transfer funds electronically.
04The fraud begins once the fraudster identifies that funds are to be electronically transferred for a closing (e.g. via Wire or ACH). Using a compromised or spoofed email address, the scammer will send emails containing fake wiring instructions to the victim. This is typically a buyer wiring cash to close to the title company. Or it could be the title company wiring funds to a broker, seller and/or current mortgage holder in connection with the disbursement process.
05Once the money lands in the fraudsters account, it is quickly wired to other bank accounts or withdrawn in cash, through an elaborate network of money mules that await instructions in real-time.

Parties Affected By Real
Estate Wire Fraud

While wire fraud directly affects the party sending funds to the fraudulent account, all other transaction participants stand to lose too. Here is a look at how some of the parties may be affected. For more detail on this, check out the full blog post here.

Buyers

Buyers continue to be the most vulnerable to real estate wire fraud as they are largely unaware that they may be personally targeted by cybercriminals. The purchase of a home is typically the largest financial decision the average U.S. consumer makes in their lifetime. For that reason, most people go through the process just a few times in their life. Inexperience with the process makes them susceptible to being tricked.

Sellers

Baby boomers make up a significant portion of sellers. Their lack of sophistication with technology leads to mistakes that could provide fraudsters access to critical transaction details.If a transaction is compromised, sellers are directly affected when closing funds are diverted to a cybercriminal. If a transaction participant is unable to recover stolen funds quickly, the sale may fail and the seller will have to go through the whole selling process again.

Title and Escrow Companies

As title and Escrow companies themselves often wire money, they are vulnerable to wire fraud attempts. Once a buyer has transferred money for a closing, fraudsters will attempt to insert themselves into the stream of communication with the goal of diverting wires during the disbursement process.

This can lead unsuspecting and ill-prepared title and escrow companies to send money to a fraudulent account. In such cases, not only does the buyer lose their funds, but the title or escrow company may be held liable for the loss. This has forced many companies to close their doors because they cannot make up the shortfall in their escrow account caused by the fraudster.

Real Estate Agents and Brokers

In the event that wire fraud occurs, real estate agents stand to lose a whole lot more than their commission check.

Both their reputation and business are on the line, and if a lawsuit is filed after a loss occurs, they may be held responsible if their email account was compromised and that led to the loss.

Juries have found real estate agents and their brokers personally liable for such losses with judgments in the hundreds of thousands of dollars. This, coupled with a changing landscape from E&O insurance carriers that limit coverage for cyber fraud and wire transfer losses, may put the economic burden squarely on the shoulders of the individuals and companies representing consumers.

Law Firms

Cyber scammers know that law firms receive and send funds through their escrow accounts for real estate transactions. Scams that divert incoming wires from buyers and redirect disbursement wires after closing are proving successful against law firms and the individual attorneys representing clients in a real estate transaction.

Why Real Estate Wire
Fraud Happens

There are three main attributes that make real estate transactions a prime target for wire fraud:

Median home listing price is ~$280,000

Average of eight parties in every transaction

All the information to start a fraud can be found online

These unique attributes make it attractive and easy for fraudsters to compromise an individual in a transaction. It’s time to firm up processes and communications to lower the chances for successful frauds. Let’s take a look at why these attributes make fraud so appealing. For more details, check out the full blog post here.

Large Wire Transfers Happening Frequently

Fraudsters target real estate transactions because they are incredibly lucrative.

Those running scams only need to be successful once or twice to earn significant amounts of money.

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Why Is Money Wired In Real Esrate Transactions