This month’s article explores wire fraud and the new additions to the state-approved forms. Pre-printed warnings and cautions are only one step in due diligence to avoid wire fraud and other cyber-based scams. Unfortunately, compromises can occur despite good education and planning, and having a plan in place before an event may help recover funds and assure insurance coverage in the event victims of fraud seek compensation from agents or a firm.
Wire fraud prevention tips
The closing is scheduled for next week. As the buyers prepare to send funds for the closing, what are some tips or tools to keep them from falling victim to wire fraud?
Buyers should remain vigilant because fraudsters are waiting to catch the parties off guard. Reminding buyers of these steps to avoid risk can be helpful:
- Do not respond to last-minute emails with any wire instructions.
- Verify instructions or any changes to wiring instructions either in person or by a known contact method.
- Do not click on website links or phone numbers contained in the email.
- Confirm instructions, confirm when funds are sent, and confirm funds arrive at the proper destination because timely validation can detect issues ASAP to attempt recovery of funds.
- If the funds are not received immediately, contact the financial institution and request a recall notice on the funds.
E&O coverage for wire fraud
A buyer was involved in a wire fraud situation where funds were improperly sent. This was a cash transaction, and the fraudster who provided the fraudulent wiring instructions contacted both the buyer and the agent. The money cannot be recovered, and the buyer is threatening litigation. The firm contacted its errors and omissions (E&O) insurance carrier, and the E&O carrier indicated there was no coverage for wire fraud. What is the best way to proceed in this scenario?
Although E&O insurance is designed to protect licensees and firms, each insurance policy and coverage is different. It is important for the agent and firm to take the time to review what is included in coverage when applying for or renewing an E&O policy. Some E&O providers offer additional riders or coverage for wire fraud or cybercrimes. The firm may consult with the insurance provider to assure adequate coverage is available given the firm’s business model and services offered. Each policy will have limits in coverage, so it’s vital to assure the coverage and limits are appropriate for your business. In addition, anytime an insurer denies coverage, it is prudent to review the policy, ask for a statement regarding the denial of coverage, and have that confirmed by legal counsel.
Given the evolutionary nature of real estate practice, an insurance review is good practice. Whether coverage includes fraud, ransomware attacks, crisis management services, virtual showings or writing offers sight-unseen, check the portfolio of services offered by the firm and which protections the policy offers. Some coverage, such as allegations of discrimination, may need an additional rider or endorsement. Review now — not after an incident.
Wired funds gone missing
As the scheduled closing approached, a fraudster hacked an agent’s email address and sent fraudulent wiring instructions to the buyer. The buyer, who was planning on taking a cashier’s check to the closing, returned to the credit union and asked the credit union to wire the funds to the title company per the emailed instructions. The title company never received the wire. What is the best way to proceed in this situation?
When a party falls victim to wire fraud, the following immediate steps are recommended
- Contact the financial institution without delay, inform them of the compromise and request the transfer be stopped
- Report the suspected fraud immediately to the FBI Internet Crime Complaint Center (IC3) at www.fbi.gov/scams-safety/e-scams and ic3.gov.
If the crime is reported early enough, it may be possible to recover lost funds. It will also be important to keep the title company informed. The title company may have additional resources available to respond. Some E&O carriers also maintain staff dedicated to cybercrime, and having these contacts readily available is imperative.
For the transaction, it will be necessary to keep the lines of communication open. Keep the title company involved, and contact the clients, customers and other impacted parties to the transaction. If there is a concern with identity theft, the incident may also be reported to the Federal Trade Commission by phone at 1-877-FTC-HELP or 1-877-ID-THEFT or online at ReportFraud.ftc.gov/#/?orgcode=TFMICF.
Additionally, the source of the breach needs to be identified. The firm’s IT specialist may investigate to determine how the compromise occurred and offer recommendations to rectify the compromise and defend against future intrusions. Although you have heard it before, regularly change your passwords, use strong passwords and use two-factor authentication.
State statutes and wire fraud
Do the Wisconsin statutes require a wire fraud and confidentiality notice to appear in all email signatures to consumers? If so, which statute has this requirement, and does this also apply to text messages?
There is currently not a statutory obligation; it is educational in nature. The ever-present danger of wire transfer fraud and other cybercrimes aiming to steal private identification information, personal identities and purchase money, has led to the inclusion of a wire fraud warning in the 2020 version of the WB-11 Residential Offer to Purchase at the bottom of the first page directly following the Closing provision. Beginning in July 2023, an additional wire fraud warning will be contained in the WB-36 Buyer Agency Agreement and the WB-38 Tenant Representation Agreement. Learn more about those changes in “The Buyer Agency Agreement Is Shrinking!” in the June 2023 issue of Wisconsin Real Estate Magazine at www.wra.org/WREM/Jun23/Forms.
Wire fraud notice in WB forms
Will all the WB agency agreements and offers be updated with the wire fraud notice?
Yes, the current plan is to eventually incorporate the wire fraud notice on the WB forms. The Real Estate Forms Advisory Committee, which reports to the Real Estate Examining Board, plans to add the warning statements to 16 forms. The notice tells the parties to independently verify the details of any wire transfer by personally contacting the title company or other party hosting the closing. The notice suggests this contact should be by telephone or in person. The verification of wire transfer details is the responsibility of the parties and not the licensees in the transaction.
As the wire fraud notice is incorporated into forms, the WRA will keep you informed about the updates to the forms as well as the respective optional and mandatory use dates.
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