Growing up I knew that all bad words consisted of four letters. And as a parent today, this is still true! But the new “F” word has five letters: fraud. Fraudsters have moved beyond the days of sending emails asking for money to get an uncle out of jail in Zimbabwe or to access the supposed inheritance left by the late king of Nigeria. The fraudsters have moved to U.S. real estate transactions. For them, what better industry to attack than the U.S. real estate industry? What other industry involves so many parties and so much money? Billions of dollars are at risk each year.
The three schemes below could strike at any moment. And if they do strike, you’ll know the best practices to keep you safe.
Scheme 1: Stealing buyer money
The sophisticated fraudster hacks into the REALTOR®’s computer and lurks for days, weeks and even months, waiting for the best payday. That payday is when the fraudster sees an email from a title company directing a deposit of buyer funds. The fraudster strikes by creating a phony email that appears to originate from a legitimate party and appears to include legitimate wire transfer instructions — instructions that if followed, will transfer the buyer’s money directly into the fraudster’s bank account.
The fraudsters are good but not perfect. Command of the English language is lacking, and the email address will be wrong — but only slightly, so it’s up to you to figure out if the information is correct.
In a recent Wisconsin transaction, a buyer’s agent received a legitimate email from my title company, Knight Barry Title, instructing the buyer to bring a cashier’s check to closing. The fraudster lurking on the agent’s computer saw the opportunity to act. Within 24 hours of the first email, the buyer’s agent received a second email — this time from the fraudster — which appeared to originate from the closer at Knight Barry (even including the closer’s signature line), and appeared to include Knight Barry wire transfer instructions.
Had the buyer followed the instructions in the fraudster's email, the buyer’s money — over $250,000 — would have been gone and possibly the buyer’s agent would have been sued. Fortunately, the buyer’s agent was smart and smelled something wrong — the grammar was odd, and the wire transfer instructions looked unprofessional, including an eight-digit ABA number. But the most telling was the email address: Knight Barry email addresses end in “@knightbarry.com”; the fraudster’s email address ended in “@knightbarry.com.ch.vc.”
Best practices:
- Secure your computer systems and email accounts.
- Call to verify wire instructions.
- Check grammar, punctuation and formatting. Is something off?
- Verify the sender’s email. Does the email match perfectly with other emails from that same sender? Or does the email address include additional letters after the “@” sign?
- Test yourself: The same principles apply to creating a phony email as to faking a website. The “Phishing Quiz” on the OpenDNS website can help you find out how good you are at spotting scams. Visit www.opendns.com/phishing-quiz to take the quiz. Full disclosure, the writer of this article only scored 12 out of 14.
Scheme 2: Stealing seller money
Snap a picture, deposit a check. Within just one minute, a fraudster seller can deposit a proceeds check into their bank account using mobile banking — and then turn around and ask the closer to cut another check or wire the proceeds. The end result? The seller fraudster is paid twice.
Best practice: Confirm how the seller is to receive proceeds, whether check or a wire transfer, before the closing, and don’t change that at the closing.
Scheme 3: Bad check
A recent scam in Wisconsin involving about $90,000 occurred where both the buyer and the seller were in on the scam. The buyer brought a $90,000+ cashier’s check to closing, the title company deposited the check and on the same day wired out the seller proceeds. The buyer’s check never cleared as it was either a bad check, or the buyer stopped payment on the check. The “seller” kept the money, and the title company was out the $90,000 because it wired someone else’s money to the “seller”— probably from your closing the day earlier. Oops, unfortunate title company.
A slight variation in this scam could make the REALTOR® unfortunate. Say the buyer has a check for the purchase price, and the title company deposits the check and wires out the seller proceeds the same day. Assume the check bounces — and the seller, who is not in on the scam, returns the funds to the title company since the buyer didn’t come to closing with good funds. So the situation seems to fall back to the status quo, right? Wrong. The deed has been recorded, and the fraudster buyer turns around and sells the property to an innocent third party. This situation has gone from bad to worse: now two parties claim of ownership in the home — one, the seller on the first transaction who wasn’t paid but gave a deed, and two, the buyer on the second transaction. Litigation will certainly ensue, and the REALTORS® will be involved.
Best practice: Follow the mantra “wire in, wire out; check in, check out.” Never wire funds or have the title company wire funds until the depositing check has cleared, or you might find yourself in court.
Upfront diligence, pause and protection are the only means to stop a fraudster — because guess what? Fraudsters don’t return money.
Cheri Hipenbecker is General Counsel for Knight Barry Title Group, the largest title insurance agency in Wisconsin and a leader in crafting and the implementation of ALTA Title Insurance and Settlement Company Best Practices designed to protect consumer funds and information.