WIRE FRAUD IN REAL ESTATE CLOSINGS

St. Louis Real Estate Lawyer
St. Louis Real Estate Lawyer
St. Louis Real Estate Lawyer

Imagine arriving at the settlement agent’s office for your closing. Everything went without a hitch: The buyer provided all documentation plus the Realtor®, closing attorney/title company, and lender have performed at a high level of customer service. Even the moving truck is ready to unload the buyer’s life into their dream home. Then, one of the worst things that could possibly happen, does! The buyer’s wired funds for closing have been stolen by scam artists. Typically, that means gone and usually, nothing can be done. Wire fraud is so prevalent that many attorneys, lenders, and Realtors® even include a warning about it in their email signatures. For example, a local closing attorney’s email signature everyone receives states, “We do not accept or request wiring instructions or changes to wiring instructions via email. Always call to verify.”

How Mortgage Closing Wire Fraud Works

Pretty much everyone knows that wired funds are considered good, usable funds right away. Actually, it would be very unusual for a bank to put a hold on a wire for a real estate closing. So, if a scam artist is going to steal funds, they are going for these funds that are usually large amounts. Plus, because they are considered ready and available funds, it makes for a prime target. The scammers pretty much follow these steps in a wire fraud scheme:

Locate a prime target through phishing scams

Access / intercept their email account
Create a duplicate email of the target complete with email signature
Edit the wiring instructions
Send the falsified email to the person sending the wire
Receive the wire
If not caught quickly, they are long gone with the money

The Setup

You’ve seen the emails that sometimes get through junk or spam filters that look like they could be from your credit card company or bank. Well, that is what is how the process starts for wire fraud. These phishing schemes are looking for the perfect candidate such as a lender, attorney, or real estate agency. Next, they gain access to their email and strategically pounce on a certain transaction(s). By now, the scammers would have already intercepted the closing attorney’s wiring instructions and completed edits for the bank routing information. They are ready for someone to drop the ball during the closing process.

“Our Wiring Instructions Have Been Updated” or “We Have Sent You the Wrong Wiring Instructions”

The Switch

Closing day is near. Now, it is time for funds to be sent to settlement by the buyer or lender. Scammers then send the email from an address that may appear similar to the settlement company’s email. The falsified email states something like “Our wiring instructions have been updated, we didn’t receive your wire, or we sent the wrong instructions.” Plus, the attached wiring instructions have the scammer’s bank routing information. Thus, someone who isn’t paying attention and doing their due diligence could then send their wired funds, meant for closing, to an off-shore account more than likely. Then, if the issue isn’t caught immediately by the bank in time, the funds are usually lost forever.

How Bad It Can Be

That is pretty scary stuff! Now, we have mentioned “mortgage closing wire fraud,” but, this can happen just as easily with a cash sale. It could happen to any transaction that has a wire. Imagine a closing attorney losing $200,000 they wired to another closing. $50,000 that represented a buyer’s down payment. A mortgage lender or bank losing $350,000 which was wired to the settlement to represent the loan proceeds. There’s usually not an insurance policy that is going to cover this. So, what can you do? Let’s discuss that and probably the best practice is old school phone calls.

Tips to Avoid Wire Fraud at Closing

Obviously, these scammers have sophisticated systems to commit these crimes. It is hard to admit it, but they are usually pretty smart. They’re just putting their smarts into the wrong side of the law. So, what can be done? First, make sure that virus, spyware, and malware software on your devices are updated at all times. Second, use common sense when opening emails and especially attachments. If you are not expecting it, don’t open it. If it is coming from your friend and it looks suspicious, call that friend to verify. Third, send any emails with borrower nonpublic information in a secure email. Actually, the Consumer Financial Protection Bureau (CFPB) requires this of lenders and attorneys. Look at the email address source. Is it different? If so, question it! Finally, what may be the least high tech but is very important – pick up the phone.

Low Tech Wire Fraud Solution

That’s right, these are high tech scams. So, using email is playing in their backyard. Therefore, look up the phone number for the correct intended wire recipient. That means you need to independently find the number and don’t use the one in the email. It could be the scammer’s number. While on the phone, verify the wiring instruction details. There is an even better option if you’re local. Physically go to the closing attorney’s office to obtain the wiring instructions, but if you have to send the instructions to an online or out of town bank, talk to your banker. Actually, lenders should even do the same things. Lenders are probably the easier and larger target. Constantly rushing to meet closing deadlines could cause a fraudulent email to be overlooked.

Always, always, always call the closing attorney or settlement agent to verify wiring instructions and independently verify the phone number rather than using a phone number in an email. Never wire funds without double or triple checking the wiring instructions.

It is a shame that we live in a world that such things happen, but it is our reality these days. Protect yourself against wire fraud during the real estate process.

If you a Realtor, loan officer, mortgage closer, title company, closing attorney, paralegal, or anyone else in the real estate process, warn everyone you work with. Put it in your email signature, handouts, contracts, and disclosures. You really could save a company, buyer, or seller tens or hundreds of thousands of dollars.

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