How To Keep Your Clients Safe From Wire Fraud

How To Keep Your Clients Safe From Wire Fraud

As we press forward in the age of digital signatures, mobile notaries, and the impending electronic closings (that will soon be the norm), practitioners in the real estate industry need to be extremely vigilant in protecting consumers and clients from wire fraud.

First what is wire fraud?

Wire Fraud is an illegal acquisition of funds that are transmitted by wire to an impersonating party whom obtained or provided the instructions through fraudulent means.  In plain English this means an imposter tricks someone who is wiring money to send the funds to them instead of the intended party resulting in loss of the funds through illegal activity.  The way this most often happens is the fraudster gains access to an email address through a phishing or spoofing attack of someone's email account and monitors their emails until they are able to insert themselves into a transaction.  The primary way the fraudster gains access is by mimicking an email address that is similar to one the account owner already has a relationship with. 

What does this have to do with real estate agents you ask? 

Well, let me tell you a couple of stories that I have personally experienced and then I will give you some tips on how you can prepare and protect your clients!  It certainly can have an impact on the real estate agent!

A homebuyer had placed a home under contract and he and his real estate agent were working with the closing company to finalize the process to complete the real estate closing.  The real estate agent's email address was compromised and the imposter was monitoring the emails that were being sent and received by the real estate agent.  One of the emails from the real estate agent to the client was the wiring instructions for the closing company that provided the name of the bank, the ABA number, the account number and specified the amount the buyer needed to send when initiating this wire and the date of the closing.  The imposter now had all of the information they needed and inserted themselves in the transaction.  The fraudster created an email that was very close to the real estate agent's email address and even came up in the client's email inbox as a name they recognized.  The real estate agent's email address looked something like this, but in the client's inbox it said John Smith when an email came in.  The fraudster sent an email to the buyer and it also said John Smith when the email entered the inbox but if you clicked on the name the email address was listed as  The buyer did not actually click on the email address to verify the name as they recognized the name on the inbox. (Mistake #1)  The imposter sent and email that stated they had just spoken with the closing company and the closing company is requesting the buyer no longer use the initial wiring instructions that he sent before but to use the new wiring instructions that were attached and to email as soon as the funds were sent.  The buyer trusted the real estate agent and had been communicating with him and was under the impression he was still speaking to the same person who represented him so he did not call the closing company and confirm nor did he call the real estate agent and confirm the change was a legitimate request. (Mistakes #2 and #3)  The buyer wired just over $37,000 dollars to the bank he thought was the closing company and replied to the email letting who he thought was the agent know the funds were sent. (Mistake 4 & 5)  The funds were now in the possession of the fraudster and once they received word the funds were sent to the bank account provided the imposter immediately initiated a series of wires getting the funds out of the fake bank account and spread out over numerous accounts held in international accounts.  As you can imagine, the actual closing company called asking for wire confirmation and the buyer provided the information about the change and then realized that he was the victim of wire fraud.  In this situation, this was all of the funds this buyer had saved up to purchase his first home and he did not have additional funds to utilize, so he lost his life savings and he was unable to buy the property he was supposed to buy.  This was not one of my real estate clients and it did not take place in North Carolina but it very easily could have happened to myself, my clients, or any of the other agents that I know.  Unfortunately this seems to be happening more often and is a more common way for fraudsters to illegal obtain funds.

Another example that I have experienced took place after a real estate closing was completed.  The closing company had closed the transaction and all of the parties were originally present to sign the documents (seems to be a rare occurrence nowadays).  The sellers had requested a check for their proceeds from the sale be mailed to their new address during the closing and signed a document at closing to specify their direction to have the check mailed as well.  The closing company sent an email to the seller confirming that the transaction was completed and a check would be going out in the mail right away.  The fraudster in this case had infiltrated either the closing company or the seller and sent an email to the closing company asking if instead of a check could a wire be provided instead as they would need the funds sooner now than waiting for a check.  The closing company responded to the email and asked for wire instructions to be provided without any verbal verification or authentication of who the requestor was. (Mistake #1)  The closing company voided the check and wired the funds to the instructions that were provided totaling over $221,000 in proceeds. (Mistake #2)  The closing company did do something good in this situation as well and called the client after the wire was sent to inform them they sent the wire and to provide them with the Federal Wire Transfer Number for tracking purposes.  The client immediately state they wanted a check and that they did not provide any wire instructions.  The employee who initiated the wire immediately called their bank and informed the bank about the situation.  The closing company had a protocol in place for this type of scenario as they were prepared for wire fraud possibilities and followed the protocol to the letter.  Fortunately the title company was able to get the wire that was sent out to the fraudster returned before the imposter was able to transition the funds out of the fake account.  It took 45 days to the get the funds back from the bank and the closing company was responsible to pay the seller during that time to make sure they received the funds they were owed.  This closing company was lucky to have escaped unscathed because that type of loss could have very well put them out of business had the funds been completely lost.  This was also not one of my real estate clients and it too took place outside of North Carolina but this took place within a Title Insurance Company that I operate in a different state so this was a direct impact on one of my businesses.  This was a mistake of not following the established protocols resulting in the improper transmission but a quick reaction to get back to protocol after the mistake was made.

Whether you are a real estate agent or a buyer or seller, the following items are tips that I have put in place to help prevent this from happening to my clients and also some items to look for that should raise red flags

First, I prep my clients!  I suggest clients should ask their real estate agent what they do to protect against wire fraud.  What I do is provide my clients with information about wire fraud and to make sure they are vigilant when sending any information.  I think preparation is the most important thing that can be done.  If clients are prepared they are more vigilant and know what to be on the lookout for.  

What information do you prep your clients with? 

I tell my client I will accept initial wire instructions from an attorney's office but I will call the attorney and confirm over the phone what their ABA number and Account Number are verbally so that I can make sure the email and the verbal confirmation match.  I next instruct my clients upfront that I will never send a request to change wire instructions by email and the attorney or closing office I work with will also not send changes that way either nor will we accept requests to change by email.  If a change is required I speak with my clients in person or over the phone.  In the beginning of a transaction my clients and I establish a Passcode that we will use if any changes are required within the transaction.  We agree never to email this passcode and we never relay this passcode to anyone else.  If a change needs to be made or a special request is made, a phone call is made and the passcode has to be provided by either party to verify identity.  This is not fool proof in any way but it has worked extremely well for me.

The next thing that I do and I suggest all buyers and sellers and definitely real estate agents do is click on the extension of an email and make sure it belongs to the person you are expecting it to go to.  Carefully analyze the name and extension of the email and make sure it matches the person you are used to communicating with.  I have also begun to no longer use the reply or reply all tab when answering emails, instead I use the forward email.  The reason that I use this is the name is eliminated when you hit forward so you need to type the first few letters of the person you are wanting to send the message to.  If 2 emails come up for the same person that are very close that is an immediate red flag and then I verify who was sending me the emails previously.  This takes an extra few seconds but it works very well to ensure the message is going to the intended recipient.  If I have any doubt of the validity of an email address I will call the person who I want to speak with and have them confirm over the phone their email address and their passcode. 

I also prep all my buyers to confirm before they send any wires to call the closing company and have them confirm the wire instructions to my buyers.  Do not accept any changes in bank instructions without verifying with me and we can both verify the wire instructions independently to make sure we get the same information. 

Here are some items that should raise red flags for consumers and agents:

1. Any requests to change accounts, banks, or to send wires elsewhere, these need to be verified before taking action

2. Emails or correspondence that ask consumers or agents to do something right away and to let the sender know, may be legitimate but these phrases are often found in imposter emails to create a sense of urgency

3.  Changes in Email Signatures, most people have automatic signatures or routines so if the email signatures are different take a look at the email to make sure the address in accurate

4.  Verify that you know the person sending you the email.  I often hear the emails come from an assistant or a processing center.  If you work with me you should know who on my team will be reaching out to you.

There can be many subtle clues to spot a fraudulent email but the most important thing is to take the extra moment to verify the information, do not be afraid to call and verify, and get the proper preparation upfront.  If you prepare yourself, your clients or if you are a consumer make sure you ask your agent what preparations they have made, by doing so the likelihood of fraud being successful should be minimized.

Rob Callaghan, Broker/Realtor

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Rob Callaghan, is a Real Estate Broker who operates his own brokerage in Waxhaw, NC and also serves as the CFO for a Title Insurance Partnership that operates several Title Insurance Companies throughout the United States.  Rob has been assisting clients purchase and sell homes for more 10 years.  The following article is not considered legal advice and all events have been adjusted to keep anonymity intact.

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Phone: 704-778-8653
Dated: October 21st 2017
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