wire fraudBuying a new home is meant to be an exciting time. In the past several years, especially with today’s sizzling housing market, real estate transactions have increasingly involved sending funds via wire transfer. In typical real estate transactions, buyers and mortgage lenders wire purchase funds to an escrow agent.

The very nature of real estate transactions — large amounts of money transferring between parties — makes them a prime target for criminals. Unfortunately, criminals are increasingly targeting the real estate industry with compromised emails containing fraudulent wire instructions turning any initial excitement into gloom.

A hacker’s playbook

Once hackers gain access to an email account of a real estate agent, a title company, or a consumer, they will monitor messages to find someone in the process of buying a home. If they can hack into a party’s email, they can monitor the communications and swoop in with their own “spoofed” email. The spoofed email address is often indistinguishable from the correct version, and the hacker and will duplicate email signatures, fonts, and other formatting specifications making it appear to look authentic. The hacker will then send fraudulent wire transfer instructions to unsuspecting buyers to steal closing costs or down payments.

Increased litigation

The increase in wire fraud has led to an increase in litigation, as buyers who fall victim to the scam look to assign blame and recoup their money. Courts have begun to rule on this issue and have held the party that was in the best position to prevent the fraud, through the exercise of ordinary care, will suffer the loss of the fraudulent transaction.

Recently, Henderson Franklin successfully defended a title agency who was sued after a buyer was duped into wiring money to a third-party fraudster. The buyer received fraudulent wire instructions from a spoofed email mimicking the title agency and directing her to deposit funds into a sham escrow account. The wiring instructions contained misspelled words and grammatical errors. Despite being warned to contact the title agency to confirm and verify wire instructions prior to any transfer, the buyer failed to do so and wired her deposit to a third party fraudster. The Court held the buyer was in the best position to prevent the fraud and should have exercised reasonable care by confirming and verifying the correct wire instructions.

How to avoid falling victim to wire transfer scams

  1. Be suspicious of emails that contain changes in payment type or account numbers;
  2. Confirm all wiring instructions in person or by phone with a known number before transferring funds;
  3. Look for common red flags that are associated with any compromised email, such as misspellings, poor grammar, and emails sent outside normal business hours;
  4. Verify the completed wire transfer immediately.

Likewise, it is important for escrow agents, title companies, and real estate brokers to stay vigilant and continuously caution prospective buyers about the dangers of wire transfers and the potential for wire fraud.

Businesses who have received a demand related to their involvement in a fraudulent wire transfer, or who would like guidance on how to best avoid a lawsuit in this context, may contact me at steven.gendreau@henlaw.com or by phone at 239-344-1105.