Person stressed because of real estate wire fraud

Strategies for Preventing Real Estate Wire Fraud

Nov 23, 2021 Technology Share:

Wire fraud in real estate has risen steadily over the past five years.

Unfortunately, homebuyers are particularly vulnerable to wire fraud because the closing process is both stressful and unfamiliar. Education is key to wire fraud prevention.

Marcia St. Louis, Managing Attorney at South Oak Title and Closing in Huntsville, is here to share her expertise so that realtors can learn about wire fraud and, in turn, educate their clients.

What is wire fraud?

At its most basic, wire fraud is when funds that were intended for one recipient are electronically diverted to another. In real estate, wire fraud occurs when a buyer’s closing funds are sent to an account that is not associated with the real estate transaction.

Wire fraud is one of the most common types of real estate fraud, and it’s been on the rise, especially over the past five years. And as more closing transactions are handled remotely, it’s expected that the number of people affected by wire fraud will continue to rise. According to the National Association of Realtors, over 13,000 people were victims of real estate wire fraud in 2020 and lost over 213 million dollars. This represents a 17% increase over 2019.1

Marcia St. Louis says, “Wire fraud is a tragedy. For an individual, the funds that are intended for closing are wired elsewhere and are irretrievable by the sender. It’s the loss of tens of thousands of dollars, whether it’s the equity from their home or a huge portion of their savings. This loss usually prevents an individual from being able to complete their planned home purchase. Those who commit wire fraud aren’t just stealing money; they’re stealing someone’s dream.”

What does wire fraud look like?

Wire fraud most often begins with an email that contains instructions to wire money for closing to a certain account, but it can also begin with a phone call. In either scenario, an individual is impersonating someone involved in the real estate sale, such as a real estate agent, lender, or employee at the title or closing company. St. Louis says, “It used to be pretty obvious when someone was attempting wire fraud; the language would be choppy or email addresses would obviously be fake. Now, wire fraud has gotten much more sophisticated.”

The emails look legitimate. Someone attempting to commit wire fraud can steal logos, domain names, and email addresses with barely-noticeable differences. St. Louis says, “If someone was attempting to impersonate me, Marcia might become Maria in my email address. And because buyers have limited contact with the closing company before closing day, they might not even notice that the name is different.”

These emails, which are often sent to individual homebuyers, usually sound urgent and include language such as, “Wire the funds immediately so you don’t delay your closing.” There will also be instructions to wire money to a domestic account. But once the money is sent, it is immediately wired offshore, making it nearly impossible for law enforcement agencies to retrieve the funds.

What can realtors do to prevent wire fraud?

The average homebuyer has no idea that wire fraud exists, and buyers are particularly vulnerable to this type of fraud. Most people don’t buy homes that often, and the whole process can feel overwhelming, confusing, and stressful.

While moving is stressful on its own, moving often occurs alongside other stressful events such as a divorce, a death in the family, or a job change. Marcia St. Louis says, “When you’re stressed, you’re not always perfect with your decisions. When a buyer sees that email come in, they’re going to be tempted to just click it and get it over with, especially if they don’t know that wire fraud is a possibility.”

Realtors have an opportunity to educate their clients and help them avoid wire fraud. St. Louis says, “Every time a realtor talks about money with their client, from the estimate to reviewing the settlement statement or the CD, is a great opportunity to remind them about wire fraud.” Clients need to know that wire fraud exists and what they should do if they receive an email or phone call requesting a wire transfer.

St. Louis continues, “The most important thing a realtor can tell their clients is to pick up the phone and call to verify that the transfer request is legitimate. No client should ever send money anywhere until they have spoken to someone at a phone number you’ve given them before.” Realtors should give their clients contact numbers for their brokerage, the lender, and the closing company so they know exactly who to call. Clients should never call the number listed in the email request or trust a request given over the phone.

Realtors can also help their clients know what to expect with their money. Clients should know when money will be required and in what form. Funds for closing almost always need to be in the form of certified funds or check.

Safeguards against wire fraud at South Oak

Marcia St. Louis says, “At South Oak, we take wire fraud very seriously. It’s a crime, but it’s very difficult to prosecute. Prevention is the best way to battle wire fraud.” She says that there are many safeguards in place at South Oak to protect clients against wire fraud.

“It starts with encryption for all of our digital communication. But we’re also constantly educating ourselves so that we can stay aware of the latest risks. We make sure to educate all of the realtors and lenders we work with about wire fraud so that they can in turn educate their clients. And even though we don’t have many touchpoints with the buyer prior to closing, we work to educate them on the risks every time we work with them.”

She says that any time South Oak sends instructions to a buyer, they do everything they can to avoid changing those instructions. In the rare event that a change does happen, the buyers know that they need to verify that change with South Oak over the phone.

South Oak also employs auditors to ensure that safeguards are effective. St. Louis says, “Wire fraud is like someone has robbed your house at Christmastime. Hopes are dashed. We want to do everything we can to prevent it.”

Marcia St. Louis

Marcia St. Louis is the Managing Attorney for South Oak Title and Closing in Huntsville. A graduate of the University of Alabama School of Law, she has over a decade of experience with residential and commercial real estate transactions.


References:

1National Association of Realtors: Wire Fraud. Accessed November 5, 2021. https://www.nar.realtor/wire-fraud

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