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.
Realtors play a key role in educating their clients about the potential for wire fraud.
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
Wire fraud is tragic. Individuals who are victims of wire fraud find that funds that were intended for closing have been wired elsewhere. This can represent the loss of tens of thousands of dollars, whether it’s the equity from their home or a huge portion of their savings.
Because these funds are usually irretrievable, this loss usually prevents an individual from being able to complete their planned home purchase. Wire fraud is more than the theft of money; it's also the theft of a 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.
Attempts at wire fraud used to be fairly obvious. Language would be choppy or the email addresses would obviously be fake. But now, wire fraud is 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.
A bad actor attempting to commit wire fraud may impersonate a closing attorney by changing one letter in an email address. For example, the name Phillip might become Philip. And since buyers have limited contact with the closing company before closing day, they might not even recognize the difference.
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. And people who are stressed don't always make careful decisions. When a buyer sees an email come in with wiring instructions, they may be tempted to complete the task and get it over with, especially if they don't know that wire fraud is a possibility.
Fortunately, realtors have an opportunity to educate their clients and help them avoid wire fraud. Every time a realtor discusses money with their client is an opportunity to remind them about wire fraud.
Your clients need to know that wire fraud exists. They should also have specific instructions for what to do if they receive an email or phone call requesting a wire transfer. Your closing company will have specific procedures in place for preventing wire fraud.
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've spoken to someone at a phone number that they received earlier -- not the phone number in the email.
Realtors should give their clients contact numbers for their brokerage, the lender, and the closing company so they knew exactly who to call. Clients should also never trust a request that's 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
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. As a result, we have several safeguards in place at South Oak to protect our clients against wire fraud.
All of our digital communication is encrypted. But we're also constantly educating ourselves so that we can stay aware of the latest risks. We also work hard 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.
Any time South Oak sends instructions to a buyer, we do everything we 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.
1National Association of Realtors: Wire Fraud. Accessed November 5, 2021. https://www.nar.realtor/wire-fraud