Real Estate Wire Fraud Is A Growing Cybercrime, But There Are Ways To Prevent It

Real estate wire fraud is one of the fastest growing cybercrimes in the U.S., according to the National Association of Realtors.

Olivia Ottens, a real estate attorney at Michalski-Ottens Law in Pompton Plains, N.J., explained to the TAPInto news website how wire fraud in the real estate market typically works.

“Whenever buyers are in the process of purchasing a home, initially there's a deposit that’s put into escrow and this money is generally wired from one bank to another,” she said. “It's important before the money is wired to call the source and verify all the information, like the key bank account number the institution it’s going to and so forth.”

NAR said about 11,300 people were victimized by wire fraud in the real estate and rental sector in 2018 -- a 17% jump from 2017 -- with attendant losses of more than $150 million.

According to the FBI, consumers have been robbed of more than $220 million in wire fraud schemes thus far in 2020, a 13% increase from last year.

The most common reported type of fraud in real estate in 2017 was business email compromise/email account compromise, NAR noted.

“Fraudsters will assume the identity of the title [company], real estate agent or closing attorney and forge the person’s email and other details about the transaction,” NAR said. “The scammers will then send an email to the unknowing buyer and provide new wire instructions to the criminal’s bank account.”

Ottens said that such fraud can be avoided simply by a phone call to verify all information before wiring the deposit.

“This has happened, and it can happen,” she warned. “I always make sure my clients are aware of it and I make sure that they take the extra moment because you do not want to lose the funds you need to buy your home.”

Aaron and Lindsey Fisher of northern California were the victims of wire fraud when they sought to buy a new $1.4 million home.

Aaron Fisher, a professor of psychology at University of California at Berkeley, wired $921,235.10 from his account at Bank of America (BAC) to Wells Fargo (WFC).

However, the mortgage company informed him a few days later that they have no accounts at Wells Fargo.

CNBC reported that criminals somehow hacked email conversations about the prospective home purchase between Aaron and his real estate agent and other legitimate parties. The cybercriminals then create fake email addresses that were similar to the addresses of at least one of the other parties.

“All of us thought we were communicating with each other, and every time we sent an email, we were communicating with the criminals,” Aaron said.

From their fake accounts, the criminals emailed digital copies of the actual documents.

“These were the real closing [documents]. And so, I opened the PDF. I inspected them. All the numbers were right,” Aaron said.

But the wiring instructions that were attached to the file had wrong account information.

“Somehow, the fraudsters had got hold of the real closing documents. And so that gave [the buyers] some comfort, that this was a genuine email,” said Paul Llewellyn, an attorney for the Fishers.

The money was wired by the Fishers to a real account number, but the account name on the fraudulent wiring instructions was phony.

Real estate wire fraudsters are now setting their sights on high-end markets, like New York, Los Angeles and Palm Beach, Florida, where home prices are very expensive.

“In certain markets, you could lose tens of millions of dollars with one sale,” said Steven Merrill, the FBI’s financial crimes section chief. “The [markets] that are most lucrative are the ones that they’re probably going to target.”

Rep. Brad Sherman, D-Calif., has asked the Federal Reserve to increase protections for prospective home buyers like the Fishers to force banks and mortgage lenders to clamp down on wire fraud.

“They [financial institutions] don’t want to solve the problem because they’ve got a computer system that would have to be modified. But it’s worth doing,” Sherman said.

Sherman introduced the Internet Fraud Prevent Act in June to deal with crimes like this.

However, the Fisher’s story miraculously had a happy ending -- Bank of America somehow got all their money back.

Still, the Fishers closed their account at Bank of America and opened a new one elsewhere. They were finally able to purchase their home.

William Halldin, a Bank of America spokesperson, told CNBC as soon as a customer “notifies us that they authorized a transaction that turns out to be a scam, we immediately take steps to recover the money and support our clients.”

Halldin would not reveal how the bank was able to retrieve the Fishers’ money.

CNBC noted new home buyers should closely examine all email addresses in any correspondence related to real estate and be on the guard for any suspicious last minute changes in wiring instructions.