Wire Fraud a Growing Concern In Real Estate Transactions

Keith B. DunnaganToday, we look at the rise of wire fraud in real estate. With the advancement of technology and its use in the market place, it is more important than ever to take precautions with confidential information. Criminals have concocted schemes to look like legitimate wire instructions related to real estate transactions, when in fact they are not. Be careful.

As always, if you have any questions about your real estate, business, estate planning, or any other legal issue, please let us know by e-mailing me at kbdunnagan@bpelaw.com.

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Wire Fraud a Growing Concern In Real Estate Transactions

By: D. Keith B. Dunnagan, Esq.

In today’s real estate economy, parties are looking for quick close, seamless transactions and more fluid transactions. Today’s technology allows for much of this to happen, but that same technology also opens the door to more opportunities for fraud. Wire fraud in real estate transactions is one of the fastest growing cybercrimes. In 2017, FBI reportedly received in excess of 300,000 complaints and the total losses exceeded $1.4 billion. In October 2018, the California Department of Real Estate issued an advisory regarding the increasing use of the wire fraud. Additionally, in June 2016, the California Association of Realtors issued a standard form Wire Advisory Form alerting consumers and agents to the rise in wire fraud claims. As this crime evolves there are steps that can be taken to protect oneself from being a victim.

But first how does the scam work? A party is involved in a real estate transaction and has a closing looming. A real estate agent, attorney, escrow officer (ie. a professional involved in the transaction) has their email account compromised or hacked. The hacker/fraudster can then use the compromised account to send a message to the client that appears to be legitimate and advises the buyer of a change to payment plans. The unsuspecting buyer follows the instructions in the fake email and wires money to a new account controlled by the hacker/fraudster that is usually overseas and out of U.S. law enforcement jurisdiction. The result – the money is gone, the deal to purchase the home falls apart and the buyer is left with little recourse.

But what is a buyer to do? Protect your confidential and personal information and refrain from transmitting the information electronically. Verify the information as it comes in and make sure to verify anything that purports to change the plans of the transaction. Use the telephone to call escrow or your agent when something suspect is being stated. Don’t verify by email. The scam is able to operate because of a compromised email and it is possible for the hacker/fraudster to respond to the email to verify the contents. If that happens by the time the agent, attorney or otherwise may see your question it may be too late. Verify by phone and talk to your agent, attorney or escrow officer to confirm the change.

But what happens if you are a victim of this type of real estate fraud. The law is still developing. In California in 2016 First American Title Co filed a lawsuit against a broker that was settled out of court. More recently in the US Dist. Court of Kansas (Bain v. Platinum Realty et al) after a jury trial, the broker was assessed 85% liability related to the use of their email in the commission of the fraud. In the Bain case it appears that the broker received the fake wiring instructions and attempted to forward that email on to the client. The broker, although, unintentionally forwarding on the fake wire instructions was found significantly liable for negligent misrepresentation. Additionally, Article 4A of the Uniform Commercial Code identifies risk allocation to related to wire fraud. While the bank is generally liable for unauthorized transfers, whether a bank, broker or escrow officer is ultimately found to be liable is based upon commercial reasonableness of the security measures they employ.

Ultimately, what this all means, is that we need to be vigilant. Consumers and the professionals that assist them need to be aware of the scams that are out there. Ask questions, verify information and secure your electronic data. Take the appropriate steps to reduce your risk of becoming a victim of wire fraud.

Finally, remember, it is not just the consumer who loses in this. As the law develops, the professionals that assist consumers may be exposed to liability if their electronic devices are compromised and lead to the fraud being perpetrated.

The attorneys here at BPE Law have a long history of counseling both business members and consumers related to their interests in real estate.
Should you need assistance, the attorneys at BPE Law can assist.

The attorneys of BPE Law Group, PC. have been advising our clients on real estate, business and estate planning issues for over 20 years and have assisted numerous clients in business and real estate matters and have represented and advised brokers on their professional obligations as well as consumers on their rights. If you have questions concerning legal matters, give us a call at (916) 966-2260 or e-mail Keith at kbdunnagan@bpelaw.com. Our flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.