Wire Fraud in Real Estate Transactions

By Michael Repka, Esq.

Imagine the horror of inadvertently transferring most of your life savings to the wrong account and never seeing it again. That is what has happened to many homebuyers in California and across the nation.

The scams are many, but the results are the same: A potential homebuyer finds out that they lost their entire down payment on the American dream.

Perhaps the most simplistic version of this scam relies upon the proliferation of free, internet-based, e-mail accounts. Many real estate agents, especially part-time or newer agents, utilize e-mail addresses for work such as Gmail.com. Scammers will simply create an account that sounds very similar to the real estate agent’s well-publicized e-mail address and then send out e-mails to a home buyer instructing them of a change to the wiring instructions.

Imagine you are working with a real estate agent named Alice Smith and she uses the e-mail address AliceSmith1108@gmail.com. The scammer could simply create an e-mail account AliceSmith1109@gmail.com and send a message from that account informing a buyer that there has been a change to the wiring instructions. Many buyers, having received an e-mail from a familiar sounding email address with a professional looking attachment, simply follow the instructions and wire the money into the impostor’s account. The scammer would then transfer out the hundreds of thousands of dollars and proceed to disappear.

How Buyers Should Protect Themselves

It is critically important for both buyers and sellers to take wire fraud very seriously. It is not enough for Realtors® to stick some sort of a disclosure into a stack of other disclosures for the buyers to sign. The wiring instructions should come directly from the title company well in advance of the time that the funds are to be transferred. If the instructions are sent electronically, the buyer and escrow officer should agree that they will speak over the phone before the e-mail or, better yet, old-fashioned fax should be sent to confirm receipt of the information.

As an added security measure, the buyer should first transfer a small amount of money (e.g. $13) into the designated account in advance of closing and receive confirmation of receipt. Then, when the entire down payment is due, the buyer can follow the exact same instructions and transfer the entire amount.

Another option, albeit a bit old-fashioned these days, is for the buyer to utilize a certified or bank check, which should be hand-delivered to the title company. Again, this may require some advance planning due to the “good funds” rules.

Dawn McCahan, Vice President of Chicago Title and one of the area’s most well respected escrow officers, said that “wire fraud is one of Chicago Title’s top priorities. [We] will not give out wire instructions until we have spoken with the client and confirmed receipt.” Ms. McCahan said she has even implemented security procedures to confirm the identity of the person with whom she is speaking over the phone.

Although these precautionary steps may result in some minimal additional fees or inconveniences, they are well worth the effort. As part of our services, DeLeon Realty will cover any additional wire transfer charges associated with the extra wire transfer, or the messenger fee to pick up the certified check and deliver it to the title company.

Like many crimes, people don’t think of themselves as victims until it is far too late. It is human nature to think “those types of things won’t happen to me”. With strong communication, multiple checkpoints, and advanced planning, buyers can protect themselves from scammers.