Wire fraud scams targeting the real estate sector have been rising since 2015, according to data from the FBI’s Internet Crime Complaint Center (IC3). In 2019, nearly 12,000 people were victims of wire fraud in the real estate and rental sector, with losses of more than $221 million, according to IC3’s most recent report.
Here at Certified Abstract, it’s the #1 thing that keeps us up at night.
We get wire fraud alerts from our underwriters almost every day. It’s an enormous problem in the real estate industry, and one that’s hitting the title insurance agent community especially hard.
What’s Happening: Email Compromise is Key
According to IC3 data, the highest reported real estate fraud in 2019 was Business Email Compromise/Email Account Compromise involving transactions where businesses and individuals are conducting a transfer of funds. Scammers assume the identity of a title agent, real estate agent, or closing attorney and forge the person’s email and other details about the transaction. They then send an email to the unsuspecting buyer, providing wire instructions to the scammer’s bank account.
With more than $221 million in losses, real estate and rental wire fraud rank #5 out of more than 30 types of fraud tracked by IC3. Sadly, our home state of Pennsylvania ranks #8 out of 57 U.S. states and territories, in terms of both the number of victims and total losses.
How it Affects You: You’re On Your Own
There are two things to be aware of here: wire fraud can expose you to a massive financial liability, and if it happens, you’re pretty much on your own.
Let’s say you’ve got a project in the $50-100 million range. If your email is compromised and your investor wires payment to a fraudulent account, they’re going to come after you for reparations. That’s a significant liability. And, unlike with ransomware, we’ve yet to see anyone get paid out of cyber insurance for wire fraud.
Given the increasing frequency and impact of wire fraud, most insurance companies either limit or exclude coverage in order to mitigate their losses. Thanks to several recent court decisions, the insurance industry may have to change its approach. But, for now, your current policy likely does not cover you for wire fraud. And even if you have coverage, collecting on claims and responding to lawsuits is painful.
What’s the best way to ensure you don’t lose out to wire fraud? Don’t get hit in the first place.
What Actions You Need to Take
One reason wire fraud is a growing problem in the real estate industry is that most people rarely call to confirm wiring instructions. We call everybody—anytime we get a request for a wire transfer, we follow a specific set of steps to make sure the request is legitimate.
We’re glad to report that within the title insurance agent community, our standard of conduct around wire transfers has evolved to be more secure. We believe it’s important for buyers to follow similar rules, to safeguard their transactions.
A good place to start is for buyers to establish an organizational process for verifying wire transfer instructions. Here’s what that could look like:
- Confirm the specifics of the wire request given in the email. Scammers tend to make things just a little bit off, so you don’t notice any discrepancies at quick glance.
- Call to confirm the source of the communication using a phone number that’s not in the email you received. Get it from the company website or other direct communications with a verified contact.
- Speak to someone within the organization requesting the transfer—preferably someone who’s not on that email or someone you already have a relationship with.
In the end, whether you’re the one sending or requesting money for a real estate transaction, you have to take care of yourself. If you’re not watching out for fraud, there’s no one to go to when it happens.