Preventing Wire Fraud in Real Estate Closings, Three Legs at a Time.
In today’s digital age, the convenience and speed of electronic transactions have revolutionized many industries, and the real estate closing and title industry is no exception. However, this convenience has also opened the door to a growing number of scams, particularly wire fraud. As a real estate closing attorney, I’ve witnessed firsthand the consequences of wire fraud on buyers and sellers of real estate.
I’ve been handling real estate closings since 2016 and the topic of wire fraud has been heavily addressed at all industry conferences I’ve attended since. However, despite this constant and increased awareness about wire fraud scams, they continue to be a significant and growing problem in the real estate industry.
How exactly does wire fraud occur in real estate transactions?
One of the most common forms of wire fraud in real estate transactions occurs when a scammer intercepts wire transfer instructions that have been emailed, usually from a closing office to a buyer of real estate. The scammer replaces the good instructions with fraudulent wire instructions and sends the fraudulent instructions off to the unsuspecting buyer in the hopes that the buyer will fall for the scam and send their hard-earned funds to the fraudster’s bank account. The beauty of wire transfers is also what makes them scary – once the money is wired, it’s immediately available to the recipient. In other words, once it’s gone, it’s gone.
What’s a Buyer To Do?
In order to wire money, you need instructions on how to do so. In the context of wire transfers, this is essentially the bank name and routing number, the name and address of the account holder, and the account number. In the modern age of the Information Superhighway, this information is usually emailed by the party expecting to receive the wire, commonly your friendly neighborhood closing attorney’s office. Once received, the wire instructions should be confirmed by phone. While it’s likely that everyone reading this knows that last part, like most important things in life – the devil is in the details.
Who You Gonna Call?
Ready to call to confirm the instructions? Great! First, you’ll need the phone number, right? Where did you get that from? Was it emailed? Standalone email? Was it in the email that the wire instructions were attached to? In a worst-case scenario, was it on the face of the wire instructions, themselves? You may instantly appreciate where I’m going with this but, despite the obviousness to not do this, I’ve seen a number of offices that put the confirmation phone number on the face of the wire instructions and so, yes, unfortunately, it absolutely happens.
If you’re not seeing the issue here, that’s OK, I’m here to educate! Let’s start with the original premise: the reason that emailed wire instructions need to be verbally confirmed is because of the inherent untrustworthiness of the email process (see above, interception). And so, if you, the buyer, are expected to presume the wire instructions that were just emailed to you could be fake, why are offices expecting you to trust the phone number that sits right next to the instructions? Wouldn’t a scammer just put their own phone number?
That’s a One-Legged Stool, Jack!
You wouldn’t sit on a one-legged stool – you’d fall right on your face. And so, if anyone asked you to, unless you’re Super Dave Osborne you’d run away fast. So why would you send a wire transfer of your hard-earned money based on an email that includes 1) the directions of the process, 2) has the wire instructions, themselves, attached, and 3) the confirmation phone number… all. in. the. same. email? Run. Fast.
To effectively combat wire fraud, Battaglia Law, PLLC follows a multi-pronged approach that addresses these vulnerabilities, and it’s an approach that I call The Three-Legged Stool.
The Three-Legged Stool
Imagine trying to balance on a one-legged stool. It’s nearly impossible, right? The same goes for wire fraud prevention. Relying on just one or two security measures is like sitting on a one or two-legged stool – it’s unstable and silly. Instead, follow the Three-Leg Stool approach to wiring funds, and create a strong, stable foundation to protect your funds.
Leg One: Precise communication explaining the wire transfer process
The first leg is a detailed, deliberate, comprehensive explanation of the wire transfer process. This is an email that provides a step-by-step of what the buyer can expect, and what the buyer should do. Simple. This explanation should thoroughly foreshadow Legs Two and Three, right down to telling the buyer the precise email address that the wire instructions will come from, and providing the phone number that the buyer should use for the verbal verification.
Leg Two: Transmittal of printable wire instructions
The second leg is also simple – the closing office transmits a printable copy of the wire instructions to the buyer. The wire instructions can be sent via regular email so long as the other two legs are being utilized, but more secure methods should be considered, such as encryption, portal, download link, etc. But, again, if Legs One and Three are being honored, then regularly-emailed wire instructions are no problem. They should be printable so that the buyer will have a hard copy in their possession (spoiler alert: they will use this hard copy in Leg Three). Why a hard copy? Because a printed copy cannot change. A copy sitting in someone’s inbox? See interception.
Leg Three: Verbal confirmation of the printed wire instructions
The third leg is (you guessed it!) simple. The buyer takes the printed hard copy of the wire instructions and calls the closing office to verbally confirm their accuracy. What gets confirmed? Routing and account number, bank name, recipient name, recipient address. The buyer should only perform this step using an independently-verifiable phone number. This means that a phone number that appears on the face of the instructions should be not relied on – that’d be a two-legged stool, Jack! Unless the buyer is able to verify the phone number online, such as on Google.com, any phone number on the face of wire instructions should be disregarded. Once the wire instructions are verbally confirmed on an independently-verified phone number, congratulations, wire your funds and have a seat on your beautiful Three-Legged Stool.
Don’t Be Tippin’.
Unfortunately, not all offices follow these best practices. Some offices will attach their wire instructions to the same email that explains the process, or they might place their phone number on the face of the instructions. Doing this is like asking their customers to sit on a one or two-legged stool – it may balance for a bit, but eventually someone is going to fall flat on their face. If you find yourself being asked to sit on a one-legged stool when wiring funds, ask that office why they are putting your money at risk and leave a comment below to let us know what their answer is!
By following a comprehensive three-legged stool approach, you can be sure that your funds have their best shot at arriving safely and soundly where they are intended to go – into the appropriate escrow or trust account, waiting to be applied at closing.
Good things really do come in threes.
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