Our IPX1031 Associate General Counsel, Jim Miller, Esq. recently wrote this Wire Fraud article for the REALTORS® Land Institute.

Wire Fraud – Protect Your Business and Your Clients

Wire fraud is a growing problem for everybody involved in real estate transactions.  This article will discuss Business Email Compromise (which may culminate in a theft by wire fraud); what Business Email Compromise (BEC) is and why it is important for you to know about; as well as what you can do to identify potential problems to protect your business and your clients.

What is Business Email Compromise (BEC)?

BEC is also known as phishing or wire fraud.  Frequently, a fraudster poses as somebody else (possibly a known person, a potential client or business associate) to gather sensitive information and/or install malware onto your computer.  Once they hack into somebody’s email, they usually wait in the background of a transaction.  Software is often used to scan the content of emails and alert to an upcoming transfer of money.  Just before money is to be transferred, they come out of the shadows and attempt to divert the money to an account under their control.  Remember that email addresses and telephone numbers can be spoofed.

Why Land Agents Need To Know About BEC

BEC is the most prevalent wire fraud scheme targeting businesses today.  It has been reported in all 50 of the United States and in 177 countries.  Real estate agents, title companies, law firms, sellers and buyers (in real estate transactions) are the most targeted for wire fraud.  Although your email and computer system may be secure, somebody else’s in the transaction may not be.  It only takes one person in the transaction to be hacked to introduce a risk of loss that can affect everybody!

BEC is a fast growing problem and has been described as the modern day bank robbery.  However, it is much more lucrative and the criminals are less likely to be caught.  According to the FBI’s Internet Crime Complaint Center (iC3), from 2015 to 2017 there was an 1,100% increase in reported victims and a 2,200% increase in reported losses.  Between October 2013 and July 2019, over $10 Billion of losses were reported in the United States.  Since some businesses are afraid of reputational damage, the actual losses may be higher than what was reported.  The FBI estimates there is an average of $8 Million in losses each month in real estate transactions in the United States.

The FBI estimates there is an average of $8 Million in losses each month in real estate transactions in the United States. 

As a result of this growing threat, to protect your business and your clients, be suspicious and at high alert.  Whenever the movement of money is involved, assume that somebody’s email has been hacked and you may be communicating with a fraudster!

How To Protect Your Business and Your Clients From BEC

A wire fraud causes numerous damages to you and your clients in addition to a loss of money.  As mentioned above, the fraud may cause reputational damage to a business or its agents.  There is also a considerable impact on efficiency.  A lot of time and emotional energy can be expended trying to get the money back, checking computer systems, changing passwords, etc.

Even though tactics change, there are a few common “red flags” that you should be aware of:

  • Multiple or changed wiring instructions.Wiring instructions are rarely changed because business bank accounts are not frequently changed.  Some bogus reasons that have been given for changed wiring instructions may include: “the account has been closed” or “the account has been placed on hold by the bank and is not effective at this time”.
  • Bad Grammar.Many (but not all) fraudsters are foreign and may misspell words, use a word or phrase incorrectly or not as commonly spelled or spoken in American English.  For example, “authorisation (British) vs. “authorization” (American).
  • Unusual Wire Recipient.Generally, deposits and closing funds are wired to accounts in the name of a settlement attorney, an escrow or title company or the real estate agent holding earnest money.  Any other payee on the account should be considered to be a red flag.
  • Changed or spoofed email address.The changes may be subtle and missed if somebody is in a rush.  For example, instead of Baker@TheTitleCompany.com the email address might be changed to JohnBakerTheTitleCompany@gmail.com or there could be a very subtle change to the name such as Baker@yahoo.com to John.Bakar@yahoo.com.  However, sometimes the fraudsters are able to hack into the actual email account and send emails form it.
  • Does the communication make sense in the context of the transaction?For example, is the “settlement agent” asking for a wire so they can send a check for the closing?

So, What Can You Do?

  • Be cautious if the person on the other end of the emails wants to rush things.Fraudsters want to create an urgency and cause you to rush because that increases the chance you will miss “red flags”. For this reason, it has been noticed that many attempts take place on Fridays and at the end of the month because of the increased transactional volume.
  • Only send information to the person(s) who need it.Be cautious with “reply to all”.  The more people that are on an email string the higher the chance that your email goes to a fraudster.
  • Be cautious before clicking on a hyperlink sent by an unknown person and “hover” over links before clicking to see a preview of where it will take you.
  • Keep all software patches on and all systems updated.

If you discover you are the victim of a fraudulent incident, immediately contact your financial institution to request a recall of funds.  The longer you wait the more likely the funds will be lost forever!  As soon as possible, file a complaint with the iC3 at www.ic3.gov.  You can also obtain internet crime prevention tips and crime schemes at the iC3 website.


About the Author: Jim Miller, Esq., is an Associate General Counsel for Investment Property Exchange Services, Inc. (IPX1031).  IPX1031, a Qualified Intermediary, is a national leader in 1031 tax-deferred exchange transactions and a wholly owned subsidiary of Fidelity National Financial, Inc. He is also an instructor for RLI’s Tax Deferred 1031 Exchanges LANDU course. For questions or more information on exchanges, call (888) 771-1031 or visit the website at www.ipx1031.com.

 

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