One of our members wrote a great article regarding wire fraud. Juliana Tu, Escrow Officer and Owner of Viva Escrow! Inc. wanted to educate everyone of the terrible issue we have with wire fraud, particularly in the escrow settlement industry/ real estate transactions where millions of dollars are transferred daily. So grab a cup of coffee or tea, and learn about this very real issue.
Who Took My Money???
A Grim View of Wire Fraud in the Real Estate Industry
Juliana Tu, CSEO, CEO, CBSS, CEI, SASIP
2019 President, California Escrow Association
Why drive to a local bank, put on a mask and rob the tellers out of a couple thousand dollars when you can sit in your home in front of the computer, and rob consumers out of hundreds of thousands of dollars? You don’t even have to get dressed!
Perhaps this is not quite a true portrayal of a bank robber or a computer hacker, but the true story is that fraud, and in particular fraud perpetuated through hacking of the consumer or business computer systems has been the main topic of concern ever since 2016. It is a serious concern that threatens vulnerable real estate transactions. The thief does not even have to be near the location where the fraud will be perpetuated. They can, in fact, be on the other side of the world.
Let’s look at a synopsis of when funds go in and out in a real estate sale/purchase transaction. Due to time sensitivity of the contracts signed and conditions to be performed, there are many opportunities when a hacker can get his hands on the money and disappear before the theft is caught:
What is the most popular method of communication today? E-mail. And here is where the savvy hacker steps in. All it takes is for a knowledgeable hacker to scout real estate agents (look, there is a For Sale sign with a company name!) or Yelp “escrow” or “title agents” and seek a way to hack into their email address. If these targets are not using a secured email address, they leave themselves open to someone taking it over.
The hacker doesn’t make their presence known but monitors the emails until they see the communications which indicate a transaction is in progress. Then it is a matter of stepping in by either (1) using a fake email address that looks extremely similar to the real estate agent’s or the escrow officer’s address, or (2) spoof their emails completely and impersonate them. An email is then sent with fake wire instructions asking for the transmission of funds. If the unsuspecting client takes those instructions without verifying with a phone call and wires out the funds, then, unless stopped immediately, the funds will be irretrievable and transferred all over the world within minutes.
Here is a true story of what happened in my office:
On a Friday afternoon before a long weekend our office received a call which gave our escrow officer a great deal of concern. The Buyer of a transaction wired $72,000 to us, the funds, she said, that we requested to close her escrow. Confused, our escrow officer researched the file and advised the Buyer that her transaction was not ready for closing funds yet and we never gave her instructions to wire the funds.
Within a few minutes the story came out: The Buyer received an email request from her real estate agent which had a wire instruction attached. Upon receipt and without checking with us first the Buyer wired the $72,000 requested. The instruction was printed on simple letter paper with our escrow company’s name in block letters but without our logo or address. They were asked to wire to “Juan’s Grizzly, Inc.” (seriously) at a certain bank and account number. The clients went to their bank to send the wire first, then called us after they got home.
Where did the fake instructions come from? The instructions were in an email that supposedly came from the real estate agent. The email address was correct, but on further contact the agent came to the realization that her email had been hacked and her transaction emails were intercepted without her ever having seen them. The fake email was sent from her email account by someone else. Isn’t that scary?
Within minutes after tracing the chain of events we immediately told the Buyers that they must call their own bank, the recipient bank and the FBI Internet Crime Complaint Center (IC3) to report the possible loss. We could not do the reporting as we were not the ones with the potential claim. By the time the calls were made, her funds were already en route to the hacker’s bank.
The Buyers spent the whole long weekend in a state of panic. On Tuesday they were notified by their own bank that the recipient bank refused to take in the wired funds because the account name on the incoming wire did not match the name on the account. Although they sent the money to the bank and account number on the fake instructions the Buyers at least had the presence of mind to put our escrow company’s name as the payee and not “Juan’s Grizzly, Inc”. Thank goodness there is a Fairy Godmother watching!
Thankfully the Buyer got their money back but it was a very close call. Consumers do not realize that banks do not have the obligation to check or match the name of the payee to the name of the actual account. All they check is that they have the account number in the bank.
The real agent was told to immediately change her email address and have her computer scrubbed. How she picked up the hacker was unknown but the National Association of Realtors® as well as the California Association of Realtors® acknowledge that the practice of using public email servers like Yahoo, Gmail, Hotmail, AOL, etc. make the real estate agents very susceptible targets for hackers.
Thankfully, this story had a happy ending, but unfortunately there are many other ones that do not. Until all consumers are educated, and perhaps Congress passes bills that will force the banking industry to take on more responsibility for their part in preventing wire fraud, there will always be those unsuspecting victims who lose their life savings because they are insufficiently aware of the fraudsters spying behind their shoulders.
There are questions to ask. First and foremost, what can be done to protect the integrity of the transaction and the funds? Here are some steps that we recommend to our real estate agents and clients:
Let me summarize: What are the Best Practices consumers and real estate agents should practice?
For the Consumer:
Juliana Tu, CSEO, CEO, CBSS, CEI, SASIP
2019 President, California Escrow Association
As you know by now, the State of California is known for making regulations based on numerous factors that have a direct effect on our pocketbooks (such as gas taxes, minimum wage, etc.). Recently there have been many discussions in our town about surcharges that consumers are charged. While we represent businesses, we also have quite a few resident members as well. Keeping that in mind, I just wanted to give you a little bit of information to hopefully give you a better picture of what businesses are faced with and the decisions they must make. This information affects businesses statewide, not just here in Duarte. Some cities and/or counties have even more obligations than ours.
Additional costs of doing business that have dramatically increased include:
The trends of additional costs being transferred to consumers can be handled in different ways depending on the company. Some examples of how they can appear are:
The use of credit cards costs businesses anywhere from 2% to 4% (or higher) of your bill for every purchase made. It is almost always tied to how you made your payment as well. Swiping, chips, keying, paying online, or phoning in your payment. All these options have different rates depending on what system the business has signed up for.
As you can see, business costs are going up considerably from multiple directions. No matter how much a company or individual appreciates your business, they need to be able to sustain themselves and be a responsible business operator for the community.
It is incumbent upon us as consumers to make sure we look before we make a purchase. Almost always, the business has notified us by displaying signs, postings around businesses, on menus or price sheets, websites, and on advertising or promotional materials.
On behalf of our Chamber business members, we thank you for patronizing our businesses. It helps keep our tax dollars here in town, supports employment, stabilizes our community and spurs economic growth in Duarte.
If you have any questions, please reach out to us. We’ll be happy to help.