Wire fraud is a HUGE problem that only keeps getting bigger and bigger.
In fact, U.S. Representative Randy Hultgren (R-III) wrote a letter to Fed Chairman Jerome Powell on June 29th urging the Fed to be more proactive in regard to wire fraud and real estate transactions. The letter referenced the United Kingdom’s system of matching payees’ names as a possible solution to the problem of wire fraud.
However, we don’t have to wait until a federal law is passed that orders banks to match the payee name on the wire transfer payment to name on the payee’s destination bank account (“Beneficiary Bank”).
As title and escrow agents, we can be proactive and in partnership with the banks with which we do business.
So, what can we do right now?
First, we can know what our Agreement with our Escrow Account Bank says.
Does your Bank Agreement say that your bank will check the payee’s name with the name on the destination account when a wire fund transfer is initiated?
Or, does it say your bank need only rely upon the account number it was provided in the wiring instructions order? The answers to these questions might lead to an opportunity to have a discussion with your partnering Receiving Bank.
We can also send the wire instructions on the payment order, with explicit directions that acceptance be restricted to match the designated payee’s name on the Beneficiary Bank account. If it doesn’t match, then do not send the funds.
Lastly, if something does go wrong despite our best efforts and precautions, then notify both the Beneficiary Bank and the Receiving Bank as soon as possible. Typically, banks require notification of an unauthorized transfer or error within a defined time period such as, for example, thirty or sixty days.
Aside from any contractual or legal requirement for early notification, the sooner the problem is communicated, the greater the odds of the bank being able to halt or pull back the wire funds transfer.
For a great explanation of how a wire fund transfer works behind the scenes, view “Funds Transfer Law and Unauthorized Payment Liability.”
The title and settlement industry is blessed with great people, and that makes sense because our industry is built on being helpful.
We all want a smooth, efficient transaction for everyone involved. Unfortunately, our desire to be helpful and to keep things moving makes us a prime target for wire fraud.
So, how careful do we need to be when verifying the legitimacy of an email or even an incoming phone call?
Fraudsters know about us. They know how busy we can be, and they know how to prey on our traits to overcome our data and escrow security training.
They aren’t just looking to trick us. They aren’t practical jokers. They are truly insidious “social engineers.”
A few weeks ago, I wrote a post likening email escrow fraud to Whac-A-Mole. I’d like to revisit that image for a moment.
A few years ago, scammers figured out what our industry does. Admittedly, it took them a while, but when they did, many agents started seeing a barrage of fraudulent emails. Title agents responded by tightening down on their policies and procedures.
The “mole,” however, always manages to find a weak spot where he can pop his head out of the ground. In our case, that weak spot is clearly the consumer.
Ah, the consumer…
We’ve all heard escrow fraud stories, and maybe you or someone you know has even had a wire diverted. The details can be pretty freaky.
See what you think of this one:
A young woman is selling a property and her father is the real estate agent on the deal. The father and daughter hand deliver wire instructions to the title agency.
Ten minutes after they leave, the processor at the title agency receives an email that looks like it’s from the daughter. The email says “My daddy” wants to change the wire instructions so the seller proceeds will go to a different account.
The processor doesn’t want to bother the daughter and feels comfortable that the email is legit given that it mentions the woman’s father. The processor marks the changed instructions as “verified” and sends them to the wire department.
The email was fraudulent. The wire was for nearly $300,000. In this case, the title agency was able to retrieve all the money thanks to quick action and more than a little luck.
The details always get our attention, but they can also distract us and make it hard to get ours hands around the basic ways escrow fraud tends to work.
Escrow fraud schemes tend to follow common patterns. Often, fraudsters hack the email account of the real estate agent or another party and monitor the account for upcoming closings.
As a closing date approaches, the fraudsters — posing as one of the parties to the transaction — interject themselves into the communications chain and seek to change wire instructions. Fraudulent communications usually come via email but also can be made via telephone or fax.
7 common scams we’ve heard about from our agents
- 1. THE SELLER SPOOF: A classic. Fraudsters, posing as the seller, email the settlement agent using an email address that looks like the seller’s, or even uses the seller’s actual email address. The criminals attempt to divert seller proceeds to a fraudulent account.
- 2. THE LATE SWITCHEROO: The settlement agent receives instructions from the seller regarding where to wire the seller’s sale proceeds. Then, before the closing, the settlement agent receives a message from an email address that looks like it is from the real estate agent instructing the settlement agent to wire the sale proceeds to a different, fraudulent account.
- 3. EARNEST MONEY HUSTLE: The settlement agent receives an email from an address that appears to be the real estate agent’s. The fraudster instructs the settlement agent to release the earnest money deposit back to the alleged client. The instructions direct funds to a fraudulent account.
- 4. THE BUYER BEWARE: Fraudsters pose as the settlement agent or real estate agent using an email address that looks like it is from one of them and instruct the buyer to wire his or her down payment funds to a fraudulent bank account.
- 5. THIRD-PARTY POOPER: In a transaction involving a third-party investor who is to receive seller proceeds: The fraudsters, impersonating the investor, using an email address that looks like the investor’s, provide fraudulent wire instructions to the seller. The seller conveys these instructions to the settlement agent who wires proceeds to the fraudulent account.
In addition, some frauds may not involve the buyer, seller or real estate agent. Here are some examples:
- 6. BUSINESS EXECUTIVE SCAM: Fraudsters, posing as the CEO or CFO of a title company, email an employee whose job includes transferring funds. The email requests an urgent payment to be made outside of normal procedures, often giving a pressing reason. The account to which payment is made is fraudulent. 7. THE VENDOR BENDER: Fraudsters, posing as a vendor of the title company, email the title company directing payment of an invoice to a fraudulent account.
- We’ve developed an infographic outlining these 7 Deadly Scams, and we hope that by familiarizing yourself with these basic patterns, you and your team will be better positioned to sniff out escrow fraud. You may also want to discuss common scams, like the Buyer Beware and the Third-Party Pooper, with your consumers.
On that note, Alliant National recently produced a white paper on escrow fraud as part of our ongoing effort to inform agents about the threats we all face. The paper provides real-life tips and strategies for keeping consumers informed about the important role they can play in helping to keep escrow funds safe.
I’ll be back next week with a post exploring some of those strategies.