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Understanding the Risk of Wire Fraud in Real Estate Settlement Services

Updated: Nov 9

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It may not be something you think about when you’re in the process of buying or selling a home, but wire fraud is actually a serious problem in the world of real estate. This deceptive diversion of funds is a gross invasion of privacy and security, which is why it’s so critical for all parties involved to understand how and why it happens.

It's equally important to learn how to identify possible fraud. Armed with this information, you’ll have an increased knowledge of your risk and can more effectively develop strategies to avoid wire fraud during the real estate settlement phase.

What Is Real Estate Wire Fraud?

Just as cybercriminals commit all sorts of other crimes online, they can do the same during your real estate settlement simply by scamming the people involved in the transaction. Through fraudulent means, they arrange to steal the funds and redirect it to their own accounts.

They can accomplish this through a variety of nefarious means. Their actions can affect everyone involved, including the buyer, seller, and real estate agent. Implementing strict security measures is vital to protecting every step of your real estate settlement.

How Do Criminals Commit Wire Fraud?

Scammers aren’t choosy in determining how to commit fraud and tap into your funds. Their aim is to impersonate someone involved in the transaction, take advantage of your trust, and fool you into diverting the money to them.

This begins with infiltration. The criminal behind the fraud typically accesses an email account of one of the involved parties, then monitors all of the communication that takes place. They’ll keep an eye on the transaction and wait for their opportunity to step in when they see an opening and request that the buyer wire the money to their bank account.

They may try to do this by sending you a phishing email alerting you to a potential problem or issue with your real estate transaction. This email may purportedly come from your attorney or agent, directing you to wire a specific amount of money — like your down payment or your closing costs — right away.

The email may contain any number of stories explaining why you need to pay them promptly. It might state that a check isn’t a sufficient form of payment and explain that wiring the funds is the only way around the problem, or it might say there was a procedural mistake and the only way to pay is via wire.

After wiring the money, you may hear from your actual attorney or real estate agent several days later stating that it’s time to pay your down payment and closing costs. You explain that you’ve already done so — only to find out from your lender that they never received any money.

What Should You Do if You Are a Victim?

Unfortunately, several days may pass before you discover that you’re the victim of real estate wire fraud. It’s critical to take prompt action to have the best possible chance of recovering the lost funds.

The first step is to inform your bank, or the service which you used to wire the money. Though organizations don’t typically stop the wire transfer once the money has actually reached the recipient, you might have an opportunity to recall the money if you contact the service quickly enough.

You may also have luck simply requesting a reverse transfer after explaining that it was fraudulent, according to the Federal Trade Commission. This may depend on the service that you used, but it’s worth trying nonetheless.

After contacting the bank or wire service, consider filing a report with the FBI’s Internet Crime Complaint Center, or IC3. Provide as much detail as possible in your complaint, including your banking contact information. The IC3 can then open an investigation into the fraud.

What Can You Do to Prevent It?

Real estate wire fraud can happen to anyone. One way to protect yourself is to take some precautionary measures in advance of closing. This will protect you and your transaction, and hopefully prevent fraud from occurring.

  1. Discuss Closing in Advance

Have a conversation with your real estate agent and lender about closing and what it entails before it actually happens. Go over the payment process, and communicate in detail with your lender about how you’ll wire the funds. This is a good opportunity to create a password that you can all use during closing to ensure that everyone is who they claim to be during closing.

  1. Be Careful with Emails

The emails that scammers send are typically very sophisticated. They don’t resemble standard scams featuring typos and unusual email addresses. They appear authentic, which is why they’re so easy for people to believe. If your instructions come through email, make sure every platform you use is password-protected and offers multi-factor authentication for an added layer of security. You should also call the involved parties to confirm the transaction before wiring.

  1. Question Any Sudden Discrepancies

A common trait in real estate wire fraud is the sudden nature of an “urgent” event calling for your immediate attention. Scammers do this to get your attention and to convince you to act quickly. Always confirm any type of communication with your attorney, real estate agent, and lender to be completely sure that everyone is on the same page.

Buying or selling a home is an enormous undertaking. It deserves your time, attention, and care — and by being as meticulous as possible, you can hopefully avoid being a victim of real estate wire fraud.

One extra way to protect your transaction is with title insurance from Buchanan Settlements. Once insured, you’ll feel far more confident — and you’ll be in the best possible hands with experienced professionals who understand the best ways to protect your transaction from start to finish. Visit our website to learn more about our services, or call us at (717) 762-1415 to speak with a representative today.

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