The very nature of real estate transactions—large amounts of money transferring between parties—makes them a prime target for criminals.
Increasingly, financial institutions and home buyers are falling victim to wire transfer scams connected to real estate closings. According to a warning issued by the Federal Bureau of Investigation, the number of fraudulent wire transfer scams reported by title companies and closing agents to the FBI’s Internet Crime Complaint Center increased by 480 percent in 2016. This type of fraud was reported in all 50 states.
What makes this type of scam so enticing to criminals and easy to pull off is the nature of the real estate closing process, which is often hurried, and the fact that email is a commonly used method for providing legitimate instructions for sending funds at closing.
Here is how the fraud works:
- A fraudster hacks into a title company or lender’s email server or computer system to search for upcoming real estate closings; and
- The fraudster then emails the buyer or financial institution with bogus wire-transfer instructions related to a particular real estate loan closing.
The buyer or financial institution then follows the bogus instructions to generate the wire transfer request. Once the funds are sent, the criminal moves on.
Unfortunately, this fraud is usually only discovered when the title company or closing agent informs the buyer or financial institution that they did not receive the anticipated funds.
Credit unions can guard against this type of fraud in the following ways:
- Establish procedures to call the title company back with a confirmed phone number to verify the legitimacy of wire transfer instructions received by email or fax;
- Establish a passcode with the title company or closing agent in advance to be used in conjunction with your call back and verification process;
- Require the title companies your credit union works with to use encrypted emails when sending wire transfer instructions;
- Verify if your member received the wire transfer instructions by email and, if so, verify the instructions and information with the title company or closing agent separately prior to sending the funds on the member’s behalf;
- Look for common red flags that are associated with any compromised email, such as misspellings, poor grammar, a sense of urgency, and emails sent outside of normal business hours; and
- Be suspicious of emails that contain changes in payment type, such as changing from a certified check to a wire transfer, or account numbers at the very last minute.
Finally, it’s important to educate your members about the possibility of this scam and how to protect themselves. Remember, the member could be liable for the loss of funds, so it’s critical they know how to spot the warning signs for this type of fraud.