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Guide to Wire Fraud for Title Companies

Industry Experts, Technology,
Published: May 09, 2024
Updated on: May 10, 2024
  by Editorial team
blog

Wire fraud is a major concern in the real estate industry, particularly for title and escrow companies, as they regularly handle high-value transactions, making them prime targets for wire scams.

In 2022, the real estate sector experienced $446 million* in losses due to business email compromise (BEC), which constituted 17% of all dollar losses in the U.S. 

Affected businesses have been forced to shut down operations as they’ve been unable to cover losses incurred in cyber frauds, raising concerns throughout the industry. 

And while technology is helping combat the spread of issues, dealing with wire fraud in real estate, requires a proactive approach. 

So let’s look at what you can do to protect your title business from falling victim to wire scams. 

But first. 

What Is Wire Fraud in Real Estate?

wire fraud real estate

Real estate wire fraud is a criminal act where a fraudster attempts to deceive a party involved in a real estate transaction. It typically involves wiring funds into an illicit account. 

The offender often impersonates a trusted party in the transaction process. For example, they act as the real estate agent or a representative of the title company to make their fraudulent request seem legitimate.

In a CertifieID survey, nearly 1 in 4 people reported being targeted with suspicious or potentially fraudulent activities during their closing process. 

The probability of encountering wire fraud during a property closing is estimated at 1 in 20. The significantly higher risk of these frauds makes it vital for any party to fully understand how they work. 

Here’s a breakdown. 

How Does Wire Fraud Work?

wire fraud real estate

Wire fraud typically follows a systematic process that leverages technology and psychological coercion to defraud unsuspecting victims. 

Criminals usually impersonate a trusted entity in a transaction to misdirect a wire transfer to a deceitful bank account. They can often provide incorrect wiring instructions through email, although they may also resort to traditional mail or phone calls.

Typically, the victim is at the closing stages of a transaction and is expecting to execute a wire transfer. Consequently, they might not question the authenticity of the false wiring instructions received from the scammer. The deceptive instructions are often convincing—with only the bank account number differing from legitimate instructions.

To safeguard against wire fraud, it’s crucial to verify wire transfer instructions independently using known and trusted contact details. Always double-check changes, especially those communicated via email, with your real estate agent, lawyer, or title company through a verified phone number or secure communication channels.

Wire Fraud Tactics to Look Out For 

buyers agent commission-a business person holding a house in both hand supporting hands on light brown table scale in economic downturn

Now, that we’ve looked at what wire fraud is, and how it works, let’s dive into the methods scammers use in trying to deceive title businesses. 

Phishing Attacks

Scammers usually acquire detailed knowledge about a real estate transaction through phishing. They employ phishing attacks to deceive individuals into divulging email or other account credentials. They usually target real estate agents, title and settlement providers, or the actual buyers or sellers involved in the transaction.

Once they gain access to someone’s email account, everyone participating in the transaction becomes vulnerable to potential fraud. These cyber criminals monitor ongoing communications to obtain specific details about an impending transaction and the fund transfers associated with the closing.

This knowledge enables them to impersonate a trusted participant in the transaction and defraud individuals by issuing bogus wiring instructions that appear genuine.

On average, real estate transactions take roughly 44 days to close. This extended period enables the scammer to understand the communication styles, timing, and responsibilities of each party related to the real estate closing. What makes these scams particularly threatening is the ample time available for the criminals to craft a highly believable impersonation of someone involved in the transaction.

Spoofing Techniques 

The use of spoofing techniques is a major contributing factor to the success of wire frauds. Scammers craft deceptive email addresses that closely resemble legitimate ones, making it difficult for victims to identify the deception. 

Scammers may also manipulate the sender information in an email header to conceal the actual source of the email. 

Furthermore, they design counterfeit websites that mimic real ones, misleading users into sharing login credentials or other sensitive information.

For example, titleagentcynyc@emailprovider.com might be altered to titeagencynyc@emaiIprovider.com

what does sfr mean in real estate edge of skyscraper on blue gradient -types of liens article

Malware Attacks 

The use of malware is another prevalent tactic in wire fraud in real estate. Fraudsters deploy malware to extract data from the victim’s device. 

This malicious software can also be utilized to secretly monitor communications or gain unauthorized remote access to systems. Often, this malware is disguised as legitimate programs, fooling users into downloading and installing it on their systems.

Psychological Tactics – Social Engineering 

Wire fraud scammers are adept at psychological manipulation. One common tactic they use to extract important transaction information is social engineering

Social engineering is a strategy where imposters use psychological tricks to exploit human vulnerabilities. They convince individuals through legitimately looking emails to share sensitive information or grant access without realizing the potential consequences. These scammers create a sense of urgency, compelling the victim to act hastily without proper scrutiny.

These emails create panic, stressing that delaying the fund transfer could jeopardize the entire home deal. It usually includes new wiring details, directing the buyer to send money to an account controlled by the hacker.

EXAMPLE Email:

Unaware of the scam, the buyer follows the new instructions and transfers the funds to the fraudulent account. The real estate agent only realizes something is wrong when the expected funds do not arrive.

This scenario illustrates how a hacker, after infiltrating an agent’s email, can manipulate the buyer into unknowingly sending money to the wrong account. It highlights the need for caution, double-checking instructions, and secure communication channels to prevent falling victim to such scams.

Preventing Wire Fraud: Tips for Title & Escrow Companies

Defending against wire fraud calls for a comprehensive and varied approach. Here are some strategies that title and escrow companies can implement.

1. Fraud Awareness

Educate your clients by sharing real-life examples of fraudulent emails, complete with screenshots, to illustrate common phishing tactics. For instance, highlight discrepancies in email addresses, unexpected attachments, or urgent language used to pressure recipients. This visual aid can make it easier for buyers to identify and dodge similar traps in their own transactions.

2. Wire Instruction Vigilance

Be vigilant about any last-minute changes to wire instructions, which are a red flag for potential fraud. For example, if a client receives an email requesting an urgent change in the payment destination, it should immediately trigger verification protocols. Stress the importance of always confirming such changes through a secondary, verified communication method like a phone call to a known number.

3. Email Security

Encourage clients and staff to use business emails when exchanging financial information, as these systems usually have enhanced security measures compared to personal accounts. Explain the risks of using less secure services, such as interception or hacking. Advise setting up multi-factor authentication and strong, unique passwords for an additional layer of security.

4. Bank Communication

Inform clients that banks typically do not request wire transfers via email. For instance, if a client receives an email supposedly from their bank asking to transfer funds unexpectedly, it’s likely a phishing attempt. Highlight the protocol of contacting the bank directly using a phone number from official documents, rather than any contact information provided in a suspicious email.

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5. Warning Signs and Actions

Equip buyers with a clear list of red flags such as unexpected requests for secrecy, high-pressure tactics, or grammatical errors in supposedly official communications. Encourage them to pause and consider the legitimacy of any communication that feels “off.” Advise them to reach out to their real estate agent or escrow officer through previously verified contact information before acting on questionable instructions.

6. Consistent Wire Instructions

Set a protocol where wire instructions are issued well in advance of the closing date and clearly state that these instructions will not change. If any communication suggests otherwise, it should be regarded with suspicion and verified immediately. This consistency helps clients feel secure and reduces the likelihood of fraud.

7. Verification Call

Recommend that clients always make a verification call before executing a wire transfer, especially if any aspect of the transaction raises doubts. Provide them with a list of verified numbers for their agents and your office at the beginning of their transaction process. This step ensures that even if fraudsters compromise email communications, they cannot easily redirect funds without detection.

To Wrap Up

white house with a red roof mortgage payoff

Wire fraud poses a significant threat to the integrity of real estate transactions, particularly for title and escrow companies. To safeguard against these sophisticated scams, it’s crucial to implement robust security measures, educate clients about the risks, and maintain stringent verification processes.

 By staying vigilant, verifying all communications independently, and fostering a culture of security awareness, your company can protect itself and its clients from the devastating impacts of wire fraud. 

Remember, the best defense is a proactive approach—ensure your team and clients are always one step ahead of fraudsters.

Interested in more tips on safeguarding the future of your title business? Subscribe to Rexera’s blog. We’ll keep you updated on all the essential real estate developments. 

*  Source: https://www.certifid.com/state-of-wire-fraud

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