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What is Email Wire Fraud - And How Do You Prevent it?

Nearly gone are the days when real estate settlements are closed in-person with all parties huddled around a closing table to execute closing documents and exchange settlement funds via checks or physical currency.

Instead, arguably one of the most important parts of a real estate settlement – the exchange of sales proceeds – takes place electronically. As a result, sophisticated hackers have seized on the increasing use of wire transfers by developing clandestine schemes to fraudulently divert wired closing funds to their own bank accounts. These schemes often work out for the fraudsters even after the fraud is discovered, because it is next to impossible for a bank to reverse a wire transfer after it has been initiated.

How Email Wire Fraud Happens
In a recent Virginia case, Deutsche Bank engaged two companies to assist with real estate closings. One of the companies (Altisource) communicated payoff instructions to the other company for closing. Prior to closing, a hacker obtained access to confidential email communications containing the financial information of Altisource’s customers, including Deutsche Bank.

In doing this, the hacker mimicked Altisource’s email address and provided fraudulent wiring instructions to the other company, who received the settlement funds from the buyer and wired the funds to a bank account that belonged to the hacker (believing the funds had been wired to a Deutsche Bank account). Ultimately, the parties had to resort to complex and protracted litigation to determine who would bear the loss once it became clear that the diverted funds could not otherwise be recovered.

How to Prevent Fraud From Happening to You
Any individual or company involved in a real estate transaction should consider a few precautionary measures shortly before and on the day of closing:

  1. Always verify the genuineness of each wire transfer request. Call the person sending the wire transfer information using a number you have previously called — not one from the current wire transfer request— to orally confirm the request and the instructions that have been included with it.
  2. If you are unable to get in contact with the requester as mentioned in #1 above, are unsure about the identity of the sender of wire instructions, or are otherwise suspicious of the account information contained in the instructions, immediately call the title company/settlement attorney to confirm the instructions with them before initiating the wire.
  3. Carefully review any emails that contain wire instructions to ensure the email address being used and the signature block in the email matches (exactly) with prior emails that you have received from the requesting party.
  4. Do not click on links, open attachments, or provide sensitive information through a suspicious email or text message, even if the sender claims to be a reputable company.
  5. Keep security patches and anti-virus programs up-to-date on your computer and mobile devices.

Larry Lerman is a commercial transactions attorney who closes deals for real estate owners and investors, banks, and other businesses. For more, contact Larry at 301-657-0163 or lglerman@lerchearly.com.

This content is for your information only and is not intended to constitute legal advice. Please consult your attorney before acting on any information contained here.

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