Imagine being a first-time home buyer desperately seeking a house. After months of looking, deals falling through, and inspections revealing major defects causing your search to extend, you find a house that is perfect. The seller’s agent pressures you to pay the closing costs and down payment with haste. They send you instructions in an email on how to wire the money needed for closing. However, what you didn’t know was that the last email was actually sent by a hacker, and the money you sent was routed to them instead. Home buyers have lost hundreds of thousands of dollars to real estate wire fraud scams, and the number of victims is growing.
What is Real Estate Wire Fraud?
Real estate wire fraud is a type of phishing scam in which criminals trick buyers into sending money to fraudulent bank accounts. This can occur in various ways. However, the scam commonly happens right before closing using a wire transfer as a payment method. The criminal will use deceptive tactics to trick the buyer into believing that they are communicating with the seller’s agent or title company. In actuality, they are communicating with a scammer.
How Real Estate Wire Fraud Can Occur
According to an FBI report, financial losses due to email scams in the real estate industry spiked between 2020 and 2021, rising from $258 million to $446 million. The surge stemmed from an overreliance on email communications because of the pandemic.
The number continues to increase, and actual losses are likely higher since many scams go unreported by victims. Criminals have multiple ways to carry out the attack. However, real estate wire fraud scams mostly rely on account breaches and email spoofing to defraud first-time home buyers.
Exploiting Email Communications
The scam begins with the cybercriminal gaining unauthorized access to the account of a party involved in a real estate transaction, like a buyer or real estate agent. Once they have access, they secretly monitor the email messages to identify ongoing real estate transactions. They wait for an opportune time to strike, which is typically at closing.
Scammers will then spoof the email of a party involved in the transaction to trick the buyer into sending a payment to the wrong account. For example, a criminal will change one letter in a real estate agent’s email and send the first-time home buyer fraudulent wiring instructions. Scammers will replicate the email address, messaging, official signature, and closing costs needed to gain the buyer’s trust.
Fraudulent Real Estate Investments
Wire fraud is also a common occurrence in the context of real estate investments. Investors are open to opportunities that could potentially grow their capital. However, many real estate investments are scams designed to steal your money.
Scammers use enticing investment opportunities to draw in victims and, in some cases, will pose as legitimate organizations, firms, or agents to gain trust quickly. In addition, scammers have been known to gain unauthorized access to the email of legitimate parties involved in the investment. Similar to real estate transactions, criminals will monitor, intercept, and insert themselves in the email thread to provide fake wiring instructions.
Factors that Contribute to Real Estate Wire Fraud
There are many factors that contribute to the rise of real estate wire fraud. The crime surged after the COVID-19 pandemic and the normalization of remote transactions. However, other factors influenced the spike as well. Here are the main factors to take note of.
- Buyers are unaware of wire fraud scams. According to a recent CertifID report, 52% of consumers were “not aware” or only “somewhat aware” of real estate wire fraud.
- Lax cybersecurity protocols. The real estate sector has been slow to adopt the necessary security protocols to protect buyers and sellers.
- Targeting first-time home buyers. Scammers primarily target first-time home buyers due to their lack of experience with real estate transactions.
- Older buyers are less tech savvy. CertifID reported that there was a gap in digital awareness between younger and older U.S. citizens. Only 9% of Americans aged 34 or younger were unaware of wire fraud risks before closing on a property. However, that number doubled when it came to Americans 55 years and older.
Can Money Lost Be Recovered?
Losing money in a real estate fraud scam can be devastating. Thousands of dollars can be stolen along with losing any real estate assets you were hoping to purchase. While it is possible to recover money lost in a real estate wire fraud scam, the process is extremely complex.
Recovering funds is largely dependent on speed. The sooner financial institutions are notified of fraudulent transactions, the better their chances of reversing or canceling the transfer. Once the money transfer is deposited into the recipient’s account, the transaction is almost impossible to reverse. There are other factors that heavily influence the success of recovering lost funds.
- The type of payment. Transactions with little to no electronic records are difficult to trace. This includes gift cards, cash payments, and prepaid cards. Cryptocurrency also obfuscates payment information, making tracing and recovering funds almost impossible.
- Destination of transactions. International transactions can complicate the recovery process. Other financial institutions and local laws may have different policies to comply with when it comes to recovering stolen funds after a real estate scam.
- How quickly the fraudulent transaction was reported. Victims need to report fraudulent transactions as soon as they can. This minimizes the chance of the funds being withdrawn or transferred to other accounts before the banks can get to them.
- The cooperation of financial institutions. Banks are an essential variable in tracing and stopping funds. They have access to private financial information, as well as policies against fraud to protect consumers.
- Documentation and evidence of the crime. Recovery services are not provided for just any transactions. There has to be proof of fraud through evidence such as messages and financial records.
Real-World Cases of Real Estate Wire Fraud
Even though cases of wire fraud have surged, awareness is still not where it needs to be to protect home buyers. One of the best ways to prevent these cybercrimes is to learn from real stories. That’s why we have compiled a couple of cases of real estate wire fraud to help buyers understand how these scams can happen.
Buying a First-Time Home Gone Wrong
Carly Andreatos was a first-time home buyer when she became a victim of real estate wire fraud. Her attorney’s paralegal sent her an email with instructions on wiring the down payment and closing costs for a house. The total came out to $22,890. She wired the money without thinking, not wanting to delay closing. However, she learned the next morning that her attorney never received the money.
She realized that she had been scammed, and the last email she read was fake. Andreatos was unsure if she would ever get her money back and as of today, there isn’t an update on her financial status.
Real Estate Wire Fraud Ruins Family’s Home Purchase
In 2015, Oliver Ellerbe was looking to bring his senior parents closer to him in Houston. They found a house that was just a five-minute drive from his home. At a real estate auction, he made a winning bid for $150,000. Days before closing, Ellerbe received an email from what appeared to be his real estate agent at Keller Williams. The message stated that the wiring instructions had changed. Soon after, he went to the bank and sent the money to the new bank address.
However, on the morning of closing, the title company emailed Ellerbe asking about when he was going to send the money. His heart sank as he realized that he had sent his money to a scammer.
How to Protect Yourself from Real Estate Wire Fraud
Home buyers need to take it upon themselves to protect against wire fraud scams. Scammers rely on social engineering to trick buyers into making a mistake. However, there are best practices you can follow to ensure your payments are safe.
- Do not make payments on Fridays or before holidays. It’s best to avoid sending payments on Fridays or before holidays. Title companies or real estate agents typically take off during these time periods, which means that you won’t be notified of the lost funds until days after.
- Always verify the information and sender. You should always verify wiring instructions and the address of the sender. Look for spoofed emails with one letter off or different domains. Stay skeptical of any emails with wiring instruction changes as well. You can confirm these changes over the phone, in-person, or by emailing the official email yourself in a new thread.
- Secure your accounts. Update your password and make sure that two-factor authentication is enabled for more protection. You should also avoid clicking on any suspicious links or attachments in emails.
- Act immediately if you suspect fraud. Report the scam to the bank and local law enforcement quickly. You should also notify the FBI’s IC3 division. Time is of the essence in real estate wire fraud scams, and there is not a second to spare.
