Days before I sold my house in December 2017, wire fraud criminals intercepted my mortgage payoff letter and changed the account number. Instead of directing the bank to deposit $239,000 into my mortgage account, the title company provided the criminal’s account number.
I received my proceeds at closing, but my mortgage was not paid off.
The fraud wasn’t discovered until twenty days after the closing. Too late for the bank to prevent the money from being withdrawn from the account.
Six months after the sale, the matter has not been resolved. The buyer and the lender filed a claim against the title company. The title company is suing my mortgage lender. It’s a mess.
Mortgage wire fraud isn’t a new issue to real estate professionals, but it persists because real agents, title companies, mortgage lenders and lawyers are doing a poor job of educating homebuyers and sellers.
According to the FBI, the average mortgage wire fraud crime is $129,000.
I’m a wire fraud victim, but I’m also a real estate agent and former practicing attorney. I should have known better.
How wire fraud happens
Like most real estate professionals, I was familiar with the problem, but I didn’t understand how the crime occurs and what I could have done to protect myself.
Wire fraud criminals get access to the email accounts of any parties involved in the real estate transaction. This includes employees at real estate brokerages, title companies, mortgage companies, settlement companies and law firms (in states which have lawyers at closings).
After the criminal gains access to email accounts, they monitor the email communication among the parties. They patiently wait for an email that has attached instructions to wire money. They download the instructions and change the payment information.
A fake email account of one of the parties is created. (It might be someone from the title company, a settlement agent, a real estate agent or an attorney.) The email will contain “updated” wiring instructions and will be sent to whomever will be making the payment. For example, it could be sent to the buyer who is wiring the down payment before closing.
When my mortgage payoff monies were stolen, the fraudulent wiring instructions were sent to the closing agent from an email address that looked similar to my attorney’s email.
The closing agent followed the instructions and wired the money to the bank, but into the criminal’s account. It was a valid account, but it wasn’t mine.
Bank regulations do not require banks to verify that an account belongs to the account holder named in the wiring instructions. Banks are only required to ensure money is deposited into a valid account.
Until these rules are changed, real estate professionals should educate their clients about the prevalence of wire fraud and how they can protect themselves.
Steps to protect buyers against wire fraud
Homebuyers should do the following:
- When they receive wiring instructions by email, check the sender’s email address. If the address is different from earlier emails, they should be suspicious.
- Call the sender at a phone number they know is valid. For example, it might be the main company number posted on the company’s website or from a business card. Do not call the number on the email.
- When speaking with the sender, ask if they sent wiring instructions. Verify that the information on the wiring instructions is valid. This includes the bank name, bank address, account holder’s name and account number and the amount of money.
- If the sender does not verify all the information, the attempted fraud should be immediately reported to the FBI internet crime center, www.ic3.gov.
- If the homebuyer needs to reply to the email from the sender, they should not “reply” to the email. Instead they should “forward” their message to a known email address.
- After the money is wired, the sender should call the receiving party to ensure it was received.
- Choose a tech-savvy title company that does not accept or send wiring instructions by email. Wiring instructions are available through a secure portal.
- Avoid wiring money and pay by bank check.
- Purchase an owner’s title policy. This adds a layer of protection to the lender’s title policy.
Steps to protect sellers against wire fraud
Sellers should also be vigilant.
- Before sending the mortgage payoff letter to the title company or attorney, sellers should call the recipient, verify the email address and ask the recipient to call them after the email is received.
- The recipient will likely ask the seller questions to verify the seller’s identity.
- When the recipient calls to confirm they received the payoff information, the parties should verify the information on the wiring instructions. This includes the bank name, bank address, account holder’s name and account number and the amount of money.
- Immediately after the closing, the seller should call the mortgage lender to verify they received the wiring instructions.
Spreading the word
Immediately after discovering my mortgage payoff was stolen, I began telling my clients about my experience. I also told other real estate agents, mortgage lenders, title company employees and lawyers.
I discovered that even highly experienced professionals are unclear on how the crime occurs and what preventative measures should be taken.
In an effort to explain the problem to my colleagues and clients, I created the video above, which explains why homebuyers and sellers should be afraid of wire fraud.
Rich Hopen is a real estate broker and agent at Redfin in the Greater New York City Area. Connect with him on LinkedIn and follow him on Twitter.
