October 2024 marks the 21st National Cybersecurity Awareness Month. For the sake of nostalgia, you may remember what the internet looked like in 2004. Social media was in its infancy with platforms like MySpace and AOL Instant Messenger rapidly attracting new users; a college email address was required to join the more-exclusive Facebook; and, for most Americans the ideal cell phone boasted a camera.
While “cybercrime” was also a new-fangled term in 2004, primitive tactics like the “Foreign Prince in Need” phishing scam come to mind. It’s less likely that today someone would fall for an email riddled with typos offering to send money, after sharing their bank account information. Although technology and the internet have made unprecedented advancements over the past 20 years, fraudsters unfortunately have also become more deceptive. Not to mention that since AI and deepfake technology have now been added to the toolbelts of these fraudsters, it’s safe to say the average consumer needs to be more vigilant than ever in staying protected from cybercrime.
Those in the market to buy a home need to be especially vigilant. In 2023, business email compromise (BEC) accounted for
$2.9 billion in losses, which was 23% of all cybercrime losses. Of that $2.9 billion, the real estate industry’s losses were a total of $443 million. No party in the real estate transaction is immune as a target of fraud, with buyers losing a median of $72,000, sellers losing a median of $70,000, and title and law firms losing a median of $257,000 to wire fraud last year alone.
With all of this in mind, agents should remember the following best practices for protecting their clients from cybercrime:
1. If you are facilitating the sale of a vacant lot, ask your title company whether any methods of verifying ownership of the lot will be provided, prior to proceeding with the transaction.
2. Double check the wire instructions and payoff amount prior to accepting any transfer of funds. Don’t let a tight deadline or limited time to distract you from verifying this information.
3. Be on the lookout for a phone call from your title company before funds are wired. If your title company isn’t accustomed to doing this, encourage your title representative to call first.
As a Director of Operations of four title companies, I can attest to the fact that my team of title service representatives stand side by side with real estate agents, on the front lines of battle every day in the war against cybercrime. Here are three recent cybercrime trends that have become increasingly popular, and how title companies and real estate agents can work to safeguard all parties involved in the transaction.
1. The Vacant Lot Sale Fraud
In some alarming instances, an out-of-state seller has initiated the sale of a vacant lot through a private transaction. The seller, claims “he could not attend the closing,” and requests a deed package. The necessary documents, including a notarized driver’s license and wire authorization, are sent back to the title company. However, the receiving bank later flags the transaction, revealing that the seller was involved in multiple wire fraud schemes. The notary’s seal had been fraudulently used, and the real seller was unaware of the transaction. Fortunately, the wire can be returned, and the property is eventually sold to the buyer.
• Prevention: Title companies can work to send a verification letter to the record owner of a vacant lot to confirm the seller’s involvement.
2. Intercepted Payoff Update
Another recent trend involves a settlement that’s delayed multiple times, necessitating several payoff updates. A fraudster can intercept the final update by hacking the real estate agent’s email and altering the wire instructions. The change goes unnoticed, and the funds are mistakenly sent to the fraudster’s account. This incident underscores the importance of meticulously reviewing payoff amounts and wire instructions to prevent such occurrences.
• Prevention: Due diligence should be performed to ensure the payoff is carefully reviewed for the accurate payoff amount and appropriate wire instructions.
3. Fake Email Scam
In a particularly costly scam, a buyer fails to verify the wiring instructions and falls victim to a fraudster’s email, which alters the instructions and uses a fake email address mimicking one of the title company’s team members. As a result, the buyer wires tens of thousands of dollars to the fraudulent account, and the funds cannot be recovered. This is an opportunity for improvement in our industry, since according to ALTA, less than 25% of diverted funds were recovered in 26% of real estate transactions in 2022.
• Prevention: The title company should advise buyers to call and verify instructions, though not all follow this advice. As an agent, when it’s almost time for funds to be sent, be on the lookout for inbound calls regarding wire instruction confirmation. Don’t let a tight deadline stop you from performing your due diligence here.
The Role of Client Education
These examples illustrate the diverse tactics fraudsters employ, and the devastating impact they can have on real estate transactions. To combat wire fraud effectively, it is imperative that we, as industry leaders, prioritize client education. Here are key strategies to consider:
1. Proactive Communication - Regularly communicate with clients about the risks of wire fraud and the importance of verification. Use multiple channels, including emails and in-person meetings, to reinforce this message.
2. Verification Protocols - Implement and promote strict verification protocols. Encourage clients to always call a known, trusted number to confirm wiring instructions before transferring any funds. This simple step can prevent many fraud attempts.
3. Education and Resources -
Provide educational sessions and resources for clients to help them recognize potential fraud schemes. This can include webinars, informational brochures, and dedicated support lines for fraud-related inquiries.
4. Collaboration with Financial Institutions - Work closely with banks and financial institutions to develop and implement robust fraud detection and prevention measures. This collaboration can enhance the overall security of transactions.
5. Incident Response Plans - Develop and communicate clear incident response plans. Clients should know what steps to take if they suspect fraud, including who to contact and how to report the incident promptly.
Cybercrime is a pervasive threat that requires a concerted effort to combat, and since the inception of National Cybersecurity Month, it’s evolved a lot. By educating our clients and implementing stringent verification processes, we can significantly reduce the risk of fraud in real estate transactions.
As leaders in title and real estate, it is our duty to set the example, fostering a culture of vigilance and proactive prevention. Together, we can safeguard the integrity of our industry and protect the interests of our clients. Let’s work together to combat wire fraud and ensure the safety of our transactions.
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About Stephanie Witmer
Stephanie Witmer is the Director for the Anywhere Integrated Services National Operations Center in the Northeast region. With an impressive career spanning 40 years in the real estate and title insurance industries, Stephanie brings a wealth of experience and expertise to her role. She has dedicated 32 years to AIS, where she has become a specialist in commercial transactions. Her extensive knowledge and leadership have been instrumental in driving the success and growth of the operations center.
This material is meant for general illustration and/or informational purposes only. Although the information has been gathered from sources believed to be reliable, no representation is made as to its accuracy. This material is not intended to be construed as legal, tax or investment advice. You are encouraged to consult your legal, tax or investment professional for specific advice.
