Fraudsters Are Targeting Homebuyers

When asked why he became a bank robber, the infamous Willie Sutton said, “Because that’s where the money is!” By the same reasoning, real estate fraudsters are aggressively targeting uninformed homeowners and poorly represented homebuyers. The internet is becoming a high-risk highway for real estate transactions.

There are countless stories about hackers committing online scams and wire transfer fraud by mining publicly listed data or intercepting email messages. Due to the many stakeholders involved in most real estate transactions, the frequent use of digital communications, and the large sums of money exchanged under tight deadlines via wire transfers, scammers use social engineering and artificial intelligence to insert themselves into the transaction and steal the money.

Common Wire Fraud Scenarios

Real estate wire fraud scams typically involve the impersonation of an escrow officer from the title company. Scammers use access to public information or illegal phishing tactics to gain access to email accounts. They use this access to monitor email communications and insert convincing, fraudulent wiring instructions into the transaction.  

• Last-minute changes to wire instructions – A scammer impersonates a real estate agent or broker, escrow officer, or mortgage lending officer and sends fake instructions via email to divert funds to the scammer’s account. While these last-minute emails may contain appropriate company letterhead and logo from trusted sources, the red flag is “urgent” need to make the wire transfer. The urgency is tactfully intended to provoke an emotional reaction, which pressures the buyer to act without thinking to avoid the “fake consequence.”

• Phishing email attacks – During the past decade the prevalence of phishing emails is pervasive. Since real estate brokerages, title and escrow companies, and mortgage lenders have software, firewalls, and employee protocols to protect their email systems these sophisticated hackers tend to target unsuspecting home buyers. Once the hackers gain access to the buyer’s email account, they monitor the follow of messages involved with the real estate transaction and send their “fake instructions” at the opportune time.

• Email account spoofing – Scammers use a tactic called “spoofing,” which actually mimics the email address of a real estate agent, title and escrow company, or mortgage lender. These spoofed accounts are used to send seemingly normal messages to the buyer with new wire transfer instructions.

• Impersonation of assistants – Some personable scammers impersonate an assistant to the buyer’s real estate agent or escrow officer. These convincing impersonators unexpectedly call the buyer to “confirm” the fraudulent wiring instructions provided in a previous email. These calls are intended to add a layer of legitimacy to the fraud scheme.

• AI-generated voice messages – The advent of artificial intelligence and its rapid adoption by scammers is especially disconcerting. This is a highly sophisticated form of “impersonation” that involves using AI to generate voice messages from the buyer’s actual real estate agent or escrow officer to further enhance the legitimacy of the fake wire transfer instructions.

• Title fraud – Scammers use a fake identity to impersonate a property owner and sell a property they don’t own to a buyer who believes they are getting a great deal. The advent of “virtual transactions” has increased the prevalence of these fraudulent “off market” property sales that are conducted directly between the parties without the involvement of real estate brokers, title companies, and escrow officers.

Although first-time homebuyers are three times more susceptible to these scammers, even experienced real estate professionals have fallen victim to wire fraud. 

Wire Fraud Prevention

While the responsibility for protecting clients from wire fraud is borne primarily by the escrow officer the vigilance should be supported by the real estate professional.  All real estate agents should follow Benjamin Franklin’s sage advice, “An ounce of prevention is worth a pound of cure.” Clients trust their real estate agent to protect them from costly mistake and fraud schemes. Sending the client a Wire Fraud Warning, along with numerous other documents, which they execute expeditiously via DocuSign, isn’t enough in the contemporary digital world. Reliable real estate agents must do more:

• Educate Clients – Including Wire Fraud Warning among the many documents provided to clients is not enough.  The warning must be reviewed with the clients. Moreover, the warnings should be reviewed before each wire transfer.

• Security Briefings – Any time an escrow officer sends any comminution that alters the original wire transfer instructions warrants verbal confirmation. Verbal confirmation should be conducted personally in the escrow office or via telephone – never by text message or email.

• Enhanced Verification – Real estate agent must stress the need to verify wire transfer instructions with the escrow officer via a phone or text message prior to every wire transfer. This procedure is especially necessary if a new escrow officer becomes involved in the transaction.

• Trusted Partners – Real estate agents should recommend at least two or more trustworthy title companies to their buyer clients.  If the title company has been selected by the seller, the buyer’s real estate agent must verify the trustworthiness of the title company and the escrow officer assigned to the transaction.

• Use a Trusted Financial Source – Although many younger home buyers are very comfortable using mobile banking for daily transactions, and a growing number are using the Automated Clearing House (ACH) network for direct deposit of payroll, bill payments, and transfers between their bank accounts and services like PayPal, Venmo and Zelle, the much larger transfers of “good funds” are not commonplace. Therefore, it is prudent, and often necessary, to complete a wire transfer form with the buyer’s and seller’s financial institutions to arrange for the timely transfer of assets from the buyer’s account to the designated escrow account, and then to the seller’s account. A second option is to have the financial institution issue a Cashier’s Check for the good funds so the buyer can deliver it personally to the escrow officer.

• Always Verify Changes – The phrase “trust but verify” was popularized by President Ronald Reagan. While this means the parties in a real estate transaction should have good faith in the others involved, it is essential to have systems or protocols in place to verify all changes introduced into the transaction and to verify that promises are being kept. For buyers, any unexpected changes initiated by another party, by an email or voice message, should be verified by calling a valid contact number of the apparent sender of the message for verification.

Certainly, first time buyers will be anxious using a wire transfer so they are more likely to be cautious and seek advice from their trusted real estate agent whenever changes arise during the transaction. It is usually the slightly over-confident, experienced buyers with a “been there – done that” attitude who succumb to these increasingly sophisticated scammers. 

Title Pirate Scams

Two experienced real estate developers in Connecticut buy vacant land, build houses on the lots, and sell the new homes. Since they conduct the transactions without escrow, the developers give their check for the land purchase to the land owner’s lawyer, and the lawyer closes the deal with the land owner, files the new title (warranty deed) with the county clerk, and sends the original title / deed to the developer.

One time these developers discovered a property listed for sale at an enticing price, so they performed their usual due diligence related to registered ownership, zoning regulations, boundaries, and everything appeared favorable to them. They proceeded to execute a contract to purchase the land virtually, presented a check for $350,000 to a lawyer representing the land owner, and closed the deal.

The developers invested an additional $800,000 building a new custom house. Just prior to completion of the home, the developer’s lawyer notified them that the person who “sold” the land to them was not the actual owner of the property. The actual owner, Daniel Kleinberg had no intention to sell the land and his lawyer informed the developers they were trespassing on the property.

These experienced homesite developers were victims of a “title pirate,” someone who steals the title to a vacant and neglected lot. The fraudulent transaction was eventually settled in court when the developers paid Kleinberg $965,000 to preserve ownership of the house they constructed. The scammer got away with the developer’s original $350,000 payment.

According to the National Association of Realtors, 63% of their members acknowledged they were aware of title fraud occurring in their local market during the past year. Of the known cases, 52% of title fraud schemes involved vacant land, under 20% involved detached single-family homes, and 12% involved an existing owner-occupied home. Data indicates that 40% of homeowners are living mortgage-free. Since many of them are retirees, they are especially vulnerable targets of scammers.

Fake Home Listing Scams

More than 85% of prospective home buyers are conducting internet searches to locate property listings. As more real estate information reaches the public domain it increases the potential for impersonations and fake property listings. 

Amazon and other companies have made virtual shopping an aspect of daily living. The comfort of making increasingly more expensive purchases via the internet has evolved to purchasing new vehicles virtually from Tesla and used vehicles from Carvana. More recently, Zillow introduced the online purchasing of homes for resale. Although that endeavor was not successful, it spawned the rise of Opendoor, a completely online real estate company that functions exclusively as an “iBuyer.”

Opendoor buys homes directly from homeowners for cash, arranges for repairs to made, and then resells them. The transactions are completed virtually so they eliminate the need for real estate agents to host open houses; however, they do allow a prospective buyer ‘s agent to conduct an actual showing of their listed properties. Nevertheless, an increasing number of homes are being purchased exclusively online by investors to “fix and flip” to manage as rentals.

Unfortunately, even legitimate real estate companies that conduct legal transactions via the internet also provide opportunities for fake home listing and home purchasing scammers. These scammers especially place prospective home buyers at risk during a seller’s market when multiple offers on a home heighten buyer’s emotions and necessitate quick decisions.

Visiting a listed property is an appropriate way to verify the property actually exists, matches the online photographs, and appears to be for sale. A reputable real estate brokerage sign with the listing agent’s contact information adds to the legitimacy and permits verification from the listing agent. 

The prospective homebuyers who are most susceptible to fake listings are those who believe they can save money by purchasing a home directly from a homeowner. This “penny wise, dollar foolish” strategy eliminates most of the protections a trustworthy real estate agent provides for a homebuyer.

Steadfast Trust, Resourceful Results

At Wessberg Luxury RE we strongly believe that quality relationships are based upon shared values, mutual respect, and trust. Hence, we emphasize the concept of Steadfast Trust, Resourceful Results because quality relationships are necessary to accomplish lasting results.

In his book, The Speed of Trust author Stephen M.R. Covey argues that trust is the most critical asset in both personal and professional life. A high level of trust accelerates results, decreases costs, and strengthens relationships. Covey emphasized that building trust involves character and competence.

• Character defines the nature of individuals and forms the foundation of trust between them. Character defines who we are. It is primarily demonstrated through integrity and intent. Integrity extends beyond honesty to being whole, seamless, and congruent – it leaves no gap between what we say and what we do. Intent relates to our motives, agenda, and purpose in every situation – it is the why behind our actions.

• Competence is defined by capabilities and results. Capabilities are inherent talents or become acquired skills, knowledge, and style. Whereas character defines who we are, competence defines what we can do, and results are what we’ve done. Ultimately, results are determined by our resourcefulness and ability to demonstrate dependable and reliable performance – it is the how behind our credibility.

Real estate agents are the most commonly impersonated professionals in fraud schemes. This is why Wessberg Luxury RE takes fraud prevention seriously. We believe client education is the best defense against wire fraud, fake listings, identity theft, and agent impersonation. As fraud scams continue to evolve in the real estate industry, Wessberg Luxury RE will maintain awareness and vigilance to protect the investment and identity of our clients. Therefore, fraud prevention will always be a priority at Wessberg Luxury RE. We are committed to ensure that every real estate transaction entrusted to us will be safe and successful.