Mortgage and real estate professionals need to do a better job of educating consumers and themselves about the growing vulnerability to wire fraud schemes during the home buying process.
Most real estate professionals "know of the problem but they don't understand how it occurs and what to do to prevent it," said Rich Hopen, a real estate professional himself who was victimized when he sold his home. "Buyers and sellers are unaware of real estate wire fraud."
Even though there are wire fraud messages on email footers and even disclosures signed by buyers and sellers, the consumers are not getting the message and so the notices are not doing the job, Hopen added at the launch press conference of the Coalition to Stop Real Estate Wire Fraud.
The American Land Title Association is the primary group behind the effort. Initially, the group's digital advertising campaign will target first-time homebuyers in three cities: Birmingham, Ala., Pittsburgh and Virginia Beach, Va.
Companies need to create their own rapid response plan to deal with such instances, said ALTA President Cynthia Durham Blair.
The most important of the nine steps each plan should have is when an incident is discovered, report it to the Federal Bureau of Investigation through its IC3.gov website.
In 2018, IC3 received 11,300 real estate related wire fraud complaints, with a dollar loss of $149.5 million. This compares with $56.2 million last year. Starting in 2015, there was a shift away from rental fraud schemes to those that targeted real estate closings.
The banks where the buyer or seller has their deposits can take an extra step and transfer the funds, not just by the account number but also the name on the account. "One of the issues that ALTA and other stakeholders have lobbied before Congress so far is for payee match; banks would be required to match the name on the account of the recipient to the name where it's supposed to be sent," said Blair. "We feel this would be certainly one way to help combat this from a federal level."
There are instances where banks are rejecting wires that don't match the account name, BankUnited Executive Vice President Tom Linehan said. Apparently that is not a universal practice yet.
"If that had happened in my situation … they would not have deposited the moneys into the criminal's account," Hopen added.
There is both some direct and indirect exposure for banks, Linehan said.
"There's direct exposure obviously to any bank if our systems get compromised or if we were the sending financial institution, wiring out proceeds and were duped.
"There is also indirect exposure, maybe in our warehouse facilities, we have a client who gets duped like this and we've made loans out under warehouse facilities," he said. However, "I am not aware today of banks being held responsible financially when the client goes and sends a wire out based on the bad information."
Another indirect exposure is the loss of the transaction because the borrower's down payment or other funds were stolen.
"If our client loses their money and can't pursue their buying or their mortgage of their next property, there's certainly indirect business exposure," Linehan said.
Nor is the coalition looking to discourage the use of wire transfers, Blair added. "Wire transfer is still a very secure way of transferring money; it's just the verification of the appropriate recipient's information."
For settlement agents, there is legal exposure as there have been a number of lawsuits filed by victims.
"These cases are still evolving," Blair said. "We've just had a few cases across the country against the real estate agents and settlement companies.
"The issues that the courts are looking at are the protections the companies have in place and the disclosure of the issue, how many times and in what medium to the consumers that are factors the courts look at most often to determine liability."
Besides ALTA, the other members of the coalition are the Community Mortgage Lenders of America, the Real Estate Services Providers Council and the American Escrow Association.