Wiring Money

About to close on the sale of your home? Be aware that cybercriminals are lurking. ‘Check? No, you emailed me the wire instructions’

By JOANNE CLEAVER

An experienced real estate investor, Amir Anjarwala was on automatic pilot for another routine closing with the title company he usually works with.

But when he dropped by to pick up the check that represented all of his equity in the property he had sold the day before, Anjarwala got a big surprise.

“Check? No, you emailed me the wire instructions,” said the agency staffer.

“We were just standing there in the office looking at each other,” Anjarwala, 49, recalls of that day in autumn 2019. “My heart just sank. It was $150,000 for a house I’d just sold. And I needed that money for another house I was buying.”

The truth quickly emerged: Anjarwala had been using an unsecure Google email account to communicate closing instructions, including where the agency should wire the proceeds of the sale. Digital thieves had silently stalked the transaction. They pounced the moment before the money changed hands from buyer to seller, inserting themselves into the email chain and issuing instructions that effectively diverted the money to themselves.

Real estate transactions, with each deal involving tens or hundreds of thousands of dollars, are a rich target for patient and coordinated thieves. Although steps are being taken in the industry to guard against this type of theft, adhering to digital best practices remains largely voluntary. Experts say it’s ultimately up to consumers to vet the fraud-prevention practices of every industry professional involved in a transaction. And consumers must use the most secure modes of transaction available, even if that means walking a paper check from the closing table to the teller’s window at their bank.

Digital theft is widespread and growing. Internet theft rose 37% from 2019 to 2020, according to the FBI’s Internet Crime Complaint Center, with 467,361 incidents last year. The real estate and rental fraud category of internet theft rose 35% between 2018 and 2020, the FBI estimates.

There are a number of reasons why real estate transactions are targets of wire fraud. Marketing a house involves promoting the contact information of the listing agent, and it’s easy to use public records to find the identity of the seller. Thieves use that information to hack into the emails that go back and forth between the agent, seller, buyer and other parties. When the sale is about to close, the thieves send the real estate lawyer or title company an email “correcting” an error in the instructions to wire funds. But the “correction” tricks that party into sending the funds to the thieves’ bank account instead. An unsuspecting seller might not realize for hours or days that the money is not en route.

The tangle of agencies and professionals involved in a real estate closing understandably weakens consumers’ ability to detect who is responsible for what, said Andrew Liput, president and CEO of Secure Insight, a firm in Parsippany, New Jersey, that maintains a database of the qualifications of real estate professionals nationally. Confirming the fraud prevention commitment of each party can also be challenging.

“It’s very confusing and foreign,” Liput said. “The process is set up as an assembly line they are not part of. The borrower shows up at the closing table, they mainly know that there’s a moving truck outside and they’re scheduled to move. They’re trusting that all these people at the table, especially the lawyer, will properly execute the transaction and consumers assume that there will be no fraud.”

“The vast majority of closings take place with no complications,” Liput said. “But the risks are there and consumers must be aware of the risks.”

The 2021 Wire Fraud and Cyber Crime Survey conducted by the American Land Title Association found that title insurance professionals reported attempted fraud in a third of all real estate and mortgage transactions. But the fraud prevailed in only 8% of those instances, due to escalating efforts at title companies to detect and fend off thieves.

Unsecure, open-source and outdated email platforms are the root cause of this variety of fraud. “Every single Realtor uses Gmail, AOL or a brokerage email. That’s where it starts — because we have to reply to the agent,” said Min J. Bowler, president of Lakeshore Title Agency, based in Rolling Meadows. “It’s the agents’ emails that are being hacked and they don’t realize it.” Real estate lawyers, mortgage brokers and others are also guilty, she added.

While title companies are required by regulators to use secure communication platforms, real estate agents have no such mandate, according to representatives from real estate associations.

Agents are regularly reminded to be alert for fraud, said Maurice Hampton, managing broker and owner of Chicago-based Centered International Realty and immediate past president of the Chicago Association of Realtors. But the responsibility ultimately lies with consumers to verify that all real estate professionals they work with have effective fraud prevention habits.

“Before you work with a Realtor, interview that Realtor about best practices,” he said. “Many brokerages have digital policies. But on the other hand, all that the Chicago Association of Realtors can do is put information in the hands of Realtors so they comply.”

In early 2020, the Illinois Department of Financial and Professional Regulation released a new version of its post-license curriculum for real estate agents, including a section on wire fraud and related issues. Brokers must complete the education requirement for each license term to renew their license, according to a department spokesperson.

Consumers’ due diligence should also include confirming the malpractice or errors and omissions insurance carried by agents, brokers, lawyers and title companies. Such policies indicate that the attorney is positioned to cover the negative effects on a client of a mistake, such as inadvertently facilitating wire fraud.

About 87% of lawyers in private practice in Illinois carry malpractice insurance, according to the Attorney Registration and Disciplinary Commission. Consumers can check the commission’s website to determine whether a real estate attorney carries malpractice insurance, and can also ascertain the disciplinary history of any lawyer, said Steve Splitt, the ARDC’s press officer.

Besides escalating its fraud awareness campaign, the American Land Title Association is working behind the scenes with regulators, financial institutions and mortgage lenders to install consistent wire fraud prevention education and practices into professional and consumer education at critical junctures, said Chris Morton, senior vice president of public affairs.

Meanwhile, consumers must be on high alert throughout the entire sale process.

Industry professionals suggest using caution when communicating sensitive financial information, and relying only on digital communication platforms that encrypt messages and require two-factor authentication. Free, open-source email accounts should not be used when conducting financial transactions.

And never simply “reply all” to emails that include sensitive financial information. Thieves count on overwhelmed, distracted sellers and buyers to forgo security for expediency. That’s the moment when they insert their own email addresses in the conversation and hijack the funds.

When it’s time to transfer funds digitally, conduct online transactions with your trusted industry professionals — lawyer, title agent and banker — on the phone with you to verify the wire instructions verbally.

And consider exiting the digital flow at the point of funds transfer and dealing with your bank in person. Expect to furnish your identification at every point along the way.

Once Anjarwala and his cohort at Lakeshore Title realized what had happened, they raced to reverse the funds transfer.

After two weeks of gut-wrenching investigation with the bank involved, the money was returned to Anjarwala.

The near-miss has invoked a spiral of ever-tightening controls and checks at Lakeshore, said Bowler. “We do not accept email wire instructions. We require physical handwritten instructions,” she said. “And we confirm that we got that paper directly from the consumer. It’s an extra step, but it’s key.”

The heart-stopping incident actually strengthened his relationship with Lakeshore, Anjarawala said, because the firm immediately corrected the error.

“I knew they’d take care of it,” he said. He also reformed his own digital communication habits, abandoning open source email for critical steps in the closing. “We have a two-step process,” Anjarawala said. “We talk on the phone and we are prepared to show our identity for every transaction.”