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Protecting Yourself and Clients from Fraudulent Wire Transfers

By Lisa Scoble posted 04-13-2022 01:55 PM

  

Protecting Yourself and Clients from Fraudulent Wire Transfers

Wire transfers, a modern convenience permitting the expedient transfer of funds, have become a favorite target for cyber criminals. They use slick and sophisticated tactics that can cost someone an entire lifetime of savings in a single keystroke. How can agents and brokers avoid becoming the safety net of the unwary?


SITUATION

The buyers received an email from their title company requesting that they wire the funds necessary for their pending real estate closing. The email appeared identical to emails the buyers had previously received from their title company, including its logo, the closing date, the property address, and the names of the involved parties. The email included instructions to execute a wire transfer, encouraging the buyers to do so to avoid any delay in closing. The buyers promptly complied. 

 

PROBLEM

When the buyers arrived at the title company for closing, the title clerk asked for their check. Believing the clerk was teasing, the buyers smiled and explained that they followed the company's instructions and wired the funds the day prior. The buyers' smiles quickly vanished as they re-examined the email and realized it was a scam. It was confirmed that a fraudster hacked into the brokerage's server and cloned an email with the title company's information. While the fraudulent email closely resembled an authentic one, the buyers' settlement funds were now a world away.

MISTAKE

The buyers' agent failed to provide any verbal or written warning about the potential for wire fraud. The buyers' agent and brokerage failed to ensure that fraud prevention protocols were in place so that data in the server could not be hacked and breached. The buyers' agent believed the lender had warned the buyers about possible wire fraud, and otherwise had no knowledge that someone asked the buyers to wire settlement funds. The agent and the brokerage were not aware their server was not properly secure and that it was vulnerable to a breach.

RESULT

The buyers filed suit against their agent and the brokerage, claiming the agent failed to warn them about wire fraud and the brokerage failed to adequately secure its server. Even though the buyers failed to carefully examine the fraudulent email and did not heed warnings provided by their lender, the agent’s lack of warning combined with the data breach of the brokerage’s server have exposed the agent and brokerage to the buyers’ claim.

PREVENTION

Real estate professionals can mitigate claims related to wire fraud by providing warnings both verbally and in writing. Warnings should advise clients to never trust wiring instructions sent via email and always independently confirm wiring instructions in person or by telephone to a trusted and verified number. Further, agents should advise their clients to always double check that the wiring instructions are correct. 

Agents can add written warnings to an email signature or in a form that is handed to a client for signature. Many associations have wire fraud warnings for real estate professionals' use, including those provided by the National Association of REALTORS®.  

Further, agents can take steps to avoid wire fraud by using a transaction management platform, by not emailing wire instructions, or by using encrypted email when referencing any personal or financial information.  

Finally, an IT professional should periodically examine the email server to ensure fraud prevention protocols are in place to prevent a data breach.   



For more information about E&O coverage and other risk management topics, visit pearlinsurance.com.

The purpose of this article is to inform and insulate real estate professionals from potential monetary claims and professional grievances. The fact patterns are from actual claims against real estate agents. While the author is an experienced claims representative, the opinions expressed herein are general in nature, not fact nor state specific; and therefore, should not be taken as a substitute for legal advice from an attorney licensed in your state. This article was produced in conjunction with AXA XL and is not to be taken as legal advice.

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