This article was first published in December 2019 and has been updated with fresh insights as of September 2023. It’s the first in our series on real estate wire fraud. If you haven’t already, check out the second article in the series for an in-depth look into wire fraud prevention tips. The entire series delves into strategies to fortify against wire fraud, mitigate risks, and navigate recovery should you encounter a scam.
Wire fraud remains a menace to the real estate sector, inflicting severe financial and emotional damage on homebuyers. Recent data illustrates the staggering impact and growth of this issue.
Real estate is the third most targeted sector for fraud attempts, according to a study by FinCen. Additionally, attempted wire fraud attacks targeting real estate have skyrocketed over the past year. The total value of wire transfers that criminals attempted to divert from real estate transactions rose by 205% between Q4 2021 and Q4 2022. This massive increase shows criminals are setting their sights on larger and larger attempted thefts in this sector.
Beyond the growth in total attempted fraud value, the average financial loss per wire fraud case impacting consumers has also seen troubling growth. In 2022, the average wire fraud loss for consumer recovery cases was $106,557. Just a few years prior, the average loss was under $15,000. This shows individual homebuyers are losing exponentially more money when they do fall victim to these scams.
And the financial toll only scratches the surface of the damage inflicted. Having such a large sum stolen right before closing, often representing a homebuyer’s entire life savings, can be emotionally devastating. It can also completely derail homeownership dreams, sometimes permanently.
Why are criminals narrowing in on real estate? Unraveling the motives behind this trend reveals how specific attributes of real estate transactions render them susceptible to cyberattacks.
Why Criminals Target Real Estate
- LARGE SUMS OF MONEY INVOLVED
Criminals know that real estate transactions often involve hundreds of thousands of dollars being exchanged in a single event. The purchase price, down payment, and closing costs mean a typical real estate transaction requires the transfer of very large sums of money. This presents an attractive opportunity for criminals to orchestrate a scam or scheme to divert these funds and quickly cash in on a major payday from a single attack.
- SENSITIVE INFORMATION EXCHANGED
Beyond just the financial gain, real estate transactions require the exchange of highly sensitive personal information between parties. Details like bank account numbers, routing numbers, social security numbers, driver’s license information, and more are frequently shared to facilitate the transaction. Criminals actively seek to infiltrate these information streams to harvest this data, which can then be used for identity theft or subsequent unauthorized access to the victim’s finances.
- BUYERS ARE EAGER TO COMPLETE THE TRANSACTION
Most buyers are eager to finalize the deal and get the keys to their new property. In their excitement, they can overlook warning signs or push through the transaction even if certain parts give them pause. This unintentionally makes them more vulnerable to scams, as criminals rely on creating a sense of urgency or excitement to manipulate the buyer.
- HOMEBUYERS ARE LOOKING FOR GUIDANCE
For most homebuyers, purchasing a home is an important life milestone that doesn’t happen every day. Since buying a home isn’t a regular occurrence, most homebuyers have little to no familiarity with the closing process and rely heavily on guidance from real estate and lending professionals to understand the required steps and paperwork. Criminals exploit this by impersonating real estate agents, title company reps, or lenders, then manipulating the uninformed buyer during a time when they urgently need direction.
- MULTIPLE PARTIES INVOLVED
A typical real estate transaction requires the coordinated effort of over a dozen parties, including real estate agents, lenders, title companies, attorneys, home inspectors, and more. With each party often using their own distinct software systems to communicate and share documents, this opens up multiple disconnected channels that criminals can penetrate to intercept sensitive information.
- TRADITIONAL REAL ESTATE TRANSACTIONS REVOLVE AROUND EMAIL
Despite its vulnerabilities, email remains the primary method of communication between parties in a real estate transaction. The reliance on email provides an easy entry point for criminals to infiltrate, as they can spoof identities or compromise accounts to send misleading messages. Most buyers are unaware of email’s security flaws in this context, so criminals rely on emails to coerce funds transfers without raising red flags.
How to get ahead of wire fraud
To stop wire fraud in its tracks, title & escrow professionals should:
- Educate clients on the prevalence of wire fraud and provide tips they can use to identify potential scams
- Implement strong security systems and protocols to prevent unauthorized changes to recipient accounts
- Train staff regularly on wire fraud best practices as well as current scams affecting the industry
- Utilize safer communication channels to prevent criminals from intercepting messages or documents containing sensitive account details that could facilitate fraud
Transitioning to integrated portal-based platforms with bank-grade security can help protect sensitive data exchange. A layered approach to security that combines vigilant personnel, secure technology, and adaptable processes is essential to detecting and preventing sophisticated wire fraud attempts.
