This post is the third in our series on real estate wire fraud. This series delves into strategies to fortify against wire fraud, mitigate risks, and navigate recovery should you encounter a scam. Click here for Part 2, which covers how a hybrid approach to security can help protect your business from wire fraud.
Wire fraud presents one of the greatest financial risks in the real estate closing process. According to the most recent FBI Internet Crime Report, the real estate industry suffered adjusted losses of over $396M as a result of business email compromise (BEC) scams alone.
The large sums of money and sensitive information exchanged in the course of a real estate transaction makes the industry a particularly attractive target to cybercriminals. Title & escrow companies need to be constantly on guard against attack and be proactive in protecting themselves and their clients from wire fraud. Nevertheless, even with the best of defenses in place, there’s still a risk that a savvy bad actor can be successful with their fraud attempt.
If wire fraud ultimately does happen, there’s not much time to respond. If funds are transferred to a fraudulent account, title & escrow companies only have a matter of hours, at best, to take action before those funds are irretrievable. According to a 2021 survey conducted by the American Land Title Association (ALTA), a full recovery of funds lost to wire fraud was only possible in 29% of cases, with less than 10% of the fund recovered in 40% of the cases.
Below are four steps that can, if taken immediately, help increase title & escrow companies’ chances of recovering money from a wire transfer scam.
1. Alert company management and internal wire fraud response teams
Wire fraud is unfortunately a daily occurrence. However, title & escrow companies that recognize the ever-present threat of wire fraud and prepare their teams accordingly are in a better position to recover funds that have been diverted by a bad actor.
Companies should have a prearranged plan for alerting the appropriate internal parties of a fraud attempt. This can be through a group text or group email that includes the appropriate members of management, accounting, IT, legal counsel, and underwriters.
When wire fraud is discovered, it can be easy to panic. Having a clearly defined response plan with step-by-step instructions and contact information for all parties who should be notified can help closing agents keep a cool head when time is of the essence. ALTA’s Rapid Response Plan for Wire Fraud Incidents provides a template that businesses can use to define their own process.
2. Contact the Sending Bank
If wire fraud is suspected (for example, if a wire transfer is shown as completed, but the legitimate payee reports not receiving the funds), title & escrow companies should take following steps when contacting the sending bank:
- Request a recall or SWIFT Recall for the wire in question. Be prepared to provide details such as payee name, payee bank, payee bank account and routing number, and Fedwire reference number.
- Request that the sending bank contact the fraud department at the receiving bank. Ask if the sending bank can collaborate with the receiving bank to determine if the funds have left the account at the receiving bank. If so, try to learn the destination bank and account number.
- Request that the sending bank issue a Hold Harmless Letter or Letter of Indemnity. These letters protect the receiving bank from the risk that can result from assisting a victim of wire transfer fraud. This makes it easier for the receiving bank to freeze or return funds.
- Request that the sending bank initiate the FBI’s Financial Fraud Kill Chain. This seven-stage model outlines the steps criminals take to successfully execute financial fraud schemes. It provides a formalized framework to investigate the suspected wire fraud in depth, uncover vulnerabilities, and spur expedited action to potentially limit financial losses and assist legal prosecution. The earlier the Kill Chain is started, the better chance there is of potentially freezing or recovering stolen funds before the fraudsters can fully cash out.
3. Contact the receiving bank
When contacting the bank that received the funds, title & escrow companies should be prepared to provide the following information:
- Confirmation that a SWIFT Recall has been requested with the sending bank
- Confirmation of whether a Hold Harmless Letter or Letter of Indemnity has been issued by the sending bank
- Details of the wire transfer and recipient account with a request that the account in question be frozen
It’s important to note that a fraudster may move funds between multiple banks, and the above process should be repeated with each bank that received funds.
4. Contact law enforcement
In the event of wire fraud, the appropriate law enforcement parties should be notified to help identify fraudsters and work toward returning funds to rightful parties. Anytime wire fraud is suspected, the impacted title & escrow company should immediately file a complaint with the Internet Crime Complaint Center (IC3).
The company should also consider whether direct communication with the below offices is prudent:
- The appropriate FBI field office to initiate a Financial Fraud Kill Chain process
- The Financial Crimes Enforcement Network (FinCEN) to initiate their Rapid Response Program
- The local Secret Service office to discuss further possibilities for investigation
When initiating a Financial Fraud Kill Chain process with the FBI, title & escrow companies should be prepared to present the following information pertaining to the suspected fraud:
- Summary of the incident
- Name of victim
- Location of victim (city and state)
- Originating bank name
- Originating bank account number
- Beneficiary name
- Beneficiary bank
- Beneficiary account number
- Beneficiary bank location (if known)
- Intermediary bank name
- SWIFT number
- Amount of transaction
- Any additional information that may be available
Conditions may apply to initiate the Financial Fraud Kill Chain process with the FBI or a Rapid Response with FinCen. These conditions may include:
- That the amount of the wire be $50,000 or above
- That the transfer of funds be international
- For a SWIFT recall notice to be initiated
- That the transfer occurred within the last 72 hours
Follow up and continued vigilance
As each step in the above process is completed, it’s critical that the title & escrow company remain on alert for any further suspicious behavior. The bad actor who committed the fraud may attempt to contact the transaction parties to create confusion and ward off efforts to thwart their scheme. Title & escrow companies should be aware of this tactic and on the lookout for any attempt to delay recovery efforts.
Once all financial institutions and law enforcement agencies have been notified, any affected parties, such as buyers, sellers, real estate agents, brokers, attorneys, and underwriters, should be made aware of the fraud. The title & escrow company should follow up with the sending bank to confirm that the recall request has been processed. It is also recommended that the company review its insurance coverage and consider filing a claim.
Finally, the title & escrow company should review the incident with their team members to help them understand how the transaction was compromised and any steps that can be taken to help prevent the same thing from happening again in the future. Educating employees on real-life instances of wire fraud helps to increase awareness and underscore the need for constant vigilance during every real estate transaction.
Every minute counts when wire fraud occurs. The sooner a title & escrow company raises the alarm on suspected wire fraud, the greater the chance the fraudster will be identified and the funds recovered.