Written by Mike W. Smith
All wire transfer/ ACH instructions in a real estate transaction should be verbally verified, regardless of how many times the parties have communicated by email, mail or phone. A simple verbal verification of the information and source relating to a money transfer will help reduce potential liability for fraudulent transactions.
One common claim that keeps popping up is where someone involved in a transaction is duped into thinking they are doing business with or receiving an email from someone they trust and conduct frequent business. We have all received emails from people/companies pretending to be your bank, your credit card company or someone else, but in fact someone has stolen the email address and is attempting to steal either money or gain access to other information. I frequently receive emails from myself, which I obviously didn’t send.
In the real estate transaction, it’s even more prevalent as parties to a sale, lease or other transaction have access to bank account information or other proprietary information. The “bandits” send an email to another party posing as you, telling you where to send the money and in good faith, you respond. If you received an email from the former ministry of finance of some foreign country you might ignore it, but if it is from a trusted business source, it gets tricky. A typical scam is as follows:
Claim Example 1:
A title agent receives an email from the real estate agent on where to wire the money to close a real estate sale. The title agent has received emails from this individual hundreds of times and processed closings without a hitch; except this time it isn’t really the real estate agent and the closing money is wired to a fictitious account. Where it remains for about 30 seconds before it is transferred off shore. In this case, liability could lie with the title agent or the real estate agent, depending upon how the breach occurred.
Claim Example 2:
In the same example above the real estate agent really did send the email, but they received their email from the seller with the information. However, it wasn’t the actual seller, it was someone posing as a seller. The money was still wired to the same place and the money was still gone in an instant.
Claim Example 3:
In one case the closing agent actually received a full closing document with the loan number, name, and company name on company letter head from the title agent. Except, none of it was authentic. $400,000 was wire transferred out, never to be heard from again.
Claim Example 4:
In one case the controller received instructions from the CFO of a very large company that they changed accounts for the payroll and they should wire the payroll to a new account. The Controller complied with what he thought the CFO instructed him to do. In this case $900,000 was gone in an instant.
The above are actual losses and represent actual scenarios where companies were duped into transferring money to a fraudulent source.
Recommendation:
It is our company’s recommendation that all wire transfer / ACH instructions be verbally verified before processed. Further, please note that many commercial crime policies will exclude coverage for this risk since the insured actually did the transferring and someone didn’t technically steal the money right out of their account. See the attached link for further information on cyber deception.
For more information on this topic please click on the article below or contact one of our licensed representatives at 201-847-9175
http://www.axisins.com/e-mail-fraud-and-cyber-deception.html#.VZr0f_lVhBc