Bar News - May 18, 2016
Real Property Law: Attorneys Beware: Scam Targets Real Estate Closing Transactions
By: Nicholas Mason
Real estate attorneys and title companies across New England are facing a new threat: sophisticated wire fraud schemes targeting real estate transactions.
Born on the internet and living in email, fraudsters are stealing thousands of dollars from parties and attorneys alike. How do I know this? My company was recently targeted by this scheme. Fortunately, we have strong policies in place to prevent this type of wire transfer fraud.
The scam is fairly basic. The perpetrators convince their targets to send money to them, rather than to the intended recipient. To do that, the attacker must first target and compromise the email address of someone involved in real estate transaction – the Realtor, sellers, and even title companies are all equally effective targets. The hackers may obtain a password, or find a way to intercept emails without gaining access to the main account, by compromising a storage server. The goal is to gather information about the closing, including details, such as the scheduled time and place and, crucially, the name and email address of the seller.
The following is an account of this scam, from the perspective of our Nashua office: On a busy Friday several hours after a particular closing, we got an email from the seller’s broker, forwarding a request that appeared to be from the seller. “I consulted my account officer regarding my proceeds and based on her advise [sic], I want my proceeds wired to my main company account,” it asked. Normal all around, but our company has a policy on wires that made this impossible (more on that below). We emailed that response to the Realtor involved, who then called the seller and found out that she had never sent such an email. On closer inspection, the email address was close to the seller’s real one, but not quite the same. Also, on further inspection, some of the word choices were unlike those typical of the seller.
This is typical of this scam. Supposed professional advice is used to justify the request to wire to an account with a name other than that of the seller, or to a different account number. Fortunately, we had a process in place to prevent just this type of fraud. But if the closing agent is not wary, and sends the funds as requested, they simply disappear into thin air, being withdrawn to foreign accounts or cash as soon as they are credited.
It is important to note that these fraudulent emails can even come from within an organization. In one instance reported by Pamela Anzuoni, business development manager at CATIC, a fraudster sent an email from a paralegal to an attorney at the same firm. They even asked about the attorney’s health, having gathered that they were sick from prior emails. They use every scrap of detail to make the scam seem more credible. “We need to be cognizant that fraudulent email can come from external and internal participants,” Anzuoni said.
The costs to attorneys and title companies who are victims of this scam are significant. Anyone falling for the scam is still liable to the legitimate recipient of those proceeds for the same amount. Given that these are all IOLTA funds, such mis-wiring may also subject the attorneys involved to disciplinary action – as we all know, trust accounts are the largest source of attorney disciplinary issues.
Fortunately, my firm received warning of this issue several months ago and put in place policies that prevented this attempt. For fraudsters, even a very low success rate can be very lucrative, because of the large amounts of money typically wired after a real estate transaction. For that reason, this type of scam is unlikely to go away any time soon, and may indeed pick up as we move into the hectic spring and summer market.
Proactive policies work best to fend off would-be fraudsters. The scam functions primarily through email, so verifying any change to a disbursement by phone directly with the party supposedly requesting it is very effective in exposing the scam.
Our firm’s policy goes beyond just a phone call. We will not make any change to disbursement after a closing, regardless of the stated reason. We were calling to tell the seller that we could not accommodate her request at all, which is when we discovered the fraud.
To cloud the issue of which email has been compromised, the request for the wire will sometimes come from a different, but similar-looking, account. That way, when the fraudulent email comes in, you cannot know which account was hacked, because you do not have an email originating from the compromised account. Our scam email had falsified header “nicknames,” so a scam email looked like a legitimate sender, until one reviewed the actual address. Upon review, the listed email was very close to the real address, with a sing1e letter replaced by a number. Just to demonstrate how hard that can be to catch, the “L” in “single” in the last sentence is actually a numeral one. Such simple substitutions can help disguise a falsified email address.
Using encrypted email for sensitive information is also useful, but is difficult to enforce on all parties in all communications. Even if your office is sending all emails encrypted, someone else in the chain may pass along the information without encryption, enabling a hacker to gain access to the encryption password. If you have a concern with sharing sensitive data via email, send a fax if possible.
This is a very dangerous scam, but ultimately an avoidable one. The right policies can help you avoid an expensive and professionally problematic loss. Wire transfers are a great way to disburse quickly and easily, but they carry significant risks. With proactive policies, you can minimize your exposure.
Nicholas Mason, a New Hampshire native, works at Foy Law Office/Sunset Settlement Co. in Nashua, where he assists buyers and sellers of residential and commercial real estate in New Hampshire and Massachusetts.