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Who Is Behind Real Estate Wire Fraud?
Hey everyone, it's Chris and this is the first blog post I am doing. I've been doing a lot of smaller video blog content, but now I'm going to go into some longer format posts because there's a lot of really challenging topics that we're coming across these days. What I want to start with is something we've been talking a lot about, and that's wire fraud & wire fraud prevention. For those who aren't familiar, wire fraud & wire fraud prevention are significant challenges for the real estate industry. According to the FBI, last year there was $9 billion lost in wire fraud related activities, whether that's business email compromise fraud, social engineering fraud, or just wire fraud as a whole. Attempted wire fraud estimates are as high as $90 billion, so this issue is significant.
The unfortunate reality for many of us is that this problem is going to get worse before it gets better, especially for consumers who we as an industry have a responsibility to keep safe. Right now, consumers have a 63% satisfaction rate with the home buying or selling process. So 62% of buyers, 64% of sellers are satisfied or very satisfied with the transaction.
That number is not good enough. What happens if those are the numbers as the whole ecosystem exists today? That includes lending, real estate, title, everything. What if consumers suddenly begin to understand that this wire fraud problem is getting worse and now their monies aren't safe? As an industry, what happens if that number is 43 instead of 63? It's significant.
Are we creating a perfect storm for a platform like Opendoor or some of these iBuyers to come in who actually are building an end to end platform? Are we building a perfect storm as an industry where consumers have lost confidence in what it is we do? They're creating a platform where you can look for homes without a real estate agent and you can write offers with a discount brokerage that they own, who rebate back a point and a half at closing. They also do lending at 0%, no fees for loans.
They are doing all aspects of the transaction and they're doing it in an enclosed environment, which is much safer than the traditional space that we're all accustomed to. My concern and the concern I think for our industry is what happens if the consumer satisfaction rate continues to drop? Again, this problem is going to get worse. I hear a lot of folks talking about wire fraud but I think the industry is suffering from “it hasn't happened to me yet” syndrome and unfortunately we're not talking about it enough because it's scary. The other reason we're not talking about it enough is because if you are a title company and this has happened to you, if you can pay to make that customer whole then that’s what you’re going to do.
You don't want real estate agents to find out that you've lost money. Knock on wood, we haven't had that situation. I know a lot of our competitors have and they're just not talking about it because they're afraid. They don't want their real estate agents or their lenders, those people who are referring them business, to know that they've lost $10,000. Or they've lost $25,000. Or they've lost $100,000. You can imagine if I'm an agent, I'm not going to refer you business if I know that you're losing consumers’ monies. So they're keeping it secret. It's happening all over the place and we aren't talking about it enough. I say, let's talk about it and bring it out in the open.
It's important to understand, in my opinion, where this fraud is being driven from and why it hasn't been stopped by the FBI or Department of Justice. It's incredibly difficult to stop it because the majority of this has grown out of an extension from the Nigerian prince email fraud scams that have been happening for a long time now. There's a global fraud syndicate based out of Nigeria and what they're doing is essentially operating as their own crime unit. They’re operating through middlemen with complete abilities to not be arrested because they're doing it outside of the jurisdiction of our government.
There's a case that happened in Galena, Ohio to the Frederick family in which a Nigerian crime syndicate had a group of middlemen out of the Houston area that created bank accounts using fake passports. The middlemen went to a Chase branch, opened up a bank account, and the title company wired seller proceeds to that account instead of to the Frederick family’s account.
Once that money hits the Chase bank account, it's then routed through bank accounts in China, Hong Kong, South Africa, or in some cases it's even being transferred and converted to cryptocurrency. Once those monies are sent and become cryptocurrency and credit, it's incredibly difficult to get it back. If it's in a bank in China, the United States federal government has no jurisdiction over it and that's how they're getting that money back into their country. These middlemen are the people getting arrested, there's a man right now sitting in a federal prison that has been charged in this particular case.This man was paid a few thousand dollars to open up this bank account and now that he's been arrested, they're going to find someone else to do this.
These criminals are getting access to real estate agents through spoofed emails, meaning they create emails that look like they’re coming from something like National Association of Realtors, Netflix, Dropbox, or Google Drive. This is how they get your email and password, and if you don’t have two step verification and don’t use different passwords for different accounts, then these hackers now have access to even more than just your email.
The other thing they're doing is creating email accounts that look exactly like they're for buyers and sellers. Using those emails, they're able to infiltrate transactions to pretend like they're buyers and sellers, real estate agents, or title agents. Buyers are incredibly vulnerable right now. It's important to understand where and who are behind these fraud scams and how difficult it is to actually stop them. The reality is, this is going to get worse before it gets better. That is why here at World Class Title, we're using a product called SafeWire on all of our transactions and recognize that it's important for our staff to be well trained to look for these frauds.
It's important to use software and technology that can authenticate buyers and sellers truly are where and who they say they are. If you're a real estate professional, it's important to vet the title companies and lenders that you're working with. We see lenders sending unsecured emails with financial information of buyers all the time. It's important that all of us are responsible to each other, and more importantly to our consumers, to raise the bar and create better & safer experiences.
I hope the number one takeaway for you is to change your email password and create a stronger, safer password. There are password managers, such as Dashlane, that can give you the ability to create different passwords for different accounts and memorize all of them. That way, if someone hacks your password for one of your accounts, they don't have it for all of your accounts. Also, be sure to enable two step verification and authentication on your emails, and really on as many accounts as you can. That way, if somebody tries to get into your email, they need a secondary code from another device that belongs to you. I'd also suggest talking to your vendors and partners to make sure you're communicating clearly your expectations for your clients. Real estate agents have a ton of leverage in these transactions.
If you're referring partners, it's important that these partners are doing their proper due diligence and have their proper safety in place for consumers. Ask them questions like, have you had successful wire fraud where your customer has lost money? What do you have in place to protect against consumers losing money? How are you sending secure wire instructions, if you’re sending them securely at all?
Talk about social engineering insurance with your partners because it is becoming more and more critical. You or your broker may have a cyber insurance policy, but a lot of cyber insurance policies now have exclusions around social engineering fraud. Insurance companies are in business to make money, not to play claims, so they exclude things that begin to cost them money. When somebody hacks an email account and pretends to be a party in a transaction, that's called social engineering fraud and due to the exclusions that are becoming more common, it’s important to make sure your partners have social engineering insurance coverage. ALTA, the American Land Title Association, did a study in January that found 60% of title companies don't have cyber insurance in place. That's a problem. We all need to be asking, vetting, and making sure that we're all responsible to each other to create a safer space for our consumers and increase this 63% satisfaction statistic because if this number goes down, we are all at risk.
I hope I can be a resource for you keeping your clients and consumers safe. Feel free to reach out to me directly or put a note in the comments if you found any of this helpful or if you have other pressing concerns around this subject or anything real estate related. I hope to hear from you.
World Class Title