Posted on Aug 17, 2022
Real Estate Scams on the Rise: How to Buy Your Home Safely
Posted on Aug 17, 2022
For most people, a home represents one of the most significant financial transactions of their life. During the home purchase process, homebuyers are often sending thousands of dollars to their lender or brokerage. The buyer’s unfamiliarity with the process, and the large amount of cash being exchanged, can make these transactions very tempting to scammers.
Wire fraud in real estate is actually one of the most common cybercrimes in the U.S., and about 14,000 people fall victim each year to scams - and the FBI has recently warned consumers that real estate scams have been spiking in response to the hot housing market.
How can you avoid becoming the victim of real estate scams? Here’s what you need to know.
How Do Escrow Scam Wire Transfers Happen?
In order to understand how scams happen, it helps to understand how a home purchase occurs in the first place.
Because large sums of money are involved - and the money itself needs to be legitimate - buyers need to pay their closing costs using a cashier's check or wire transfer.
There are several ways scammers will intercept the process. One popular method is to “spoof” your agent’s email address. You may receive an email that appears to come from your agent, directing you to send your money over in a way that hasn’t been discussed before.
Scammers will also take advantage of the urgency and stress that often accompanies a home sale. If you receive a phone call telling you that you need to wire over money within the hour or the sale will be canceled, that’s when you should double check that the person you’re communicating with is really your agent or broker. Scammers know that when you feel rushed, you’re less likely to double-check the details.
“Purchasing real estate involves a lot of people, in multiple departments across several companies, from listing agents, buying agents, transaction coordinators, multiple inspectors, mortgage lenders, title, processing coordinators, and closers. As such, getting to know everyone in such a relatively short span of time can be confusing and almost impossible. In the beginning, buyers are excited to get their new home under contract, and with there being so much to do within the first few days, it can be overwhelming,” notes Daniel Robinson, a buyer agent based in Tampa Bay (Florida is consistently one of the top states for real estate fraud). “This creates a prime opportunity for wire fraud thieves to take advantage. Then toward the end of the process, buyers are usually exhausted and just want to close and move in, which provides a second and very lucrative opportunity for criminals.”
Hackers will set up fake emails, phone numbers, and even entire websites that appear to be legitimate businesses in order to fool homebuyers.
“Throughout the entire real estate buying/selling process, there are so many opportunities for criminals to flourish. However, the most common is wire fraud,” notes Robinson. “Scammers use sophisticated phishing technology and target home buyers by intercepting their wire transfer, so instead of the funds going directly to the company that is processing the real estate transaction, the funds get routed to a fraudulent account. In most cases, funds are wired to a title company, but in most states, these funds can also be wired to the real estate broker or an attorney's office."
Keep in mind that it’s easy to fall for this sort of scam due to expectations. You’re often expecting a message from your broker asking to wire over money - so in itself, this isn’t a suspicious ask. That’s why you need to be extra vigilant.
According to Inman, a 2021 survey revealed that 1 in 3 real estate transactions were targeted by cyber criminals.
How to Avoid Becoming a Victim of Real Estate Wire Fraud
In a typical scam situation, you’ll receive a text or email asking you to quickly send over funds. In most cases, emails or phone numbers will be close to the original - but not quite the same. At first glance you might not see the problem with an email being “firstname.lastname@example.org” rather than email@example.com”, for example. Always double check.
“Avoid emailing or texting sensitive information, such as providing account numbers, SSNs, date of birth, etc. You should always confirm who is sending you the request to wire funds and verify the instructions are correct,” recommends Robinson.
In fact, he says that homebuyers should do their best to avoid texts and emails completely.
“Try to avoid texts or emails, call and speak with your title processor, or escrow processor directly,” recommends Robinson. “Your agent can provide you with their number, or it can be found in the initial welcome packet that most title companies send out to buyers. You can also cross reference the phone number and address with their physical location found online to add another level of confidence.”
Along with verifying that any emails, phone numbers, etc. you receive, you can double-check the escrow account number. You can also call your agent to vocally confirm that you’re completing the transaction correctly.
You can call your settlement agent immediately after and ensure they’ve received your funds.
Use a One-Stop Shop Brokerage, Like Houwzer
Real estate transactions are complicated and confusing. Many people who start off believing that an agent is only good for finding a home, quickly realize just how many things can go wrong if you don't work with an experienced agent backed by a modern brokerage.
Houwzer uses a technology platform to help streamline the process of buying a home so that home buyers aren't, for example, left forwarding emails from their title company to the mortgage and managing the process by themselves. The platform is backed by an administrative team that makes sure everything goes according to plan, and there are simply fewer opportunities for scammers to slide in.
And because Houwzer has both title and mortgage in house as part of their "one stop shop" approach, there's fewer opportunities for miscommunication to occur.
What to Do if You’re the Victim of Real Estate Fraud
One of the reasons scam wire transfers are so successful is that it’s very difficult to recover the money once it’s been sent. It’s not like a credit card transaction that can be disputed - it’s essentially like handing over cash. Often the money will have moved through multiple accounts and be far, far away, or already be withdrawn from a wire transfer location, before you’ve even realized it’s not in the right place.
If you realize something is wrong:
- Contact your bank immediately, and request a wire recall
- File a complaint with the Internet Crime Complaint Center (FBI)
- Tell your broker what has happened
“Unfortunately, once funds have been wired and received by a fraudulent account, little can be done to recover the funds. If you think you have been the victim of real estate wire fraud, contact your banking institute immediately and if the funds have not been released it's possible the wire can be canceled. If the wire cannot be canceled and the funds were released, contact the authorities such as, the FBI, FTC, and IRS,” recommends Robinson.
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