We received the call on the morning of our closing date. “Your buyer wired his funds to a fraudulent account. Everything is on hold.”
My first reaction was to wonder how, today, a smart, young professional like our buyer gets taken in by such a scam. But what none of us realized is just how pervasive and convincing mortgage wire fraud has become. As details emerged, our buyer was himself mystified and confused. “Everything in the email was correct. Nothing was off. It looked completely legitimate. I don’t understand how the criminals knew what they knew. That’s what authenticated it to me.”
Although it took weeks to resolve and it was an anxious time for everyone – fortunately, the funds were recovered, and the sale moved forward. But my experience drove home the harsh reality that mortgage wire fraud is a real risk that both financial institutions and consumers need to protect against.
Scary Mortgage Fraud Stats – How Did We Get Here?
The fact is that reported mortgage wire fraud attempts rose 1,110% between 2015 and 2017. In 2018, the FBI reported that more than 11,000 Americans fell victim to mortgage wire fraud schemes, with instances and losses continuing to rise throughout 2019.
Come 2020-2021, mortgage fraud significantly increased and became fueled by two primary events:
- First, Covid lockdowns and ongoing precautions resulted in a sharp increase in online closing transactions, as offices closed, and face-to-face encounters continued to be discouraged. While Covid restrictions are relaxing, like so many things that made an increased move to the online space during the pandemic, the “genie is out of the bottle.” The ability to handle related business transactions remotely is expected by more and more customers as a service of convenience.
- Additionally, we’ve experienced a major real-estate boom, causing a significant housing shortage and skyrocketing home values as supply has struggled to keep up with demand. These factors predictably generated both opportunities and incentives for fraudsters and scammers seeking big paydays leading to an increase in mortgage fraud. In 2020, a survey of title agents revealed that one-third of all 2020 real-estate transactions included some kind of wire fraud attempt, with losses estimated at approximately $1.8 trillion – about $100,000 per victim on average.
How Does Mortgage Wire Fraud Work?
What sets mortgage wire fraud apart is the sophistication and persuasiveness of the strategies usually employed to carry it out.
In recounting details of interactions with scammers, the majority of mortgage fraud victims report that communications by email and phone included accurate information that only a legitimately involved party should know – things like names, phone numbers, email addresses, email signatures, account numbers, and closing dates. In some instances, even the actual closing documents have been attached.
Additionally, unlike many email scams in which grammar and punctuation errors or the cliché nature of the content can tip off a relatively informed recipient, the spoofed correspondence associated with mortgage wire fraud tends to be well-constructed, informed, business-like, timely, and highly relevant to the victim’s circumstances.
Real estate scammers typically obtain this information via successful phishing or hacking campaigns targeting the buyer, real estate agent, or lender. It can be difficult to recognize where the compromise originated – but once the fraudster has access to an inbox, all they must do is monitor communications for the right opportunity to make their move. This explains how the perpetrators can construct emails or make phone calls that say just the right things to put any possibility of a real estate scam out of the victim’s mind.
How to Protect Yourself and Your Customers Against Mortgage Fraud & Real Estate Scams
There are several methods for detecting and avoiding mortgage wire fraud that consumers and financial institutions should be aware of.
First, do not open the door to mortgage fraud. Be aware of phishing techniques and always ignore emails or phone calls seeking personal information – no matter how legitimate they seem – unless reliable steps have been taken to verify the request. Because these steps may vary and change over time, institutions should provide regular ongoing training to help employees detect fraud schemes. Blocking access to email inboxes creates a significant barrier to falling victim to mortgage wire fraud schemes.
Second, take the time to educate your customers about mortgage wire fraud and real estate scams.
How to Spot Real Estate Scams
The following information should always be a part of discussions intended to protect clients and make them aware of how to spot real estate scams:
- Consider a cashier’s check instead of wiring funds.
This will require in-person appearances, but it can prevent weeks of time-consuming leg work and anxiety. With something as significant as a home purchase, it’s worth going the extra mile to ensure peace of mind.
- Every click is a risk!
Do not click any links, issue any replies, or provide any personal information in response to emails or phone calls without verifying the contact first. Keep a list of the names and numbers of anyone you expect to hear from (lenders, agents, attorneys, etc.) and utilize your contact list or contact the institution directly to verify that the person reaching out to you is legitimate.
- Even after verifying, scour emails for inconsistencies.
This can be something as small as a single letter changed in an email address. In some instances, three-way conversations have occurred between the lenders, the criminals, and the victims. Victims can receive emails from fraudsters that appear to be related to something a legitimate party sent, resulting in an erroneous verification of the contact from a legitimate party.
- Be especially diligent about verifying emails containing wiring instructions.
Last-minute instruction changes are a major red flag for real estate scams– especially when they threaten failure to act quickly can result in the loss of your home.
- Always verify account numbers before wiring any amount of money.
Emails received one to three days before closing with instructions to wire money to a different account are dead giveaways of mortgage wire fraud. These requests contain an uncommunicated account number change that the fraudster is hoping the victim will not notice.
- Once funds have been sent, verify receipt as quickly as possible.
If the sender has fallen prey to a mortgage wire fraud scam, time is of the essence as accounts need to be frozen before any money can be moved. However, there are no guarantees of recovery. Only 29% of victims see a full recovery from real estate scams. In 40% of cases, only 10% or less is recovered.
While not yet signed into law, the Internet Fraud Prevention Act was introduced to Congress in June of 2020, requiring (among other things) that financial institutions verify things as simple as ensuring account names match account numbers before processing transfers.
With the substantial increase in successful mortgage wire fraud schemes and its potential to ruin lives, we’re likely to see legislation aimed at mitigating the risks sooner rather than later. But until that time, it is the job of consumers to be aware of the risks of mortgage fraud, as well as the good faith of our institutions to do their part in establishing the most effective barriers possible to prevent real estate scams.