Avoid Wire Fraud, Especially During the Covid-19 Shelter-in-Place

When the shelter-in-place orders came down in Mendocino County and around the country, a certain unscrupulous portion of the population started wringing their hands in anticipation. When people are encouraged to do business online, especially high-dollar electronic fund transfers, the opportunity for fraud increases. If you are in escrow purchasing a property right now (or if you plan to use high-dollar wire transfers for any other purchases), be careful.

Here’s what you need to know regarding real estate transactions. To close an escrow, the buyer must provide cash for the down payment and closing costs. In some cases, as in raw land, the entire cost of the property is paid in cash. For convenience—or more recently to comply with Covid-19 shelter-in-place orders—people are choosing to wire the cash rather than the more traditional method of using a cashier’s check.

While wire transfers are wonderfully quick and convenient, the downside of all that speed is that mistakes can happen, and despicable people can take tens or hundreds of thousands of dollars from honest, hard-working people.

Here’s how it goes. As soon as the principals (buyers and sellers) enter into escrow, a lot of communication ensues among lenders, Realtors, escrow officers, and others involved in the sale. During this process, the despicable fraudster gets access to this email string and begins monitoring the transaction.

As the escrow reaches the deadline, a flurry of activity often occurs—all the final details have to get nailed down and things can feel a little frantic. This is when the fraudster strikes. Recognizing that everyone wants the transaction to go through without a hitch, he uses an email address that looks legitimate, pretending it is from the escrow officer or Realtor, and sends an urgent message to the buyer that says, in essence, “Sorry for the short notice, but your down payment needs to be wired in immediately. Please follow the instructions below.”

After complying with the email request, the buyer shows up to sign final documents the following day, where the escrow officer says, “Great. All we need now is your down payment.”

Clearly, the buyer is confused. He reminds the escrow officer that he sent the payment the day before. Sadly, the money is long gone. With a little tracking, they discover the down payment was sent to a bank in West Texas where our fraudster had an automatic alert that allowed him to immediately send those funds to five different banks in Eastern Europe.

Now that you know what can happen, here’s how to avoid being scammed: NEVER accept wiring instructions from someone you haven’t been dealing with directly, even if they name-drop. Also, NEVER accept wiring instructions via email. Call your Realtor and have them put you in touch with your escrow officer to confirm the transaction.

Another way to avoid this problem is to plan ahead and order a cashier’s check. This minor inconvenience could save you hundreds of thousands of dollars. You can also write a personal check, if you allow sufficient time for it to clear. The law requires that the escrow company not close the escrow until the check has cleared. Once money is wired, it’s gone. There’s no insurance for this. The bank was following your instructions, so they’re not responsible for repaying the money. And the escrow company had nothing to do with it. They didn’t even know you transferred money.

At the bottom of every legitimate escrow officer’s email is a warning not to accept wiring instructions via email without verifying them. They look like this:

**Be aware! Online banking fraud is on the rise. If you receive an email containing WIRE TRANSFER INSTRUCTIONS call your escrow officer immediately to verify the information prior to sending funds.**

Pay attention and don’t transfer money electronically unless you are absolutely certain you’re dealing with the right people.

If you have questions about getting into real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

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