When you close on a property, you're typically required to bring with you your portion of the funds required to close. And most people choose to wire their closing funds. Unfortunately, when large sums of money are moving around, scammers come out of the woodwork. And that's exactly what we're seeing in the real estate industry.
While wire fraud cases differ in the particular methods used, real estate wire fraud cases generally involve someone posing as a legitimate party to the transaction -- the closing attorney, title company, real estate agent, etc. This scammer will send authentic-looking wire transfer instructions and may even include other real estate closing documents that look like the real thing, which may even have the correct sale price and other information on them. But using them will result in the money being sent to the scammers' own bank account instead.
As an example, one recent case where a young couple was scammed out of nearly $1 million through wire fraud involved hackers somehow inserting themselves into a conversation between the buyer, their real estate agent, and the title company. The hackers used an email address that made them appear as they were a legitimate part of the closing process.
Wire fraud has become a major problem and is only getting worse. Americans have lost more than $220 million in real estate wire fraud scams so far this year, a 13% year-over-year increase, says the FBI.
How to avoid real estate wire fraud
When it comes to wiring money for a real estate closing, there's no such thing as being too careful when verifying it's going to the right place. Real estate investors can be an especially vulnerable group, as there are a disproportionately high amount of all-cash real estate transactions and large down payments compared with regular homebuyers.
Thankfully, many real estate attorneys are taking steps to ensure clients don't fall victim to wire fraud. For example, my go-to closing attorney not only sends wiring instructions in a separate document as soon as the closing is scheduled but insists clients call the office immediately after receiving the instructions to verify they're looking at the correct bank account information.
Regardless of what the real estate attorney involved in your investment property purchase is doing to fight wire fraud, here's a simple way to avoid becoming a victim: No matter how legitimate you think wire transfer instructions are, call the attorney or escrow agent you're sending the funds to. Do this immediately before sending the wire, and use their published and known phone number.
Alternatively, if it's possible to bring a cashier's check to closing instead of sending a wire, doing that can eliminate any possibility of wire fraud.
But if something goes horribly wrong and you find yourself a victim of wire fraud, call your financial institution immediately. While wire transfers can be difficult to trace, it's possible to get the money back in many cases if it's caught quickly enough.
The Millionacres bottom line
Wire fraud is costing American homebuyers and real estate investors millions, but you can take steps to protect yourself. By going the extra mile to verify you're wiring money to the right place, or avoiding wire transfers altogether, you can make sure your hard-earned money isn't intercepted.