Wire Fraud is Growing: Are You Prepared?

Less than a decade ago, wire transfers were considered the gold standard for large, electronic transactions. Buying a house, investing, and sending money overseas all required an official wire transfer initiated from your bank to the recipient’s bank. But wire transfers aren’t without risk, and the past several years have seen an increase in wire fraud. Growing concerns over the popular payment method have left consumers wondering: is there a better way? As you embark on your next real estate investment, understanding wire transfers—and alternative forms of payment—will help prepare you to make a sound investment and keep your money secure.

Real Estate Wire Fraud On the Rise

According to the Federal Bureau of Investigation, wire transfer scams in the real estate industry have increased more than 1000% since 2015. And in the period between 2014 and 2019, international losses from these scams totaled more than $300 million. These numbers are staggering.

Both residential and commercial buyers have been impacted by the increase in wire fraud, and while awareness has increased, so have the instances of wire transfer susceptibility to criminal activity.

How Wire Fraud Works

It is a few days before you close on your new home. Everything is in order, the paperwork is drawn up, and your down payment is ready to be transferred to the title company, escrow agent, or attorney.

You receive an email from your title company providing new wire transfer details for your down payment and closing costs. Because the email expresses some urgency — closing will be delayed if the money isn’t wired immediately — you rush to the bank, give them the new details, and transfer the money you’ve worked several years to save.

The problem is, the email wasn’t really from the title company. While it looked and sounded official, the company was actually hacked, and your entire down payment is now in the hands of cybercriminals.

Unfortunately, this is what many American home buyers have experienced in recent years. In one case, a D.C. couple lost $1.57 million when a hacker sent them erroneous wire details. The couple went to the bank, scheduled a wire transfer to a bank account controlled by the hacker, and only discovered the mistake nearly a month later when they showed up at the title company to close on their new home.

The FBI predicts that Americans lost nearly $150 million in real estate-related scams in 2018 alone. In many cases, the story is the same. Phishing emails sent directly to the buyer indicated that a wire transfer should be sent to a different account than originally communicated.

The hackers typically gain access to data for one of the parties involved in the transaction — the attorney, title company, or lender — and follow the communications closely. When it comes time to close, they send a fake email to the buyer.

But why does this method continue to work? While the increase in cybercrime — including malware attacks that allow criminals to gain access to and monitor key communications and data — are still increasing, wire transfers continue to be a target due to inherent risks in the transaction method itself.

The Risks of Sending Wire Transfers

The real estate industry and financial institutions continue to be targeted due to the large transactions that take place when buying a home. This particular transaction — the closing costs and down payment — is exponentially targeted for many reasons, including an inherent flaw in the wire transfer process.

Wire transfers have been the main method of sending money from one bank to another, both domestically and internationally, for many years. The method is a popular choice to send large amounts of money quickly. Because the money is transferred directly between two banks, domestic wire transfers can take a matter of minutes to complete.

For buying a home, this option means home buyers can wire their down payment to the appropriate bank the same day they sign the paperwork to close on the home. According to the National Credit Union Administration, home closings and payments are often rushed, making them an even more ideal target for fraud.

Although the speed and bank-to-bank communication of wire transfers feel secure, and an optimal solution for home purchases, the problem with wire transfers is that they cannot be reversed. Once the money leaves your account, there is little to no recourse, even in the event of a fraudulent wire.

How to Avoid Wire Fraud

Awareness is key to preventing wire fraud from happening to you. Experts suggest that buyers, sellers, escrow agents, title companies, and anyone involved in a real estate transaction should take every precaution when it comes to sending and receiving financial information. These are just a few of the ways you can keep your money — and your home purchase — secure.

  • Always verify wire details over the phone with your title company/attorney.
  • If you do receive an email days before closing, call to confirm the information (but do not call any phone numbers listed on that particular email).
  • Closely review the sender’s email address. Often phishing emails have missing characters, misspelled words, or some other discrepancy.
  • Be on alert: phishing schemes will often use language that expresses urgency.

For companies involved in real estate transactions, the precautions look slightly different. Brokers, attorneys, and other professionals are advised to only use secure networks when sending communications to clients. Establishing cybersecurity measures for their company data is also an important measure.

Alternatives to Wire Transfers

One of the best ways to avoid wire transfer fraud is to use an alternative method for making your down payment.

Some title companies or institutions recommend using a cashier’s check for closing costs. You can get it issued from your bank and bring it with you to the closing. Like wire transfers, cashier’s checks cost a small fee — usually between $5 and $10. The method is relatively safe, although requires a little preparation and planning in order to get the check issued in a timely manner for your closing.

The fastest and safest way to make a down payment on your home, however, is through ACH electronic transfer. Automated Clearing House is a network that allows you to move money between banks without sending checks, cash, credit cards, or wire transfers.

ACH has been in the background of the financial system for many years and most certainly impacts your daily life. It is the method we use for online bill payments, direct deposits from our employers, and even transferring money to friends on the many payment apps available to consumers.

When it comes to making large real estate transactions, ACH offers several advantages over wire transfers:

  • Transaction details don’t need to be communicated over unsecured networks like email or text.
  • Payments can be easily reversed, protecting your money from inadvertent transactions.
  • The ACH network is monitored by several regulatory boards providing security from fraud.

In the past, ACH was an often overlooked method for real estate purchases, including mortgage and tax payments. Recent updates to the ACH system, however, are setting the network apart as one of the fastest and safest ways to send money electronically. The network will soon allow same-day transactions, making them as efficient as wire transfers. Same day dollar limits are also increasing from $25,000 to $100,000, providing a secure, expedient payment method for home buyers across the country.

Make Secure Payments with LemonBrew Abstract

There’s a reason we choose ACH electronic payments for every LemonBrew real estate transaction. The security offered through our electronic payment system goes far beyond the security methods of the traditional wire transfer. Our fully electronic system means you can make all of your real estate transactions effortlessly from your device or computer. No trips to the bank. No paper checks. No wire transfer fraud. And no fees.

LemonBrew Abstract is our solution to a complicated system that is riddled with fraud. When it comes to buying a home — or making any related transactions — keep your money secure is the priority. Contact us today or sign up to begin using LemonBrew Abstract for your next real estate transaction.