ISSUE 100 | VOLUME 7 | July 2021
AS BUYERS face one of the most competitive homebuying markets in a generation, many are turning to cash offers in hopes of beating out other competing buyers. With the median price of a home in the U.S. now exceeding $329,000, according to the National Association of Realtors, cash buyers are wiring large sums of money to title and escrow companies for closing.
Cyber perpetrators are aware of these market dynamics and are deploying scams to trick homebuyers into wiring closing funds to fraudulent accounts.
“We are seeing a sharp increase in the number of homebuyers being targeted for wire fraud scams and the per-victim loss amount continues to climb,” said Stephen Dougherty, with the Global Investigative Operations Center (GIOC) of the U.S. Secret Service. “Cybercriminals are getting smarter and are focused on larger amounts to divert to fraudulent accounts. Homebuyers paying cash for properties may have a higher risk of being tricked into sending funds to fraudulent accounts. Often the buyer shows up to the closing table only to learn that the funds they wired days before were not sent to the title company but instead to a fraudster masquerading as the title company in an email.”
According to the most recent Internet Crime Report published by the FBI’s Internet Crime Complaint Center (IC3), cybercrime complaints increased 69% between 2019 and 2020. As the country battled the COVID-19 pandemic during 2020, a record number of internet fraud complaints were reported to the FBI. According to the FBI’s report, the IC3 received 791,790, complaints with reported losses exceeding $4.2 billion last year. This is up from $3.5 billion in reported losses in 2019.
Business email compromise (BEC) schemes continued to be the costliest, with 19,369 complaints resulting in losses of $1.8 billion. While this is a 19% decrease in BEC victims compared to 2019, Andy White, CEO of ClosingLock, pointed out the total amount lost increased 5% year-over-year, and the average loss per victim increased 29% year-over-year.
“While the recovery of assets has also increased during this time period, it still lags behind the staggering losses incurred in 2020,” White said. “It’s also important to remember that these statistics are only based on the internet crimes that were reported to the IC3. Many victims do not file FBI reports.”
In 2020, there were 13,638 victims of real estate fraud, with $213,196,082 in reported losses. This compared to 11,677 victims resulting in reported losses of $221,365,911 in 2019.
“We’ve assisted dozens of victims with the recovery of stolen funds and homebuyers continue to be the top victim profile for these crimes,” said Tom Cronkright, CEO of CertifID and former wire fraud victim. “Cybercriminals are stealing the life savings of Americans in a single funds transfer—the impact is simply devastating on families.”
Real estate wire fraud is a sophisticated scam targeting individuals or companies making or accepting wire transfer payments during the homebuying process. As a result, victims unknowingly send wire transfers to the accounts of criminals who are pretending to be real estate and title industry professionals involved in the transaction. The FBI estimates only 12-15% of all wire fraud is reported.
“As a title company, it might not be a legal obligation to protect your customers, but there’s a moral duty to take the necessary steps to secure the closing process,” White said. “Customer education can only go so far when scammers are becoming increasingly sophisticated in their schemes.”
The top three crimes reported by victims in 2020 were phishing scams, non-payment/non-delivery scams and extortion. Victims lost the most money to business email compromise scams, romance and confidence schemes, and investment fraud. Notably, 2020 saw the emergence of scams exploiting the COVID-19 pandemic. The IC3 received over 28,500 complaints related to COVID-19, with fraudsters targeting both businesses and individuals.
The FBI encourages businesses and consumers to immediately report suspected internet fraud with the IC3. ALTA has created a two-minute video explaining how to submit a wire transfer fraud complaint with the IC3. Filing a complaint online allows the FBI to process a case more effectively than when victims contact a local field office. The video details the eight sections of the online form that needs filled out. Submitting complaints helps the FBI gauge the number and extent of the problem posted by wire fraud and other financial crimes.
“IC3 has continued to strengthen its relationships with industry and others in the law enforcement community to reduce financial losses resulting from BEC scams,” said Paul Abbate, deputy director of the FBI. “Through the Recovery Asset Team, IC3 worked with its partners to successfully freeze approximately $380 million of the $462 million in reported losses in 2020, representing a success rate of nearly 82%.”
New Targets
Criminals just aren’t targeting the funds involved in the closing. Mortgage payoffs are now a big focus of the attacks. In May, the U.S. Secret Service issued an advisory warning of a drastic increase in fraud involving mortgage payoffs.
According to the alert, cybercriminals impersonate lenders with the intent to elicit payment of mortgage payoffs. The Secret Service said the criminals send fictitious or altered mortgage payoff statements to title companies.
The Secret Service provided the following tips to help prevent this new type of fraud:
- Update policies and procedures to ensure proper verification of information before releasing funds.
- Independently obtain mortgage payoff statements and confirm with verified and trusted sources.
- Independently verify the authenticity of information included in correspondence and statements.
- Do not rely on third parties, such as mortgagors or other transaction participants, for information.
- Restrict wire transfers to known and previously verified accounts.
- Pay using checks when the information cannot be independently verified.
- Have a clear and detailed Incident Response Plan.
ALTA has developed a Rapid Response Plan for Wire Fraud Incidents. Access the plan, as well as other wire fraud resources, here.
Remain Vigilant
Title insurance professionals reported cybercriminals attempted to trick employees to wire funds to a fraudulent account in a third of all real estate and mortgage transactions, according to ALTA’s 2021 Wire Fraud and Cyber Crime Survey. However, training and education seem to be working as funds were only wired to a fraudulent account in a little over 8% of these attempts.
The survey of nearly 550 title agents nationwide was conducted in March 2021 by ALTA’s Research & Analytics Work Group. It asked agents about their experience with cybercrime and wire fraud.
Nationwide, 76% of title agents reported wire fraud attempts were the same or increased in 2020. The survey results track with data from the Federal Trade Commission that showed the agency received more than 2.1 million fraud reports from consumers in 2020. Imposter scams were the most common type of fraud reported to the agency.
According to ALTA’s survey, a full recovery of lost funds was only possible in 29% of cases. In 40% of cases less than 10% of the funds were recovered. Of companies that recovered funds, 58% started the process by contacting their bank. This highlights the need to quickly work with the financial institution involved in the wire and to report all criminal activity to the IC3.
Funds wired by an employee to a fraudulent account were only recovered less than a quarter of the time.
On a broader scale, the FBI reported that through its Recovery Asset Team, the IC3 worked with its partners to successfully freeze approximately $380 million of the $462 million in reported losses due to all types of wire fraud in 2020.
“IC3 has continued to strengthen its relationships with industry and others in the law enforcement community to reduce financial losses resulting from BEC scams,” the FBI said.
While the availability of cyber insurance with phishing coverage has grown in the past few years, only 20% of companies that suffered losses were made completely or partially whole by insurance.
More Help Needed
Earlier this year, ALTA successfully worked with the Senate and U.S. House of Representatives to push several federal agencies to focus more on real estate wire fraud as part of Congress’s annual appropriations process. An appropriation bill, also known as a spending bill, is legislation that authorizes the expenditure of government funds. The bills direct federal agencies on how to spend their budgets. Directing agencies to spend money on a specific topic or to produce a report is a critical way to elevate an issue with federal policymakers.
The language included in several appropriation bills in the Senate and House directs federal agencies like the FBI and FinCEN to produce reports on their current efforts on wire fraud and for suggestions of new legislative authority to help them combat these crimes. For the Department of Housing and Urban Development (HUD), the language requires the agency to brief the committee on efforts to educate consumers about real estate wire fraud.
“The title and settlement industry continues to lead the charge raising awareness about wire transfer fraud, educating their staff and implementing procedures to safeguard real estate funds,” said Diane Tomb, ALTA’s chief executive officer. “Unfortunately, criminals continue to modify their tactics and prey on unsuspecting consumers. Working with our partners involved in the real estate transaction, along with government officials, our members continue to educate people about how they can protect their money when purchasing a home or refinancing a mortgage, so they can continue to trust and have confidence in our digital world.”
Wire Fraud Resources
Of those who took ALTA’s wire fraud survey, 81% work at companies with 10 or less employees. Creating and hiring staff solely focused on cyber security can be difficult for smaller organizations. ALTA has created several resources to help these organizations:
- ALTA Outgoing Wire Preparation Checklist: Use this checklist as best practices for verifying outgoing wire information.
- ALTA Rapid Response Plan for Wire Fraud Incidents: The standard ALTA Rapid Response Plan for Wire Fraud Incidents has been developed by the ALTA Information Security Committee. Download and customize:
- ALTA Rapid Response Plan for Wire Fraud Incidents
- Rapid Response Worksheet, available in Excel Format or PDF
- How to Complete an IC3 Report Video
- ALTA Wire Fraud Infographic: ALTA has produced this rack card explaining wire fraud that includes the steps a consumer should take to avoid becoming a victim of wire transfer fraud.
- Wire Fraud Tips Video: Share this one-minute video with homebuyers so they know how to protect their money.
- ALTA Wire Fraud Video: This two-minute video provides four tips on how consumers can protect their money. It also offers advice on what to do if they have been targeted by a scam.
Also, ALTA’s Marketplace can help companies navigate many cyber-related vendors and services.