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Look Out, Real Estate Boom – It’s The Closing Scam Tornado

By John F. Wasik for RealClearInvestigations

Jeff, a Chicago-based marketing consultant, got a last-minute set of instructions on how to pay several thousand dollars in closing fees when he was close to closing his Chicago home sale.

It looked professional at first glance. The logo was formal looking and the language used to indicate the amount due and the expenses were clear. He noticed something that caught his attention: the email address was strange. He called his mortgage broker to confirm.

“Don’t do that!” his broker told him in an alarmed voice. This was a fraud. If he hit “send,” his closing fees would go to a thief who had been monitoring his emails. “I was a keystroke away from losing thousands of dollars,” Jeff recalled.

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As the housing market sizzles across the country – with nearly 6 million homes bought last year – scammers have been finding new ways to tap into this once-secure market.

Although real estate transactions are still subject to a multitude of regulations, which include lawyers, banks, and title insurance companies as well, there is an abundance of opportunities for thieves to take advantage of vulnerable customers.

According to the American Land and Title Association (a trade association representing professionals involved in property transactions), more than 111,000 homeowners were robbed of over $220 million.

Closing-fund fraud is just one example of the many scams in real estate that have proliferated in recent years. This is a scam that entices people to send cash to untrue addresses. You can find them here:

  1. Fake Rentals Scamsters post rental ads – either for real properties they don’t own or “spoofs” they have created with photographs – on major sites like Craigslist. They will often ask for lower rates than the market, request a deposit from interested parties, and then vanish.
  2. Fraudulent Foreclosure Relief.The scam, which was started during 2007-2009’s housing crash, involves thieves promising that they would stop foreclosure proceedings. They take a few hundred dollars and disappear with the cash.
  3. Beware of Moving Frauds Most people don’t actually meet their movers before they hire them, which enables fraudulent operators to either take an upfront fee and not move clients’ possessions or hold furniture “hostage,” demanding a higher fee and refusing to complete the move unless they are paid more. Usually these bogus movers are pitched through moving “brokers.”

This pandemic is fueling the rise in scams related to real estate. Working from home means more information is being transmitted over personal Internet connections that are less secure than offices.

The housing boom fueled by COVID – which has sparked demand but constrained new construction – has led to greater competition in many markets, leading increasing numbers of buyers to purchase homes sight unseen.

The real estate company Redfin reports that 63% of homebuyers last year made an offer on a property they hadn’t seen in person. The rise in cryptocurrency also makes it more difficult to track bogus transactions, and allows for easier laundering of ill-gotten profits.

Real estate frauds are part of an increase in crimes that involve emailed money. According to the Internet Crime Complaint Center (IC3), in 2020 the agency received 19,369 “Business Email Compromise (BEC)/ Email Account Compromise (EAC)” complaints with adjusted losses of more than $1.8 billion.

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Scammers use a variety of tricks to trick victims. They use “phishing” emails to mine valuable personal or financial information, claiming to falsely “verify” bank account or Social Security information. Or they may “spoof’ consumers into thinking that an email, text or call is from a real financial company, online retailer or the IRS.

These scams are often from overseas. However, because they can quickly create fake websites and emails before regulators notice them, it is difficult to track and catch.

The Treasury Department, FBI and its Internet Crime Complaint Center broadly categorize closing-expense fraud under what they call “business email compromise.” The scam is relatively simple: A fake email pops up for a homeowner closing on a mortgage – usually on the day all the documents and closing expenses need to be verified and transferred.

A false email is used to lure the final party to electronically transfer funds to a criminal. This can be difficult to track down.

No. No. 7 in the FBI Cyberscam TOP 10

Although it does not include rental fraud, the National Association of Realtors estimates that more than 13,000 fraud-related claims were filed last year. However, this puts real-estate fraud on the No.10 list for most prevalent email fraud (No. 7) of the FBI’s most prevalent cyberscams.

Deanne Rymarowicz, associate counsel for the NAR, told RealClearInvestigations that cyberthieves have become diligent in stalking potential victims. “They look for pending sales in public records,” she said, “create profiles from their social media then hack or spoof their emails with false addresses.”

One positive statistic Rymarowicz discovered: When these thefts are reported to law enforcement agencies such as the FBI within 24 hours, “there is an 82% recovery rate of stolen funds. So acting quickly is important.”

These scams are often a source of embarrassment for most people. According to the FBI, about 15% of victims report these scams to authorities.

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Another industry group, the National Credit Union Association, stated that while these kinds of scams are increasing, what makes them “so enticing to criminals and easy to pull off is the nature of the real estate closing process, which is often hurried, and the fact that email is a commonly used method for providing legitimate instructions for sending funds at closing.” A spokesman for the group declined to comment further.

Others types of residential real property fraud, while more difficult to pull off, have a different set of tactics. Regulators were observing a significant rise in cybertheft of home titles, as outlined by RCI last year.

These scams were more complex than closing-expense theft and involved false home title transfers. Fake financings were a common form of plain-vanilla mortgage fraud in 2008, shortly after the credit crisis.

Thieves advertised “mortgage relief” scams and other ways to steal funds and personal information. The majority of these scams involved the collection upfront fees to fake mortgage services.

The newest wrinkle is that the cyberthief may “wash” the stolen funds into a cryptocurrency, which will make the transaction even harder to track if they use “tumbler” software that scrambles the route the transfer takes.

“In 2020, the IC3 observed an increase in the number of complaints related to the use of identity theft and funds being converted to cryptocurrency,” the agency reported. Special software is available to disguise the transfer and conceal the funds when it’s done in digital currency.

Earlier this year, the FBI also issued a statement on how crypto theft works: “The victim entity will receive a spoofed or otherwise compromised email that contains doctored wire instructions provided by the bad actor; however, since the requested transfer is directed to a traditional financial institution (where the cryptocurrency exchange has a custodial account), it is not easily identified by the victim.”

Due to the explosion in real estate frauds over recent years, major financial regulators as well as trade associations have issued numerous consumer warnings. They are responding to what they call an epidemic of internet-based fraud.

“Some [thieves] are stealing through phishing emails, some are monitoring social media who tend to announce things like closings,” said Mitria Wilson-Spotser, director of housing policy for the Consumer Federation of America. “An innocent act has become a calling card for thieves.”

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The real estate industry; the Consumer Financial Protection Bureau, which also declined to comment beyond its website statement; and other government consumer protection agencies, have been proactive in telling consumers how to avoid these scams, which may continue to rise as more people do electronic transactions and don’t take time to sweat important details or use two-factor authentication.

The difficulty regulators face in combating these crimes is compounded by the fact that real estate transactions can be monitored by multiple jurisdictions and agencies. This includes federal and state banking authorities and law enforcement agencies. Data security and privacy issues are usually overseen by different government agencies.

The CFA’s Wilson-Spotser notes that “efforts to combat these scams fall under an incredibly leaky federal data security and privacy umbrella, which the CFPB doesn’t have jurisdiction over.”

While multiple eyes on these transactions can be a good thing, it’s difficult to know which agency to turn to if you’re scammed. Banks, mortgage brokers, and agents in real estate have the highest incentive to keep an eye on transactions.

Wire fraud in financial transactions is also covered by the Financial Crimes Enforcement Network (or FinCEN), the sub-agency that works alongside the Treasury or Justice departments. A FinCEN spokesperson noted that when authorities receive a closing-fund theft complaint, “we move quickly to track and make contact with foreign jurisdictions to assist in recovering the funds.”

The FBI and FinCEN could not provide any further information about how they deal with enforcement.

RCI was told by experts that in most cases, the easiest safeguard is simply to call the person responsible for closing the transaction. They are usually an employee of title companies, banks, or lawyers.

Jeff, from Chicago, discovered in a flash that anything that smells strange is probably fishy. Instead of hitting “send” call you broker or bank.

RealClearWire permission granted this syndicated version.

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