Escrow Wire Transfer Fraud Prevention

  • 6 min read

Sadly, escrow wire fraud is a relatively rare but debilitating scam that’s put upon home buyers by hackers and fraudsters, and here’s how it works There’s an article from CNBC about one family’s nightmare that illustrates the growing threat, which has actually increased in the last 5 to 10 years. We’ve seen this as far back as 2010 and before, but the way it works is that if you’re buying a house, you’re going to get a new email with instructions on how to wire money to the escrow company. The company that’s closing your deal is going to need your money. They’re going to need your down payment, or, if you’re paying cash, your money for buying the house. It’s at least tens of thousands of dollars, sometimes hundreds of thousands.

If you’re buying a $700,000 house with a 20% down payment, that’s $140,000 maybe more with closing costs that you’re wiring to the escrow company. And they want that money wired because they don’t take personal checks. They don’t take cashier’s checks. They want a wire transfer because it’s the only secure way that they can receive money. But hackers will discover this. That a home is being purchased, and they’ll send an email to the buyer to make it look like they’re the closing company and say, “Why is the money in this account?”

So you’re the buyer, and you get an email that says, “Hey, this is XYZ title company or XYZ escrow company.” Here are your wiring instructions: You wire $150,000 to these instructions, and then your title company calls you and says, “Hey, where’s the money?” Well, I sent it to you, but we never got it. We found out that the email was a scam. And that’s what happened to this family, and this article is not the only one; you’ll see that there are many of them. The FBI says crime is on the rise, and criminals are setting their sights on high-end markets like New York, Los Angeles, and Palm Beach.

Hackers infiltrate legitimate email conversations and send fake wiring instructions. They hack into the emails of the title companies. Sometimes it’s the realtor. That’s the loose end. The loose end is because title companies are a kind of financial institution, and they protect their emails, but the realtor who’s in on that conversation may not have the same email protections. And in this case, it was a $1.4 million home they bought with $900,000. Assume he has a $900 account at Bank of America. Let that sink in. They wired their money. Now, for most people, the home purchase—the down payment or the purchase—is the vast majority of their expenses. Available cash might be all the money you have. You might be putting all your money in the house.

So that money was lost, and in many cases, it was the person’s only money. We’ll talk in a minute about how to protect yourself against this. There’s a very simple method to prevent this from happening. Bankrate has an article about how to protect yourself from this. You know, make sure you verify the account. It’s very vague talk about how $150 million was stolen in 2018. It’s cyber-related. How it works We just talked about how it works. So how can you prevent this from happening? Well, it’s really simple. It’s a very simple solution when you get your wiring instructions from the title company.

First of all, call up the title company. Make sure that the digits on the bank account that they gave you are correct. Our team will read it over the phone and have him read it back. Make sure it’s correct. That’s probably enough to eliminate about 80% to 90% of these frauds, but the next thing you can do is send a test wire. Send $500 to the title company. From your bank Go to your bank and send a wire. A wire transfer is required, and you have to do this early enough that you can get it back from the recipient. Results back to the title company, and call the title company the next day and say, “Hey, did you get my 500 bucks?” Yep, we got it all good. Okay, now you go back to the bank and have them send your major wire transfer in full to the same account. Just have him send it to the same place I sent it last time.

Now you know that the transfer pathway is good because it goes to the title company. All you risk is $500 if you make a mistake. You replied to the wrong email, or maybe even if the scammer used an account with the same last four of the account number or did something to make it look fake. If the title company gets your $500, then you know that that pathway is good. So it’s a very simple way to prevent losing a million dollars or hundreds of thousands of dollars. Do a test transfer of a few hundred dollars or a small amount. Make sure that goes. and then use it on the same pathway to send your entire transaction.

Again, get good legal advice. Don’t take our word for it. Do your other due diligence and take all the preventative measures you need. But this is one way you can add to your other protective measures. Make sure you don’t become a victim and have this nightmare of losing all your house money, because it may be more than losing your house money. You may lose your house, right? Because if you’re wiring money to buy your house, that means that you probably sold your old house or are selling your old house, and you may not have a place to live. So maybe you lost more than just $200,000; you’re now homeless because you don’t have a place to live after selling your old house. You can’t buy a new house without money. So that deal is going to be dead, whatever the down payment or deposit you gave for the house might be. You know I kept them because you breached the contract.

So it may be more than just losing the money, which would be bad enough now that you have no place to live. So this is one potential technique you can use to protect yourself and avoid losing all or most of your life savings through an escrow fraud scheme by doing a little test transaction, making sure it goes through, and then going back to the bank in person. Don’t try to do it over the phone. Don’t try to do it using your online account; go to the bank in person and say, “Hey, remember that wire transfer I sent last week?” Send this money to the same exact one. And that way you’re not worrying about transposing numbers and using the wrong account number, and your title company and your bank will both help you. Protect against wire fraud.

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