Myrtle Beach article points to current fraud cases

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The Myrtle Beach Sun News published an article on September 5 entitled, “They were conned out of their dream beach home, lawsuit says. These are common SC scams.”  You can read the article here.

Those of us who have worked in the real estate industry for years have heard of (or been bitten by) various iterations of real estate fraud schemes. These schemes change routinely as the fraudsters become more sophisticated. Thankfully, we are becoming more informed and therefore more sophisticated ourselves. But this article is an excellent reminder.

The article recounts the tale of a North Carolina couple, Jeremy and Candice Pedley, who spent years saving before finally acting on their dream of owning a family vacation home in North Myrtle Beach. The Pedleys entered into a contract last November to purchase a condo in in a gated community for $380,000. Unfortunately, a third party hacked into the real estate agent’s emails, impersonated their closing attorney, and convinced he Pedleys so wire their funds to a bank account in Rock Hill.

The hacking effort requested the exact number the Pedleys were expecting to wire, $86,183.81. This fact convinced the Pedleys that the fraudulent instructions were legitimate. According to the article, they have been able to recover about $36,000 of the lost funds. They were unable to complete the purchase of their dream condominium.

Columbia attorney Dave Maxfield is representing the Pedleys in a lawsuit attempting to recover their funds. According to the article, Maxfield told the Sun News that banks should do a better job stopping fraudulent accounts from being used, and real estate agents and attorneys need to warn clients about the pitfalls of wiring funds.

The article then details a few other common scams outlined by The S.C. Department of Consumer Affairs.

One such scheme creates fake rental listings promising low rent, immediate availability, and great amenities. The goal is to trick renters into transferring funds before they are tipped off that the listings don’t exist.

Another scheme notifies consumers that they have won the lottery, requesting, of course, some sort of fee or tax to receive the alleged winnings. Pressure is applied to “act now”.

Finally, the article discussed fake debt collectors. Fraudsters impersonate government authorities and attempt to convince consumers to pay off debt. These schemes typically request the target to pay a fraction of the amount they owe in return for full debt forgiveness. Threats of arrest are often used to apply pressure.

Please keep yourself and your staff members educated about all the current schemes. Your title insurance company should be a great source of current information. And please give your staff members permission to slow down and use the time they need to think through the facts of your transactions. I believe time is the key. The very smart individuals you employ, if properly armed with the necessary information and education, should be able to thwart most of these schemes, if they are given sufficient time to analyze the communications that hit their inboxes daily.

Wire fraud continues to be a significant problem

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My preacher has suffered several email hacking schemes that prey on church members with kind hearts.

He has sent out a written notification and has announced from the pulpit more than once that church members have reported to him that they sent money because of his very touching email requests about persons in need…email requests that he never made. He assured his congregation that if he needs specific funds for specific needs, he will make phone calls. He shared that preacher friends of his have reported similar schemes. The fake emails always report that he is unavailable to take phone calls but that the need is urgent and immediate.

Phone calls may be the key to fraud prevention!

A lawyer friend of mine called me this week to ask an opinion on a potential client’s case. Help me answer the question: Does a closing attorney have a duty to make a telephone call to clients who may need to wire funds in connection with a closing to warn about the dangers of wire fraud and how to prevent the loss of closing funds?

I don’t know the answer to that question. My gut reaction is that the standard in our communities in South Carolina is that lawyers should provide very specific instructions on wiring instructions and engagement letters to prevent this type of fraud. I’ve seen several excellent examples of red-letter, bolded warnings.

Chicago Title in South Carolina continues to see a rise in the amount of fraud and attempted fraud in connection with real estate closings. The most recent memorandum was sent out to agents on February 2. Most of these incidents involve hacked emails where a party to the transaction fails to maintain strong computer or email security.

Unfortunately, law firms with significant security measures in place have also been victims of these schemes. The hackers typically submit altered payoff letters or wiring instructions to divert the funds. Like the emails that have plagued my preacher, the forged emails, wiring instructions and payoff letters look very similar to legitimate documents.

Here is the current advice on preventing these disasters in your law firms:

  1. Obtain payoff information and wiring instructions early in the transaction so that there is ample time to review them and confirm their authenticity.
  2. Review every payoff and wiring instruction to determine whether it appears authentic on its face. Many fraudsters are excellent at spoofing letterheads and logos, but sometimes, you may see tell-tale signs.
  3. Compare each payoff letter and wiring instruction to prior instructions to determine whether account numbers have been changed.
  4. If the wire is going to an entity to which you have previously sent wires, compare the new information with the prior transaction. If you save wiring instructions in your systems, make sure that repository is secure and cannot be easily shared.
  5. Verify every wiring instruction verbally using a known and trusted telephone number. Do not use telephone numbers provided in the instructions themselves unless you can verify its validity.
  6. If you cannot verify the instructions verbally or have doubts about the transaction, consider mailing, overnighting or even hand delivering a check to a confirmed address instead of using a wire.

Chicago Title has developed an excellent APP for your cell phone that contains the information you will need in the event your law firm or your clients become victims of fraud. As always, I highly recommend Chicago Title!

Secret Service Thwarts $21 million scam

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The United States Secret Service announced in a press release dated September 1 that on August 23, it was successful in thwarting a real estate related business email compromise (BEC) scheme that sought to defraud a purchaser of more than $21 million.

The scheme attempted to divert closing funds to a fraudulent bank account. After quick action by the Secret Service and its private sector partners, the funds were returned to the victim.

Please refer to this Underwriting Memorandum issued by Chicago Title’s South Carolina State Office on September 20 warning that fraudulent wiring instruction schemes are on the rise.

These schemes typically employ altered or fictitious payoff statements. The fraudster often impersonates a mortgage broker, lender, borrower, or an agent of the borrower to request a copy of the payoff statement. Alternatively, the fraudster may intercept the payoff statement by a hacking or phishing ploy.

Armed with the payoff statement, the fraudster will create and transmit a bogus “updated” payoff statement with wiring instructions intending to divert the funds to the fraudster. The statement may also alter contact information so that telephone calls to verify payoff information will be answered by the fraudsters.

Chicago Title’s memorandum advises closing attorneys to take the following proactive measures to minimize the risk that payoff funds will be diverted:

  • Obtain payoff statements early so they can be properly reviewed and verified.
  • Verify banking information and payoff amounts directly with the payee using known, trusted numbers rather than information from the payoff statement.
  • Refer to prior payoff statements from the same payee to confirm the banking information matches.
  • Maintain repetitive wire information within systems or databases to use for future wires. Lock this information to restrict alterations.
  • If it is impossible to make a verbal confirmation by a known trusted telephone number, consider sending overnighting a check.

Be careful out there, closing attorneys!