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How to Identify Red Flags in Sophisticated Real Estate Fraud Scams

Criminals are increasingly more sophisticated.  They infiltrate real estate transactions to defraud parties out of their money. Most real estate professionals know that wire fraud has been around for a while and take some safeguards to prevent it. However, we’re seeing new methods to perpetrate fraud. 

Real estate professionals need to be aware of these new scams and be able to identify the “red flags”.  The following “red flags” are from real claims and calls to our risk management hotline.   

Transaction Red Flags

 Not meeting your client in person:  COVID protocols made it easy for fraudster “clients” to avoid meeting their real estate licensee in person. These “clients” look and sound legitimate, but they use someone else’s identity to take out a loan, purchase a property, or even sell a property they don’t legally own. If your “client” refuses to meet with you in person or always has an excuse as to why they can’t meet in person during the transaction, consider that a red flag.    

Rushing the deal:   We know real estate is time sensitive, and fraudsters often take advantage of the last minute closing frenzy to perpetrate fraud.  Beware of:

  • “Last minute” wiring instructions changing bank information
  • Addenda changing title or ownership
  • In the case of a seller carryback loan, moving the seller’s loan to a junior position.  

Read last minute changes carefully.  Understand what is being changed and why and who is making the change.   

Changes to contact info: Even experienced real estate professionals get fooled! A 30 year escrow officer followed all of the safeguards, but was fooled at the last minute when the “seller” asked to use a new cell number.  The escrow officer called the cell back ,and it came up with the legitimate seller’s name ,so she let her guard down a bit. She asked the “seller” why he was using a new number, and he said it was his “work cell” and this way escrow could more easily reach him since they were pushed to get the deal closed. The escrow officer wired funds to the fraudster’s bank.     

Monetary instruments that no one recognizes. Just recently, a “buyer” attempted to make an all cash purchase using a “Bill of Exchange” issued by the US government. The “buyer” claimed it was a legitimate instrument and wanted escrow and seller to accept it.  

  • Red Flag #1: The “buyer” refused to deposit it into his own bank and wire funds to close  
  • Red Flag #2: the instrument had a significant “typo 
  • Red Flag #3: the “buyer” threatened to cancel the deal if they wouldn’t take the instrument 
  • Red Flag #4: the escrow officer’s bank had never seen such an instrument and advised to decline it

We expect this buyer will attempt to use this instrument in another purchase so beware!   

Non Real Estate Escrow/Closing transactions:  Real estate errors and omissions policies typically don’t cover non-real estate escrow/closing transactions. Be wary of requests to handle a non-real estate escrow/close as these can be complicated, use different forms and contracts, and have different standards of care. A seemingly simple escrow/close involving the sale and purchase of N95 masks went terribly wrong when funds were wired before the buyer received the masks. The buyer ultimately never received the masks. The escrow officer was unfamiliar with the forms and misunderstood instructions due to language barriers. Stay with what you know — real estate!    

If you, or any party in the transaction, have questions about a real or even perceived “red flag”, CRES insureds can contact CRES Legal Services to talk to a CRES Risk Management attorney about the transaction in more detail.  It is much easier to prevent a claim on an open transaction than to fight one when the deal has closed.    

Make sure your business is protected with real estate errors and omissions insurance, As part of one of the largest insurance brokers in the world, we have access to more E&O options than just about anyone else,

Contributing Author: Laura Prouse
CRES Insurance

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