Earlier this month, Minnesota Commerce Commissioner Mike Rothman put out a warning "about a wire transfer scam that targets real estate closings."  

Minnesota Commerce Commissioner Mike Rothman is warning home buyers and sellers, as well as real estate professionals, about a wire transfer scam that targets real estate closings. The Commerce Department is currently investigating several Minnesota real estate transactions in which hundreds of thousands of dollars were diverted and stolen as a result of fraudulent wire transfer instructions received via fake emails, according to a news release.

“This scam has been spreading around the country and now it’s begun to hit Minnesotans,” Rothman, whose agency regulates the real estate industry in the state, said in a statement. “Crooks are hacking into computers, getting private information about real estate transactions and using it to rip people off. We want to stop these thefts and make sure Minnesotans are on guard against fraud when they buy their dream homes.”

The scam is fairly sophisticated. The scammer hacks into email accounts of real estate professionals and learns details about upcoming real estate closings. Then, they use the information, and possibly the hacked email account of a trusted participant in the settlement process, to contact a buyer with fake wiring instructions. The email might look legitimate, it could appear to be from their Realtor or the escrow officer at the title company. If the buyer sends the wire, the money goes directly to the scammer's bank account where it's usually withdrawn immediately. 

The Fedwire Funds Service is "a real-time gross settlement system that enables participants to initiate funds transfer that are immediate, final, and irrevocable once processed."  This is great for escrow agents -- they know that once they have funds from a Fedwire transfer they have "good funds."  Nobody can pull a Fedwire back after it's processed.  But, this is also what makes this particular variety of scam so dangerous.  If a consumer is duped into wiring their life savings to a fraudster instead of the title agency waiting for their downpayment, its permanent.

ALTA recently urged the CFPB to warn consumers about wire fraud schemes when purchasing a home.  

“Despite efforts by the title industry and others to educate consumers about the risk, homebuyers continue to be targeted,” said Michelle Korsmo, ALTA’s chief executive officer. “With the spring homebuying season underway, it’s vital to continue raising awareness about these schemes. The CFPB should take this opportunity to protect consumers from criminals looking to steal their money.”

It seems that these scams targeting homebuyers are on the rise.  And despite the efforts of the title industry and the CFPB to inform consumers, it is going to get worse.  Ohio recently changed its good funds law to require consumers to wire funds for real estate closings. This type of scheme wasn't so easy to pull off when the consumer was told to bring a cashier's check to closing.  The scammer can't likely show up at the closing with his hand out to intercept a physical check.  But, when the consumer is told that they will be required to wire their downpayment prior to closing, they are more likely to fall victim to a sophisticated scam where the fraudster sends a legitimate looking email containing facts that are pertinent to the transaction.  

This may be a bit controversial, but to some degree those who pushed for the change in the good funds law, and the legislature that was quick to accommodate them are partially responsible for more innocent consumers losing their life savings. The title and real estate industry are better prepared to deal with the risks involved in closing real estate transactions.

Counterfeit cashier's checks were a risk for the title agents.  I understand why some people believe that requiring wire transfers is the solution to protecting escrow officers and title companies, but the unintended consequence is that it will put consumers at a greater risk of being conned out of very large sums of money.  

Protecting the consumer should be paramount.  A better solution to the counterfeit cashier's check problem might have been educating settlement professionals. Realtors, title agents, and other industry professionals are more apt to recognize a con than a consumer buying his first home.  It seems to me that requiring wire transfers just traded one victim for another, who is even less prepared to prevent the fraud.  

I guess all we can do now is try to get the word out and alert consumers of the potential for fraud. Here is a list of tips from Minnesota:

• Never send financial information via email, unless it is encrypted.
  
  
• Never wire money for a real estate transaction based only on an email.
  
  
• Confirm all money transfer instructions, preferably in person or through a trusted and independently-verified phone number. Don’t rely on a phone number or website address in an email.
  
  
• Be suspicious of any “last minute” changes in payment instructions.
  
  
• Do not open an attachment or link in an email unless you are absolutely sure who sent it to you. It may contain malware that allows a hacker access to your computer.
  
  
• Practice good computer protection. Regularly change your passwords and make sure your computer’s operating system, browser and security software are up-to-date.