The dangers of wire transfer fraud for people buying property and making a down payment is a growing concern, according to some experts. REALTORS® can help educate their clients on the perils of these scams so they’re aware of the risks, can be better positioned to identify the warning signs, and take steps to protect themselves during large transactions.
“We need to be extra diligent and more vigilant than ever,” says Simeon Papailias, REALTOR® and managing partner at Royal LePage’s REC Canada . “As real estate professionals, it is our job to protect data.”
Wire transfers can carry unexpected risks. They’re designed to be irreversible so the recipient can use the funds right away. However, if account numbers are mixed up (inadvertently or on purpose) it can mean the money is gone forever. It’s unclear how many wire transfers go wrong per year, but according to the Financial Post they rank among the top banking product complaints at the Ombudsman for Banking Services and Investments.
Papailias says in some cases he’s seen fraudsters target people they believe to be weak, for example people who are using social media (especially direct messaging) too loosely, or sending unsecured emails with personal information, and phish them. In phishing attacks, fraudulent messages claiming to be from reputable companies or individuals try to trick people into revealing sensitive information like account numbers.
“They’ll tell them with a closing that’s coming up, we need an extra deposit; we need another $10,000,” he adds.
Papailias suggests REALTORSÒ add information to their buyer’s package that covers privacy relating to down payment deposits to help educate buyers on the risks of wire transfer fraud and the extra care that should be taken when using this method to transfer funds when buying property. They can also advise clients to seek advice from their financial institution and/or real estate lawyer.
“Buyer beware is not good enough,” he adds.
Buyers’ deposits are typically held in trust with the real estate brokerage until closing and the lawyers handle the funds transfer. The vendor’s solicitor would deal with paying out any existing mortgages and commissions owed, then provide the sales proceeds to the vendor. But the reality is scammers are becoming more sophisticated at targeting those transactions and it can be difficult to catch them at the outset. If a client does lose money in a wire transfer scam, they’re unfortunately unlikely to recover it.
One way home buyers can protect themselves from wire fraud is by ensuring they have at least met their lawyer virtually or in person and verify the lawyer’s trust account information during that meeting. They should never trust an email claiming to be the lawyer’s assistant or “finance department” of the law firm, with an attachment to the email detailing wire information. The buyer could be opening themselves up to fraudsters pretending to be from the law firm, with wire instructions that are not the actual lawyer’s trust account. Buyers can also opt to use another system for their deposit, such as a physical bank draft.
Larry Winton, a partner at Fogler, Rubinoff LLP in Toronto, recounts a large-scale commercial transaction he was involved in that offers important lessons any REALTORÒ or real estate lawyer should take away. Verbal confirmations with the other side’s lawyer to verify wire instructions are a must in any transaction, before money is sent, Winton adds. “Never take anybody at face value.”
In the deal, which involved millions of dollars that was supposed to go to one of his clients, Winton said he emailed the wire instructions to the other team’s lawyer. When the money did not arrive the next day, calls were made and IT departments were brought in. It was determined that the email that left Winton’s server contained the correct instructions, but what arrived on the other side’s server did not.
Someone had hacked into the other side’s server, intercepted the message, copied it with the same heading and wording that was in Winton’s email, but they slipped in other wiring instructions. Fortunately, the bank was able stop the fraudster from moving the money fast: The scammer had moved it to a Canadian bank first and not out of the country.
Nick Poon, an associate with Gilbertson Davis LLP, has seen similar scams.
Poon says another common type of wire fraud in real estate transactions involves identity theft of homeowners, in which fraudsters will assume the identity of a homeowner and take out a mortgage or line of credit against the property. The homeowner won’t know about it until the financial institution provides a default notice. By then it’s usually too late to get the money back.
“People just need to be aware there are fraudsters and scammers looking to take money as fast as they can,” Winton says. “A lot of tech is unsecured. And there are very sophisticated people who can get into those accounts. People just monitor other people’s email and look for the words like ‘wire’ or ‘money’ and get ownership of these accounts.
“There are bad players out there, and people need to recognize that. A lot of trouble can be avoided if you’re cautious and take reasonable steps. A phone call can completely thwart the ability of a bad actor.”
Banks seem to be battening down the hatches, though. REALTOR® and broker Janice Fox recalls a transaction in which one of her clients, a Canadian citizen living in the United Kingdom, was looking to purchase a condo in Toronto. With a son going to school in the city, he was intending to relocate.
After reaching out to the bank, he was told that, unless he appeared in person at the branch, the bank would not process any wire transfer or prepare a draft.
“No grey area, no wiggle room,” Fox says. The son couldn’t take care of it for him, and a live video call for approval or notarized confirmation of identity from a lawyer were not options.
“The bank claimed that wire fraud is so rampant that, unless the client is in person, they will not proceed with any transfer instructions,” she says.
Education can be the best defence for buyers. REALTORSÒ can help their clients by directing them to resources such as the Financial Consumer Agency of Canada (FCAC) on issues like money transfers and fraud, including how to protect themselves when it comes to banking online. The Canadian Anti-Fraud Centre is also a good resource for help on what to do and where to report a fraud. REALTORS® should also keep in mind general cybersecurity awareness resources that can provide clients with up to date information on the latest methods scammers are using to facilitate wire fraud (e.g., identity theft, hacking, phishing).
The article above is for information purposes and is not financial or legal advice and is not a substitute for legal counsel.
