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Real Estate Wire Fraud: Who Is Liable?

It’s a simple question with no easy answer: who is liable for real estate wire fraud? In a perfect world, it would be the criminal responsible for the fraud who would pay restitution, but in many cases, these criminals are never caught or are located overseas—and even if they are caught, it doesn’t resolve the immediate question of how a sale can close when the funds needed have gone missing. Here’s a closer look at the issue of who is liable in cases of real estate fraud.

A Primer on Real Estate Wire Fraud

Wiring funds is certainly easier than showing up to a real estate closing with a briefcase full of cash like you see in movies, but it also comes with its own set of risks. Real estate wire fraud occurs when criminals trick buyers into wiring closing funds to their own bank accounts, rather than to the title company. There are many ways in which this is done—they might hack a real estate agent’s email or spoof their account; they may call and pose as a representative of the title company, asking for funds to be sent before closing. 

This type of crime is growing because scammers understand that homebuyers are on edge in the days leading up to closing—telling them, for example, that they must wire funds within the hour or lose their home leaves little room for investigation—and also because real estate involves large sums of money changing hands. (Read these wire fraud statistics to see the scope of the problem.)

What Happens When Closing Funds Disappear

If one of your clients is a victim of real estate wire fraud, they will likely show up for closing and be faced with confusion. “What do you mean, I need to wire the funds? I sent them yesterday.” This soon leads to panic—how can a purchase of real estate still go through when closing costs can’t be paid? If the buyer has sold their own home and is purchasing another, they may be without a place to live. Often, they have a moving truck full of their belongings and nowhere to bring them. 

It’s a devastating crime that leaves buyers with no good options because it’s rare for people to have the funds available for a second down payment on a home. It’s equally rare for the lost funds to ever be recovered, which is why avoiding real estate wire fraud in the first place is important.

Who Ultimately Pays for Real Estate Wire Fraud

There’s no straightforward answer as to who is liable for real estate wire fraud. Cases that have worked their way through the courts have resulted in any number of parties involved in a real estate deal being held liable.

In other forms of wire fraud, banks are are often liable for the losses incurred. Real estate wire fraud is different. Banks are rarely liable; unfortunately, it is the consumer who usually has liability because they willingly authorized the transaction, even though they did so under false pretenses.

While the consumer is usually liable, this isn’t always the case. Courts have found real estate agents, brokers, and escrow companies liable for real estate wire fraud in certain circumstances. It’s also possible that title companies could have liability if a court finds that they were negligent.

What You Can Do to Prevent Real Estate Wire Fraud

Since there is no good protection in place for victims of real estate wire fraud, it falls upon you as a title company to implement safeguards for your clients. While you may not bear legal responsibility, it is a moral responsibility to protect your clients and it saves your company from having to deal with the aftermath of a closing gone wrong. It’s also a selling point for your business, making you the clear choice when compared to other title companies that do not have wire fraud prevention safeguards in place.

ClosingLock is trusted by title companies, escrow companies, and attorney offices nationwide to prevent wire fraud for their customers. Our solution is simple to use, offers superior protection, and facilitates the safe transfer of more than $2 billion each month.

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