Warning sounded on real estate closing fraud

Lawyers and real estate professionals are being warned of a fraud targeting sellers of real estate that has snared victims in Virginia and North Carolina.

In a typical scenario, someone pretends to be the seller and changes payment instructions, demanding sale proceeds be wired to a new bank account. By the time the scam is discovered, the money is gone.

The alert came first from the North Carolina State Bar, but the Virginia State Bar said it was seeking information on whether similar attempts might have occurred in Virginia.

Attorneys and a title company executive confirm the scammers have struck in this state, as well.

In one case, Richmond lawyers are currently representing a woman whose share of the sale proceeds were similarly “redirected.” The email containing that instruction was sent to the title insurance company serving as the escrow agent, according to Barrett E. Pope, one of the victim’s attorneys.

“The money eventually was so wired, and we are seeking recovery from the responsible party or parties,” Pope said. The property was in the Richmond area, he said.

Gini DiStanislao, president of Bon Air Title Agency Inc., said an attorney reported a similar situation in Prince George County where the closing attorney received an email from the real estate agent asking for closing funds to be wired into the sellers’ account since they were out of town. Full wire instructions were included in the email, DiStanislao said.

The closing attorney called the real estate agent to confirm and found that the agent’s email account had been compromised. The agent had not sent the email, DiStanislao said.

“Fortunately no loss was sustained due to the follow up of the closing attorney,” she said.

In a posted announcement, the North Carolina bar said it received multiple reports of similar fraudulent activity this month relating to wired funds in real estate transactions, with losses as high as $200,000.

The North Carolina bar quoted this sample report:

On a closing that took place on a Friday morning, before funds were disbursed, the firm received an email and a phone call from a woman purporting to be the out of state seller, requesting the firm to wire funds to her bank account. The following Monday, the firm learned that the seller’s email was compromised and bad actors had inserted themselves in her place. The firm attempted to retract the wire and later discovered that the bank did not retract the wire and will not communicate further without a subpoena.

This firm had two-level confirmation practices in place to protect against fraudulent wires, but the hackers emailed and called the firm to confirm the wiring instructions as was required, the bar reported. The hackers had gained access to the email account of one of the parties to the transaction and learned the necessary information in order to assume the identity of one of the parties and initiate the fraudulent transaction.

Another defrauded firm noticed after the fact that the email address of the hacker was different from the actual seller’s email address by only one letter, the bar said.

One suggestion offered by the North Carolina bar is for the lawyer to initiate the phone call to the actual client or party to confirm the party’s purported wiring instructions, calling only the phone number listed in the client file, even if a different number is provided via email.

Another would-be scammer apparently blanketed Virginia with attempts at a possible counterfeit check scheme, a title insurance attorney said.

Lisa K. Tully with Fidelity National Title Group Inc. in Richmond shared a sample email from a Shanghai “buyer” hoping to purchase a listed property. The purported buyer, “Qian Sun,” promised a $10,000 earnest money deposit.

Tully said she learned April 20 that five such emails were received by five listing agencies for five separate properties in the Virginia Beach area. She sent the suspicious missives to her contacts to ask if anyone else had heard from “Sun.”

“My phone lit up and my email lit up and I got calls from all over the state,” Tully said.

Of around 20 such inquiries, only two progressed to where “Sun” sent deposit checks. Since the listing agents required wired funds, the transactions went nowhere, Tully said.

“No one that I know lost any money,” she said.

Tully explained the scam probably would involve a change in heart on the part of the buyer and a request for part of the earnest money to be returned. The perpetrator would depend on a delay in discovery of the worthless value of the check.

Both the North Carolina and Virginia bars urge lawyers to be vigilant when communicating with email and consider whether your firm’s wiring procedures are strong enough to detect and prevent these fraud attempts.

Wendy F. Inge, client advisor for the legal specialty group at Suntrust Bank in Richmond, said lawyers need to respect the knowledge and creativity of scammers in working their ploys.

“The perpetrators have learned how we do business,” she said. “They know there’s money there. It’ll pass the smell test if they get it through quickly.”

Tully said the wiring instructions scam may have its genesis with someone monitoring the recording of mortgage deeds at courthouses. The scammer might call a title company, pretend to be the borrower, and ask for copies of some of the sale documents, including the loan application. That would give the crook the information needed to try to spoof a change in wiring instructions, Tully said.

Lawyers whose firms have been the subject of an attempted or successful fraud or who have any questions or concerns are asked to contact the VSB ethics hotline at [email protected].

Updated April 28 to add information from Virginia sources about Virginia incidents.