When it Looks Like a Stradivari Violin but Isn’t: Protecting Yourself from Wire Fraud in Your Real Estate Transaction

Fine violins do not have serial numbers, but they do typically have a label inside identifying the maker and frequently the year and location where the violin was made. Many violin makers, or luthiers[i] as they are known, like to copy well-known instruments, sometimes even down to the label inside the instrument, and the most famous violin maker, Antonio Stradivari, is also the most frequently copied.

Usually, the luthiers do not try to pass their Stradivari copies off as originals.  Even if they were to try to do so, the instrument’s age and sound quality of the copies usually would fall far short of a Stradivari and give them away.

Where there is a question regarding the origin of an old violin, modern technology provides additional tools, such as chemical analysis of varnish and dating of the wood, which can further aid in distinguishing genuine violins from famous makers from copies. Yet, identification of old instruments remains as much art and conventional detective work as it does science.

Unfortunately, in the banking world, fakes may not be as easy to detect. Many title and escrow companies have started putting warnings on their e-mails, which read something like this:

Online banking fraud is on the rise. If you receive an email containing Wire Transfer Instructions call your escrow officer immediately to verify the information prior to sending funds.

The National Association of Realtors has recommended that its members include the following language on their e-mail signature lines:

IMPORTANT NOTICE: Never trust wiring instructions sent via email. Cyber criminals are hacking email accounts and sending emails with fake wiring instructions. These emails are convincing and sophisticated. Always independently confirm wiring instructions in person or via a telephone call to a trusted and verified phone number. Never wire money without double-checking that the wiring instructions are correct.

Unfortunately, computer hackers are increasingly targeting real estate investors and home buyers for wire fraud via phishing. Unlike the luthiers who make Stradivari copies, the hackers in the real estate transactions can create realistic communications which can fool even the discerning investor.

How Hackers Can Steal Your Money in a Real Estate Transaction

In August 2017, a Washington, DC couple filed a lawsuit against their title company, claiming either title company fraud or lack of adequate security measures. The couple received an e-mail appearing to be from the title company requesting a wire transfer for their closing.  Since the e-mail appeared legitimate, they wired more than $1.5 million.  When the title company said it did not receive the money, the couple had to come up with an additional $1.5 million to close on their home purchase.

It sounds like this couple and title company may have been the victims of an all-too-common hacking scheme, which has been occurring in real estate transactions in recent years.  Here is how the fraud is carried out:

A hacker gains access to the e-mail account for one of the parties of the transaction.  Real estate brokers and title and escrow companies are common targets, because they advertise their services and conduct many transactions.

The hacker monitors the e-mail relating to one or more transactions, gathering detailed information about the transaction only known to the parties to those transactions. The hacker may even participate in communications by sending spoofed e-mails to parties so as to better set up the hacker’s end game.

When the hacker sees that the transaction is nearing the closing so that the buyer might be amenable to wiring funds into escrow, the hacker acts.

The hacker sends the buyer an e-mail, which appears to come from the real estate broker or title/escrow agent (and which in fact may be from the hacked account).  The e-mail provides wire transfer instructions, along with detailed information about the transaction and the amount of money to wire into the “escrow account,” which make the request seem legitimate.

If the buyer wires the funds, they go into the hacker’s bank account, possibly in a foreign country, and the funds are nearly immediate withdrawn.  It may be one or more days before the buyer shows up for his/her closing, only to learn that the payment is not in escrow and in fact has been stolen.

How to Protect Yourself  from Wire Fraud in Your Real Estate Transaction

Given this very real and potentially expensive threat, every real estate investor should take the following steps to protect him/herself from these very convincing phishing schemes in real estate transactions:

When entering financial information into a website, be sure it is legitimate and that it is secure (it should start with https, rather than http).

If you receive wire transfer instructions via e-mail, call to verify the information.

Before calling to verify the wire transfer instructions, verify the phone number you are calling – do not use a phone number from the e-mail sending the wire transfer instructions.

Both real estate investors and professionals should take the following steps so that they do not become the “weakest link” in the security for the real estate transactions in which they participate:

Do not send financial or other confidential via unencrypted e-mail.

Keep your virus and malware software up-to-date.

Install all security patches to your computer’s operating system.

If you use your laptop or tablet on a public Wi-Fi be sure your firewall is turned on

Use complex passwords containing a combination of capital and lower-case letters and numbers, and do not use the same password for every account. Passwords consisting of the first letters of the words in a phrase you find easy to remember combined with a number may be a good option.

Do not open attachments to e-mails or click on links in e-mails unless you are expecting them.

Use an account that does not have administrator privileges for your everyday computer usage. That makes it less likely that malware will be able to make changes to your system.

Modern technology may provide tools which aid in the evaluation of old violins, but other modern technology also can be used by hackers to commit wire fraud in real estate transactions.  By using a combination of old-fashioned detective work and the thoughtful use of technology where appropriate and being aware of the existence of copies or fakes, both string instrument professionals and real estate investors alike can prevent themselves from being the victims of fraud.

[i]  Music Geek Fact:  The term “luthier” is used to describe someone who makes or repairs string instruments.  Originally, however, luthiers made only lutes. The term “luthier” derives from the French word for lute, which is luth.

© 2017 by Elizabeth A. Whitman


Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC or any of its attorneys.

How Your Real Estate Transaction is Like an Orchestra (And Why You Need a Conductor)

Recently, while in the midst of a managing a complicated commercial real estate closing, I took a few hours off to attend an orchestra concert. During intermission, while orchestra took a break, a string quartet played in the lobby.

The quartet, which has only four musicians, each playing his/her own part, played beautifully together and created a unified musical expression without an obvious leader.  The orchestra, which had about 75 musicians playing at least 15 different parts, also played beautifully together and created a unified musical expression, but under the direction of a conductor.

It was then that I realized that the typical commercial real estate transaction frequently has at least 15 different roles and is much more like an orchestra than a string quartet.  A commercial real estate transaction has a huge cast of characters, including a buyer, seller, and each of their respective real estate brokers, mortgage lenders, property managers, and attorneys.  In addition, there is a title company and escrow agent, a surveyor, and in a more complicated ownership structure, partners or investors in the buyer and/or seller or mezzanine or other secondary lender, and many of them have their own attorneys, as well.

Just as each instrument in an orchestra has a role, each of the parties and attorneys involved in a commercial real estate transaction has a role.  Just as the instruments in an orchestra sometimes will have the melody and sometimes will provide supporting harmony, the parties and attorneys involved in a real estate transaction may migrate from central roles to supporting ones and back again during the course of the transaction.

The members of an orchestra have a common goal – a unified musical expression. The parties to a commercial real estate transaction also have a common goal – the successful completion of the transaction on terms acceptable to the party they represent.  And, like an orchestra conductor, an attorney experienced in transaction management helps the players in a commercial real estate transaction work together to reach their common goal.

Michael Tilson Thomas, conductor of the San Francisco Symphony, said “Being a conductor is kind of a hybrid profession because most fundamentally, it is being someone who is a coach, a trainer, an editor, a director.” World-famous violinist Joshua Bell commented on the plight of the conductor:

Being a director or a conductor is a balance of many things. And to do it right is a very difficult tightrope to walk. I’ve come to the conclusion that there’s really no way to be one hundred percent popular as conductor.

Like an orchestra conductor, an attorney serving as transaction manager likewise must wear many hats and carefully navigate while serving as both attorney and business advisor to his/her client (frequently the buyer), while also creating a roadmap for the transaction and taking steps to remove obstacles blocking the road to closing.

There is a difference between the role of an orchestra conductor and an attorney transaction manager, however. An orchestra conductor is coordinating individuals who do not probably could do his or her job themselves. Virtually every musician in an orchestra has studied conducting – it is usually a requirement to obtain a music degree – and some probably have conducted orchestras themselves.

Many orchestra musicians may have studied the music score being performed and even more frequently, the musicians have played the music with an orchestra previously, so they are familiar with its intricacies. String quartet members similarly are likely to be intimately familiar with the music they are playing.

With the string quartet, it is that experience with the music, combined with the collaborative nature of a quartet that enables the musicians to create a common musical message without the benefit of a formal conductor. With an orchestra, however, due to the sheer number of different parts, someone needs to select the path the orchestra will follow to a unified musical message. Among other things, a conductor fills that role.

Unlike either an orchestra or a quartet for that matter, a real estate transaction, the parties may have varying degrees of experience in commercial real estate. Unlike a musical ensemble, real estate transaction parties most likely have received on-the-job training, as it is uncommon for people to formally study real estate in college or graduate school.

Further, unlike with an orchestra or string quartet, it is very rare for the individuals in a transaction to have previously worked with the real estate involved and to be aware of its intricacies – and its pitfalls.

Therefore, in addition to selection of a unified pathway to the common goal of closing, the parties to a real estate transaction need someone walking ahead of them with a machete to create that pathway by the most direct route possible. As Joshua Bell noted, this may not always make the real estate transaction manager popular, but it does make her essential to the transaction’s efficient and successful closing.

The rare real estate investor may be a swashbuckling, real estate guru who is familiar with every square inch of the property, is experienced in real estate titles and finance alike, and is willing to personally forge a new trail towards the closing. However, if that doesn’t describe you, then you, like a major orchestra, should consider hiring your own real estate transaction to “conduct” your transaction.

© 2017 by Elizabeth A. Whitman

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC or any of its attorneys.