Real estate firms may be on the hook for wire fraud losses: CertifID

By Housing News

With
the
number
of
instances
of

wire
fraud


continuing
to
rise
,
many
victims
are
turning
to
court
to
seek
damages
after
a
large
portion
of
their
life
savings
or
business
liquidity
was
stolen
by
scammers. 

According
to
a
report
published
Thursday
by
wire
fraud
prevention
firm


CertifID
,
real
estate

agents
,
brokers
and

title
companies

are
increasingly
being
held
accountable
if
a
consumer
loses
money. 

In
an
analysis
of
more
than
100
real
estate
wire
fraud
cases,
CertifID
found
that
the
most
common
wire
fraud-related
legal
liability
issues
for
real
estate
firms
are
negligence,
breach
of
contract,
deceptive
business
practices
and
breach
of
fiduciary
duty. 

“Even
though
it’s

criminals

who
are
orchestrating
the
business
email
compromise
scams,
recent
court
decisions
suggest
that
the
professionals
involved
in
a
real
estate
transaction
are
required
to
do
more
to
protect
consumers
from
wire
fraud
scams
or
face
a
potential
court
judgment
for
damages,”
the
report
stated.

“Over
the
last
four
years,
fraudsters
have
become
even
more
brazen
in
their
attacks,
prompting
the
courts
to
piece
together
more
definitive
standards
of
liability
by
looking
outside
of
real
estate
fraud
cases
to
draw
upon
well-established
theories
of
duty
and
liability.” 

Through
its
analysis,
CertifID
found
that
based
on
the
court
cases
analyzed,
there
is
“no
practical
way
to
hold
a
bank
responsible
for
wire
fraud
losses
if
the
account
holder
or
authorized
representative
initiated
the
transfer.” 

Additionally,
unless
there
is
“specific
insurance
coverage
for
stolen
funds
and
all
requirements
to
coverage
in
an
insuring
contract
are
satisfied,
a
claim
for
damages
will
be
denied.” 

CertifID
said
this
is
due
to
the
court’s
deference
to

Uniform
Commercial
Code
Article
4A
,
which
governs
the
rights
and
responsibilities
of
parties
involved
in
electronic
funds
transfers.
Despite
governing
this
issue,
the
code
does
not
include
a
mandate
for
account
matching.
It
also
does
not
establish
the
duty
of
a
bank
to
vet
new
account
openings,
nor
is
there
a
requirement
for
financial
institutions
to
identify,
monitor
or
report
suspicious
account
activity.

But
CertifID
notes
that
a
bank
could
possibly
be
held
liable
“if
the
person
requesting
the
transfer
is
a
bad
actor
and
the
movement
of
money
can
be
traced
back
to
flawed
verification
measures
or
a
security
failure
that
allowed
hackers
into
the
bank’s
system
—though
we
have
not
seen
any
such
cases
come
to
light. 

“A
bank
may
also
be
held
liable
if
they
have
actual
’knowledge’
of
a
mismatch
between
the
beneficiary’s
name
and
account
number
and
still
process
the
transaction,“
the
report
added.

With
it
being
difficult
to
hold
banks
accountable,
CertifID
found
that
recent
court
cases
show
that
the
real
estate
firms
involved
in
transactions
were
often
held
responsible
instead. 

“If
you’re
entrusted
with
sharing
wire
instructions
and
collecting
funds
for
a
real
estate
closing,
recent
court
cases
suggest
that
you
could
be
on
the
hook
for
some
(or
all)
of
the
loss
if
funds
are
diverted
into
a
fraudulent
account

even
if
you
were
not
responsible
for
the
transfer
of
funds,”
the
report
stated.

In
one
of
the
cases
cited
by
CertifID
(Otto
v.
Catrow
Law
LLC
),
the
plaintiff,
who
was
a
victim
of
wire
fraud,
“relied
on
the
expert
opinion
of
a
lawyer
whose
disclaimer
precluded
him
from
assessing
the
standard
of
care
in
West
Virginia. 

“The
circuit
court
also
found
that
alleged
insurance
bulletins
warning
against
fake
wiring
instructions
were
ineffective
at
proving
a
breach
of
duty,”
the
report
stated. 

While
eliminating
the
risk
of
potential
wire
fraud
or
a
lawsuit
that
may
arise
from
an
attack
is
challenging,
CertifID
recommends
that
firms
focus
on

educating
consumers

and
their
transaction
partners
on
the
risks
of
wire
fraud,
as
well
as
steps
to
take
to
protect
themselves
and
their
clients. 

“One
of
the
easiest
ways
to
protect
your
business
from
liability
is
to
thoroughly
train
employees
to
check
spelling
and
email
addresses

and
to
verify
instructions
through
another
method
rather
than
by
email
alone,”
the
report
stated.
”Practicing
‘good
digital
hygiene’
means
limiting
the
amount
of
personal
information
that
is
publicly
available,
like
email
addresses,
phone
numbers,
and
account
information,
and
therefore
limiting
the
amount
of
data
that
can
be
hijacked
by
fraudsters.

“As
a
custodian
of
funds,
you
are
in
a
position
of
trust
and
knowledge.
You
hold
a
legal
responsibility
to
not
only
train
employees
to
spot
red
flags
and
follow
proper
protocols,
but
to
counsel
consumers
on
the
risks
they
may
face
in
light
of
the
increase
in
scams
as
well.” 

Additionally,
CertifID
recommends
establishing
companywide
standard
operating
procedures,
an
incident
response
plan
that
is
tested
and
first-party
insurance
policies
to
protect
a
firm
from
a
loss. 

 

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