A glimpse of something new on the horizon can be seen in Bain v. Platinum Realty, LLC, No. 16-2326-JWL, 2018, WL 3105376 (D. Kan. June 25, 2018), where the United States District Court in Kansas upheld a jury verdict in favor of the Buyers against the Seller’s real estate agent for breach of fiduciary duty and negligence. The case went to trial and the jury found that the Broker was 85% responsible for the loss and the court entered judgment against the Broker for $167,129.
Prior to the closing of the transaction, the Buyers had their bank wire the purchase amount to a particular bank account owned not by the Seller, but by some unknown party, and the funds were never recovered. Plaintiffs had acted pursuant to wiring instructions attached to an email to their email account purportedly sent from the Seller’s Agent. In this suit, the Plaintiffs argued that the unknown party (referred to by the parties as “the hacker”) intercepted an email from the title company to the seller’s agent that contained the intended wiring instructions, changed the wiring instructions, created an email address similar to the address of the title company, and sent the changed wiring instructions to the Seller’s agent by email, who then forwarded those instructions to the Buyer.
According to Katie Johnson, General Counsel for the NAR, cybercrime is on the rise and real estate transactions are a prime target because they involve many parties and the electronic transfer of large sums of money. According to the FBI, Americans lost nearly $150 million to real estate scams just last year. Scams in the industry have jumped more than 1,000% since 2015, and real estate is now one of the top victims of malware attacks in the country.
The NAR has numerous resources that are worth your time to review on this subject and their recommendations include:
1. Alert homebuyers at the outset of the transaction for the potential regarding wire fraud. Many brokers are requiring signed disclosures as well. The NAR has even developed a sample disclosure they suggest adding after your email signature:
IMPORTANT NOTICE: Never trust wiring instructions sent via email. Cybercriminals 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.
2. Never send wire instructions or personal financial data via email according to internet fraud statistics.
3. Consider using secure, dual-authenticated email and transaction management systems when sharing sensitive information.
4. Contact the financial institution immediately and the local FBI field office if there’s been an attempt to commit wire fraud.
Unfortunately, wire fraud will not be going away any time soon and is likely to become more prevalent as hackers become even more sophisticated in the type of cybercrimes they are able to commit. The best protection for agents continues to be educating clients about these issues and transaction coordinators should be diligent about scrutinizing emails. Taking a “this could never happen to me” attitude is an invitation for problems to occur and agents should be proactive in their efforts to address these types of issues.
For more than 30 years, Attorney Lee A. Drizin has practiced in the areas of estate planning, probate, trusts, guardianship and real estate matters representing clients throughout the state of Nevada.
Drizin Law is providing this information for educational purposes only. It should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. This information is based on general principles of Nevada law at the time it was created and you should be aware laws frequently change. Moreover, the laws affecting you may differ depending on the circumstances. You should consult with a qualified attorney in your own state or jurisdiction concerning your particular situation. Review of this information does not create an attorney-client relationship.