Home Buyers Being Scammed For Their Downpayments

  • February 1, 2023
  • 3 min read

Real estate transactions, especially when it comes to buying or selling a house, involve significant sums of money changing hands. Unfortunately, with the rise of digital transactions, scammers and fraudsters have found a lucrative target in the form of escrow fraud. In this blog post, we’ll delve into what escrow fraud is, how it works, and most importantly, how you can protect yourself from falling victim to it.

Understanding Escrow Fraud

Escrow fraud occurs during the crucial phase of a real estate transaction when funds are held in a third-party account (escrow) until certain conditions are met. Scammers exploit this process, preying on the vulnerabilities in communication channels to trick buyers or sellers into wiring funds to fraudulent accounts.

A Tale of Lost Savings

Recently, there’s yet another heartbreaking story of a homebuyer losing their entire life savings to escrow fraud. This serves as a stark reminder that, despite its prevalence, escrow fraud is preventable with a few simple precautions.

How Escrow Fraud Operates

When you’re in the process of buying a house, you typically sign a contract, and the transaction enters the escrow phase. A title company manages this critical step. Scammers enter the scene by gaining access to the email accounts of both buyers and sellers. This is often achieved by exploiting public information available when a house is listed for sale.

Once in control, the fraudsters send seemingly legitimate emails to the involved parties, instructing them to wire their down payment to a specified account, usually at a well-known bank. The email appears official, complete with logos and details, convincing the unsuspecting victim to wire their funds.

Prevention: A Simple Five-Minute Task

The good news is that preventing escrow fraud is straightforward and takes only five minutes. Whether you’re a buyer, seller, realtor, or broker, here’s what you need to do:

  1. Verify Wiring Instructions Directly: Always obtain wiring instructions directly from the company you’re wiring the money to. If it’s a title company, get the instructions over the phone or, better yet, in person.
  2. Conduct a Small Test Transfer: Before wiring your entire down payment, send a small test transfer (e.g., $50 or $100) to ensure the legitimacy of the wiring instructions.
  3. Verify the Transfer: Contact the company directly by phone or in person, using a phone number obtained from a reliable source, to confirm receipt of the test transfer.
  4. Cross-Check Email Instructions: If you receive wiring instructions via email, cross-check the information with details obtained from another reliable source before proceeding.

Protecting Your Clients and Yourself

Realtors, brokers, and title companies play a crucial role in preventing escrow fraud. By educating clients and implementing best practices, you contribute to a safer real estate environment. We’ve provided a downloadable form that serves as a notice to give to your clients, guiding them through the secure process of fund transfers.

Download the Escrow Fraud Prevention Notice Form

A Collective Effort

Escrow fraud is a pervasive threat in the real estate industry, and it demands collective vigilance. Whether you’re a buyer, seller, realtor, broker, or title company, adopting preventative measures ensures that your hard-earned money doesn’t end up in the wrong hands. Spread awareness, share information, and make escrow fraud prevention a priority in every real estate transaction. Together, we can create a safer and more secure home-buying experience.

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