Buying a new home is always a bit stressful. You want to make sure everything goes off without a hitch, so when your loan officer emails the day before closing with instructions for wiring your down payment, you jump on it. You know if you’re late, you might not close on time. Even waiting an extra day seems like too much to bear, so you’re quick with that response.
That’s just what prospective Phoenix homebuyer Jack Padden did on the night before his closing. He took quick action in responding to an email and lost $73,000 in the process.
That was his entire down payment, and it didn’t just hurt him. Not only did he lose his chance to buy a home, but the seller was depending on the sale of her home to buy a new one. She’d even put $4,000 of earnest money down to buy the new home.
When a real estate scam happens, it typically doesn’t just affect one person. It has a domino effect, which is why it’s so important to understand how the scam works and how you can avoid it.
How It Worked
The idea of losing $73,000 is enough to make your blood run cold. It’s important to understand how it happened so it doesn’t happen to you.
The scam began the week before Padden’s closing. The emails appeared to come from a loan officer at his mortgage company. The emails looked official and even included company letterhead. In addition, the subject line of the email contained the address of the home he was about to close on. It had so many details that Padden assumed it must be legitimate. How would anyone besides his mortgage officer have all that information?
The emails were anything but official, though. Like other scams of this nature, the emails were sent from a lookalike account. Padden’s loan officer was not aware an email had been sent. She had no idea he was communicating with someone pretending to be her.
One of the emails asked him what time he wanted to close on the loan and included wiring instructions for the down payment. The bogus loan officer claimed he would need to wire the money prior to the closing or there would be a delay.
The scammer ramped up the pressure, telling him he could close on his home early if he sent in the down payment to a private account. With the touch of a button, Padden did just that. He eventually realized something was wrong, but it was too late.
His money was gone, just like that. It only took a fraction of a second to disappear from his account and go into the new account. That’s what so scary about this scam. A push of the button is all it takes to lose tens of thousands of dollars.
Padden is one of Phoenix’s many victims. Victims in the Phoenix metro lost an unbelievable $41 million in 2017 alone.
Buyers lose an average of $160,000 on this email compromise scam. That makes Padden one of the lucky ones since he only lost $73,000. He surely doesn’t feel lucky, though. That’s a ton of money for anyone to lose.
How Did the Scammer Get So Much Information?
One reason scams like this work is because the scammers have so much information. They know the price of the home and the closing date. They even know the amount of the down payment. That makes the email seem legitimate.
They are able to get the information by hacking into computers. In Padden’s case, his mortgage company’s system had been hacked. The hacker used the information to specifically target Padden.
This time, the hacker created a lookalike account, but sometimes, the hackers send the emails directly from the hacked accounts. For instance, they break into a mortgage officer’s email and send the email from that officer’s account. That makes it even more difficult to catch the scammer. The emails have an extra layer of legitimacy since they come from the actual account.
The scammers just have to get people to trust them. Once that happens, they are able to get the person to wire the money to their account. As soon as the person sends the wire transfer, the scammer disappears into the wind. It’s easy to disappear when you have that much money in your account.
Fortunately, there are red flags you can look for that will help you avoid this scam. Keep your eyes open and if you notice any red flags, report it to the authorities. Then, they can try to track the scammer down and stop him or her from going after anyone else.
First, look at the grammar in the email. The emails sent to Padden were grammatically incorrect, and the sender did not have a good command of punctuation. This is similar to the Nigerian lottery schemes that have been going around for years. Those emails also tend to include poor grammar and punctuation. There are a couple of schools of thought about this. Some think that the senders use poor grammar because English is their second language. They can speak English, but they aren’t fluent, so they make grammatical mistakes. Others think they use poor grammar as a way to qualify leads. If someone trusts the recipient even when the poor grammar is used, it’s believed the person is more likely to do what the sender asks. That makes it much easier for the scammer to get the money. Regardless of which one is true, always watch the grammar. A real estate professional isn’t going to send you an email with glaring grammatical errors. That’s a huge red flag that you should never ignore.
Check the email account, as well. In Padden’s case, the email came from a Hotmail account, which is not something a loan officer would use. Keep in mind that simply checking the email account isn’t enough due diligence, though. Some scammers actually hijack the person’s email account. Then, they send the email from the real person’s account. Still, always check the email, as that can be an easy way to identify a scammer.
Also, watch for pushiness. This scammer ramps up the pressure to get the recipient to wire the money. Most loan officers are not going to send you a barrage of emails to get something done. Yes, they will send reminders, but they won’t put a lot of pressure on you. Scammers keep applying the pressure until you do what you want them to do. If it feels like the loan officer is pressuring you to take some sort of action, step back and think about it. If it’s out of character for your loan officer, you need to investigate further.
Finally, be wary of someone who only wants to interact over email. Yes, email is a quick and easy way to take care of business, but loan officers and other professionals do not want to send or receive sensitive information over email. They are aware that emails can be hacked, so they don’t want to conduct that type of business over the computer. If the person pushes you to take care of everything via email, there is likely a problem. He or she doesn’t want to talk to you on the phone since you will realize you are not speaking to the actual loan officer.
Tips for Avoiding Wire Fraud Scams
You need to follow some tips for avoiding scams, even if no red flags show up. You need to cover all of your bases and protect yourself at all times.
First, get the escrow officer’s name and number. This should be your only point of contact when dealing with wire transfers. Only wire money after calling the phone number you have and confirming the transaction. If your call goes to voicemail, wait for the escrow officer to call you back before moving forward with the transaction. You should never wire any money without a verbal confirmation.
Don’t just confirm the transaction. Confirm the wiring instructions, as well. Make sure you have the correct bank routing and account numbers. Scammers will want you to wire the money to a different account, so they can access it.
Do all of your important business over the phone. Don’t send sensitive information in an email. Legitimate loan officers will not want you to do that, so they won’t ask you for sensitive information.
You also need to protect your computer. Use a secure Wi-Fi connection to get online and use strong passwords so people cannot break into your account. If your computer gets hacked, a scammer can get in and find out everything about you, from your banking information to your address. That can lead to problems even bigger than a real estate scam. In fact, you could end up with a serious case of identity theft on your hands.
Can Renters and Landlords Get Scammed?
When people think of real estate scams, they typically think of homebuyers and sellers. However, renters and landlords are also susceptible to scams in Phoenix and the rest of the country. It’s important that both parties protect themselves. This isn’t difficult. There are certain things that landlords and renters can do to protect themselves in various situations.
It’s fine to use cash when buying a pack of gum, but otherwise, put it away and deal with checks or credit cards. Cash is not traceable, so it’s easy to get scammed when you use it. As a renter, your landlord might say you never sent the payment if you did. As a landlord, your renter can claim he or she sent you more money than was actually sent if you deal in cash.
You can take it a step further by only accepting online rental payments. Online payments are safe and secure, and they are fully traceable. You can look up a payment at any time, so you won’t have to worry about getting scammed. This is the preferred method for countless landlords.
Have a Written Lease
Oral leases might be valid, but they are a terrible idea for both the landlord and the tenant. Someone might claim that something was or wasn’t in the original lease, and if it’s just an oral agreement, it will be a matter of he said, she said. Avoid that problem with a written lease.
The easiest way to do this is to use electronic lease agreements. These agreements can be signed electronically and then archived. This is much safer than having paper agreements that you store in a filing cabinet. You can access the agreements online, so if there is a dispute, you just have to pull up the agreement. It’s impossible to argue with a signed document, so you will be protected. Those protections extend to both the landlord and the renter, so it makes sense for everyone.
Always Meet in Person
These days, a lot of the business is done online, and that’s fantastic. You can show properties, interact with tenants and landlords, and even sign agreements online. While technology makes the process easier, it can also make landlords and tenants susceptible to scams. Meeting someone in person is a good way to get a feel for who they are. You are less likely to run into a scam if you are able to put eyes on the person. Of course, landlords cannot refuse to rent a property just because they do not like the looks of a person. This will just allow you to ensure the person is being honest about who he or she is.
Protect Yourself and Your Assets
There will always be scammers out there, in Phoenix and behind. If you buy, sell, or rent real estate, you run the risk of coming into contact with scammers. However, you can protect yourself. Do everything possible to protect yourself in every situation. If you do your due diligence, you will walk away from scammers unscathed.