In today’s digital age, cybersecurity is a growing concern in virtually every aspect of our lives, including real estate transactions. When it comes to disbursing sales proceeds or wiring closing costs during a real estate closing, ensuring the security of your financial information is crucial.
According to the FBI’s Internet Crime Complaint Center, there were more than 11,000 victims of real estate cybercrime in 2019, resulting in total losses of $221.4 million. In addition, cybercriminals diverted or attempted to divert and wire $969 million from real estate transactions into accounts they controlled. Following the COVID-19 pandemic, these statistics have only increased, as more and more agencies try to accommodate the growing demand for remote or virtual closings. Without proper safeguards and consumer awareness, these cyber-attacks will only continue to increase.
Cyber fraud risks in real estate transactions
Real estate transactions involve large sums of money changing hands, making them an attractive target for cybercriminals. Here are some common cyber threats that consumers may encounter during the closing process:
1. Email compromise: Cybercriminals may use phishing emails to trick buyers, sellers, or their agents into wiring funds to fraudulent accounts. These emails often appear legitimate, mimicking communication from real estate professionals, lenders, or closing agents.
2. Man-in-the-middle attacks: In this type of attack, cybercriminals intercept communications between parties involved in a real estate transaction, such as buyers, sellers, Realtors, and closing agents. Cybercriminals then alter the details of the wiring instructions to redirect funds to their own accounts.
3. Malware and ransomware: Malicious software installed on a computer or network can compromise sensitive financial information, allowing cybercriminals to steal funds or encrypt data until a ransom is paid.
Tips for safeguarding proceeds disbursement, wire transfers
To protect against cyber fraud and ensure the secure disbursement of proceeds during a real estate closing, consider the following tips:
1. Verify disbursement instructions: Before wiring funds to any account, verbally verify the disbursement instructions with the intended recipient using a trusted phone number. Avoid relying solely on email communications, as these can be easily compromised. If you receive an unexpected email claiming wiring instructions have changed, call the supposed sender to verbally confirm the request in legitimate. Always keep in mind: your lender and closing agent will never change wiring instructions in the days leading up to your closing! Any request to do so is likely a scam!
2. Use secure communication channels: When exchanging sensitive financial information, use secure communication channels such as encrypted email or secure messaging platforms. Avoid sending sensitive information over unsecured Wi-Fi networks or public computers.
3. Implement multi-factor authentication: Enable multi-factor authentication (MFA) on all accounts involved in the real estate transaction, including email accounts, banking portals, and closing platforms used by closing agents. MFA adds an extra layer of security by requiring additional verification beyond a password.
4. Educate yourself: Stay informed about common cyber threats and best practices for cybersecurity in real estate transactions. Educate yourself, your real estate agent, and other parties involved in the transaction about the importance of vigilance and security measures.
5. Work with reputable professionals: Choose reputable real estate agents, closing agents, and lenders with a track record of prioritizing cybersecurity and protecting their clients’ interests.
6. Trust your gut: More often than not, people have a sixth sense that warns them when they may be getting scammed. Though some people may be inclined to ignore this instinct, it is important to listen when large sums of money are involved. If your gut tells you something does not feel right, do not hesitate to do a quick Google search or get a second opinion.
Cybersecurity is a critical consideration in the proceeds collection and disbursement phase of a real estate closing. By taking proactive steps to safeguard your financial information and working with trusted professionals, you can mitigate the risk of cyber fraud and ensure a secure and successful real estate transaction. Stay vigilant, stay informed, and protect your assets against cyber threats.
Stephen J. Lacey, JD, LLM, is a member of the law firm Lacey Lyons Rezanka. His practice areas focus on estate planning and probate.