The Startups Safeguarding Real Estate Against Schemers and Scammers

Tom Cronkright learned the hard way that the real-estate industry needs better ways to protect itself and consumers from wire-transfer fraud.

His Grand Rapids, Mich.-based Sun Title company received a certified check for $185,000 in the mail toward the purchase of a $670,000 property. The check was deposited in the bank, and the funds, minus a $5,000 fee, were wired to the seller the next day.

THE HACKER’S PLAYBOOK

1. Real-estate agent clicks on a hacker’s malicious email link that installs malware.
2. Hacker takes over the agent’s email account and sends fraudulent wire request to home buyer.
3.Home buyer unwittingly sends funds via wire transfer to a bank account set up by the hacker.

Five days later, he learned that the check had bounced—and both the buyer and seller vanished. Sun Title had been scammed.

Mr. Cronkright, along with Sun Title President Lawrence Duthler, were among the first victims in a wave of wire-fraud schemes that for the past five years has devastated the real-estate industry. Last year, there were at least 11,300 victims of real-estate wire fraud who lost a total of nearly $150 million, according to the FBI’s Internet Crime Report released in April.

A second fraud attempt the following year spurred Messrs. Cronkright and Duthler to take action. This time, a fraudster hacked a real-estate agent’s email account and sent false wire-transfer instructions to a buyer. Luckily, a bank manager spotted the spoofed email address and stopped the transfer.

Mr. Cronkright says fixing the problem came down to one thing: proper identity verification.

The men created CertifID, an online portal that authenticates identities of parties in a real-estate transaction and securely sends wire-transfer instructions.

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What are some good, in-person tips to spot a fraudulent real estate deal? Join the conversation below.

CertifID is one of a number of startups that have emerged to protect buyers and sellers from real-estate fraud. They aim to verify identities of people in a transaction, conceal bank account information and avoid traditional email, which is susceptible to hackers. But the best fix may involve multiple portals, apps and encryption devices.

“Every time we come up with a way to combat fraud, the cybercriminals come up with another way to get around it,” says Ashley Cook, chief executive of Zoccam, a mobile app that helps securely deposit buyers’ earnest-money payments.

TIPS FOR AVOIDING WIRE-TRANSFER FRAUD

In July, the Consumer Finance Protection Bureau published a fraud alert for wire transfers of earnest money, down payments, closing costs and loan payoffs. Here’s how you can avoid a wire-transfer scam:

  • Never follow wire-transfer instructions sent via email. Verify the closing instructions, including the account name and number, with your trusted representatives either in person or by using a predetermined phone number. Similarly, never email financial information.
  • Pay attention to email addresses related to the transaction. A legitimate address like john-doe@abc.com could be confused with a spoofed email like john_doe@abc.com or john-doe@bcd.com.
  • Keep computer security patches and antivirus software up to date. Change your password every 90 days and enable two-step authentication on your email account.
  • Suspect a scam? Contact the bank immediately and request a wire recall. To recover large, international wire transfers, ask the bank to contact the local FBI office and request a Financial Fraud Kill Chain.

Many real-estate professionals still handle sensitive business matters using paper, email and phone calls, leaving themselves and their clients vulnerable to fraud. Sales contracts, tax returns, and wiring instructions all contain information that is readily bought and sold among criminals on the Dark Web—online sites in which users are untraceable and anonymous.

“The actual money side of transactions was pretty manual until a couple of years ago,” says Marilyn Wilson, managing partner of WAV Group, a marketing and PR firm that advises real-estate agencies, Multiple Listing Services and tech companies.

In June, the American Land Title Association, a trade group for title companies, launched the Coalition to Stop Real Estate Wire Fraud. Working with Community Mortgage Lenders of America, the Real Estate Services Providers Council and the American Escrow Association, ALTA hopes to educate industry professionals and consumers about the threat.

What’s missing are standard industry practices that use the latest technology to avert real-estate fraud. Agents, lenders, and title and escrow companies across the U.S. all manage transactions differently, and states have their own rules. As a result, consumers have no way of knowing if home sales are handled securely.

Mr. Cronkright, the CertifID chief executive, thinks any solution should be multilayered and involve all of the players in a real-estate transaction. “The industry needs to be aware that there’s a problem,” he says. “I think if anyone subscribes to any single solution in cybersecurity, that’s not going to work.”


A SAMPLING OF STARTUPS WORKING TO AVERT WIRE-TRANSFER FRAUD

  • Modus: This title and escrow company created a portal for real-estate agents and their clients to transfer earnest-money deposits. The buyer logs into the Modus website and connects directly to her bank using her online-banking username and password. The buyer then transfers the funds directly to the intended recipient via the portal so that no bank account and routing information is exchanged between parties in the transaction. The portal launched in July 2018 for users in Washington state, with plans to go national over time, says Alex Day, the chief executive. 
  • TrustFunds: This company has created a portal that is integrated into the Multiple Listing Service, says Lynn Leegard, the co-founder and president. Once a seller accepts a buyer’s offer, the agent emails a secure earnest-payment form to the buyer. The buyer uses the portal to enter her bank-account information and the amount to be sent to the receiving bank’s account. All account numbers are encrypted before the transfer request is sent. This portal is currently available in a handful of states.
  • Zoccam: Launched nationally last year, this mobile app lets the real-estate agent send a picture of the buyer’s personal or certified check directly to the title company. No account information of the sender or recipient is stored on the app, which makes it less likely that funds can be mishandled or misdirected. The app is available in 44 states, says Ashley Cook, founder and CEO of Zoccam. 

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