2024 Sued for Wire Fraud Report: What We Learned About Liability

Between 2021 and 2024, there has been a dramatic increase in wire fraud targeting real estate transactions. In fact, the FBI reported a staggering $2.9 billion in losses from business email compromise (BEC) scams in 2023 alone, with real estate transactions being a prime target.

As scammers become more brazen in their efforts, and consumers become more aware of the dangers, the risks to real estate professionals, title agencies, and law firms continue to escalate. This is becoming even more evident in the courtrooms.

Following up on our last analysis, our latest report, 2024 Sued for Wire Fraud, dives into current precedent and offers insight into potential liability for real estate firms. Here’s a look at what we discovered.

Troubling patterns emerge for real estate professionals

Our analysis of over 100 wire fraud cases reveals a trend: title companies, law firms, and real estate professionals are increasingly being held liable for losses when client funds are diverted to fraudulent accounts. 

Despite the criminals being the primary perpetrators, courts are holding these professionals to higher standards of care, expecting them to implement robust security measures and educate their clients about the risks of wire fraud.

Hoffman v. Atlas Title Solutions, Ltd

‍“A novel issue requiring the analysis of who bears the responsibility for escrow fraud that took place in this case."

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In Hoffman v. Atlas Title Solutions, Ltd., Conor Hoffman and his fiancee, Macie McMahon, fell victim to wire fraud during a real estate transaction. They were in the process of purchasing a home and had engaged Atlas Title as their escrow and title agent. Atlas Title was supposed to ensure the safe handling of the transaction, including securing the wire transfer of funds.

The appellate court noted that Atlas Title performed tasks typically associated with escrow services, such as issuing settlement statements and handling fees. However, it was argued that Atlas Title failed to implement adequate procedures to prevent phishing and did not inform Hoffman of previous attempts by fraudsters to target the company. The appellate court reversed the trial court’s summary judgment, allowing Hoffman's claims of breach of contract and fiduciary duty to proceed.

This case highlights the critical importance of robust security measures and clear contractual agreements in real estate transactions. It also underscores the potential liabilities title companies face if they fail to adequately protect clients' funds.

UCC Article 4A continues to protect banks

Financial institutions and insurance companies continue to reduce their risk of liability for wire fraud losses. Protected mostly in part by UCC Article 4A, cases against banks often end in dismissal. 

Under UCC Article 4A, banks are almost assuredly protected if they follow commercially reasonable security procedures. 

This is seen in cases like Approved Mortgage v. Truist, where the court dismissed the claim without prejudice, citing Article 4A’s role in providing clear rules for banks in electronic transfers on behalf of customers.

As it stands today, common sense practices—like monitoring irregular account activity—are not codified into law and are, therefore, unusable in court claims.

While this precedent has not changed much over the years, there is emerging public pressure to change current laws and reduce the brunt of liability to consumers and real estate firms. However, the outcomes of those lawsuits remain unclear.

Cases against insurers rely on clear-cut terms

If your business falls victim to wire fraud, and you hope to recoup losses from your insurance carrier under your policy, the odds are often not in your favor. That is, unless, your loss is:

1. Specifically covered by your policy, and;
2. You satisfy all requirements for coverage

Helms v. Hanover Insurance Grp.

To win in court, you must ensure clear contractual language regarding covered claims, terms and conditions, and exclusions. 

This was clear in Helms v. Hanover Insurance, in which a buyer cash-to-close real estate transaction mishap led to a couple wiring $120,000 to fraudsters The couple sued their broker and real estate agent, alleging negligence. Seeking defense from Hanover Insurance, the agent’s E&O policy claims were flat-out denied, based on the terms of the insuring agreement.

According to the court, the agent’s E&O insurance was never designed to cover wire fraud, containing unambiguous “fund misappropriation and fraudulent transfer policy” exclusions.

“The exclusion's plain language… states that no coverage is provided for claims based on or arising out of the theft, stealing, conversion, or misappropriation of funds.”

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Many policies are written in a way that may imply coverage—but actually don’t. In addition, the steps to make a claim, and the required documentation needed to satisfy a claim, are often difficult to produce. As with any insurance policy, make sure you intimately understand your terms and ask the right questions at your next renewal.

Get the report and understand your risk

If you're a real estate professional, title agent, or law firm, our latest report offers:

• Detailed case analyses to understand legal precedents and liabilities.
• Practical recommendations to enhance your security posture
• Insights from real-world incidents to help you prepare and respond effectively.
• Guidance on navigating the complex landscape of financial institution liability and insurance coverage

Download it now.

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