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Avoiding Real Estate Fraud: Who Participates In A Real Estate Transaction?

Avoiding Real Estate Fraud: Who Participates In A Real Estate Transaction?

During a real estate transaction, homebuyers and sellers put a great deal of trust in the many people involved in managing their deal. From the day they put a house on the market until the closing papers are signed, consumers must hand over banking information, social security numbers, and other data that could be a goldmine for a criminal.

Unfortunately, fraudsters have already targeted the real estate industry for their scams, compromising business emails and gaining access to accounts through phishing attempts. The National Association of Realtors (NAR) has acknowledged this problem and urged its members to take measures to protect clients. But it’s important to understand how sensitive each real estate transaction can be. Here are some of the key players, as well as information about the vulnerabilities they face during a real estate transaction.

Borrower

The borrower fuels the financial aspects of a real estate transaction, searching for a house and making an offer. If selling through a real estate agent, the borrower entrusts that agent with the contact information that a fraudster is looking for when trying to initiate a wire fraud scheme. For that reason, it’s important that the borrower choose the right agents, financial institutions, and other parties.

According to the Federal Trade Commission, borrowers are most likely to be targeted in these scams, since he or she will be the one receiving the email asking for a transfer. Borrowers should be cautious when communicating via email which we cover in more detail [links here], in which a fraudster legitimately appears to be a real estate agent or title company, asking for funds to be wired.

Seller

A seller stands to lose significantly due to wire fraud, since a prospective buyer could be unable to recover the money they need to purchase the house. Since sellers are often purchasing a house at the same time, they need to also watch for the fraudulent wiring instructions detailed in the email example in the borrower section.

For the seller, it’s important to clarify with agents and financial institutions what contact they’ll be getting and what their responsibilities are throughout the transactions. A few minutes of clarification could be all it takes to avoid falling prey to criminal activity.

Buyer’s Agent

A buyer’s agent represents the borrower as they make a home purchase, guiding them through each step of the process. Since fraudsters often target borrower’s agents to gain access to passwords and client details, it’s important to keep accounts as secure as possible.

As the point of contact for the borrower, buyer’s agents are especially vulnerable to these attacks. Failure to protect clients could result in serious reputation damage. In addition to security accounts, these professionals can help their clients by educating them on how financial transfers will take place.

Seller’s Agent

Like their clients, seller’s agents can’t afford to have a buyer lose money on a wire fraud scam. Criminals could target these agents’ accounts, as well, to gain access to the information they need to ask buyers to transfer funds. Avoid phishing attempts through emails and try to only access email on secure networks.

Seller’s agents should also sit down with their clients at the start of every contract to let them know how things will work. They should be well aware of when and how financial transactions will take place, especially regarding the payoff of the remaining balance on their mortgage.

Loan Officer

A loan officer plays an important role, since the buyer will be borrowing hundreds of thousands of dollars from them. From the initial meeting with a borrower, loan officers should educate consumers on how financial transactions will be conducted and urge them to call if they have any questions.

Although loan officers can be targeted by scams, they also are already aware of the presence of these scams. Still, it’s important to educate buyers and keep passwords safeguarded to make it as difficult as possible for criminals.

Title Insurance Agent

Like agents and lenders, title agents often find that they are the ones fraudsters impersonate when targeting victims. Title agents must protect their reputation by communicating with buyers and their agents and ensuring they know how the process will work.

In addition to informing clients of the process, they should also let real estate agents and clients know what they won’t do. They should make it clear that they will never request financial information by email and detail how wiring instructions will be issued.

Closing Officer

The closing officer often comes into a transaction at the end, but they also handle a great deal of sensitive information. This personal data must be kept secure to avoid parties falling prey to scams after the transaction is complete.

The closing officer may not be at the top of a fraudster’s list, due to the fact that they’re involved at the end, but in the future, there could be new scams that target them. Like other parties in a transaction, it’s important that they keep customer information as secure as possible.

Payoff Recipients

The seller’s bank also has a role during the completion of a real estate transaction. Once the closing process is complete, the seller can pay off the remaining balance on any outstanding home loans. Banks should ensure that during the closing process, officers inform sellers how this payoff will occur so they won’t respond to any requests for funds transfers.

As far as fraudulent activity goes, the payoff recipients aren’t as likely to be a target of fraud as other parties. However, they could find the transaction derailed because buyers and their agents don’t inform them of the process. It could help to hold workshops to inform real estate agents about these scams and how to avoid them.

A real estate transaction can easily fall prey to criminals interested in exploiting the process for financial gain. If the professionals involved in handling a home sale take measures to keep their accounts as secure as possible, they can protect the clients they value. They should also work hard to educate buyers and sellers on how the financial aspects of buying and selling a home. Fraud can hurt a professional’s reputation, so it’s important to do as much as possible to keep clients safe.

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