Scammers are using smartphones and apps to steal home-sale proceeds.
In a post on ISBA's online Elder Law Section discussion group, Chicago lawyer Kurt LeVitus recently warned his colleagues of a new fraud targeting lawyers handling real estate transactions. Here's how it works.
At the end of the closing in a lawyer's office, the lawyer hands the seller a check for the sale proceeds. The seller leaves the office, but, a few minutes or a few hours later, returns and asks if the lawyer can wire the money to the seller's bank account instead. The unsuspecting lawyer agrees, whereupon the seller returns the original check. The lawyer then orders the wire transfer from her bank to the seller's account.
Having the check back in her possession, the lawyer cancels or destroys it. It doesn't occur to her to notify her bank to stop payment on it. Unbeknownst to her, though, while the seller still had the check, he photographed it with his smartphone and, using a mobile deposit app, deposited it into his bank account.
A day or so later, the lawyer learns that her account has been debited - twice. The result: the seller, who is impossible to locate, ends up receiving double the proceeds from the lawyer, and the lawyer is left with a large loss and no recourse.
Ronald Trubiana, senior vice-president and chief financial officer of Attorneys' Title Guaranty Fund in Chicago, says a colleague organization in Florida has warned of this fraud. "This scam is very easily done. The scammers don't even have to leave for a couple of hours - they can do it right at the closing table."
If the lawyer acts quickly, there's one possible avenue of recovery, Trubiana says. "The agent could contact the bank and say, 'Kick this check back because we wired the funds.'" That would be a long and involved process, he says, but it could provide a way to recover the money.
The counterfeit-cashier's-check variant
Trubiana warns of a variant fraud in which the purported overseas buyer of a property sends a counterfeit cashier's check, usually drawn on a foreign bank, to the lawyer for deposit in the lawyer's trust account.
"It takes a while for a cashier's check drawn on a foreign bank to work its way through the system," he says. "The fake buyer will send an e-mail asking the lawyer to confirm the deposit, and the lawyer will respond that he has. Then, the buyer will ask that a portion of the funds be wired to a business partner in, say, Japan. The remainder is enough to cover the fees and the initial down payment on the property, so the lawyer will go ahead and wire the funds without checking to make sure that the check actually cleared. About two weeks later, the lawyer finds out that the check was forged."
Banks are required to give depositors access to funds even though the checks have not completely cleared, Trubiana explains. "But when they receive notification that a check is bad, they'll debit your account."
Two of ATG's members in Illinois were swindled by one group of fraudsters perpetrating this scam, Trubiana says. In each case, "the property buyer was [allegedly] from Canada and submitted a phony real estate contract that looked like the real thing. The checks were drawn on Toronto-Dominion Bank in Canada and labeled as cashier's checks. One member lost $95,000; the other lost $280,000."
To add insult to injury, "The second time the group really became bold. They sent the agent an e-mail telling him that he got scammed and gave him a reference to a website that talked about this very fraud." And the agents weren't novices, but experienced and careful lawyers, Trubiana says. (For more about such schemes, see LawPulse, "Beware the Chinese E-Mail Scam" in the October 2009 IBJ.)
The old story: beware e-mail solicitations
Trubiana provides some advice for lawyers on spotting potential fraud. "In how many instances do you get a real estate matter that's been initiated by an e-mail? Multiply that by a factor of one hundred if it's from overseas."
Though the best course of action may be simply to delete the e-mail, if you think the matter might be legitimate, Trubiana recommends, "Send an e-mail back and ask for a phone number so you can contact them. Do your due diligence to ensure that the person is who he says he is and has the matter he says he has."
Trubiana knows of no insurance that will cover losses resulting from the mobile phone check deposit scam. "Once the money leaves the country, there is no chance of recovery." The best response to someone asking to replace a check with a wire transfer is, "Sorry, the transaction is over and I can't do it."
In his post, LeVitus noted that the potential for fraud isn't limited to real estate transactions. "This same type of scam can happen anytime a client is given a check, so be on the lookout."