You've toured homes, made an offer, negotiated the terms and come to an agreement. You're mere days from closing on your first home, and then you receive the email from the title company with the wire transfer information instructing you to send your down payment. With that done, you're a few signatures from being a homeowner – and you couldn't be more excited.
But something's wrong. The title company hasn't received the money yet. A wire transfer, which should take all of a few hours, hasn't gone through after two days.
Only then you realize the email from the title company with the account number was slightly different, and you confirm the account the company sent versus the one in the recent email you received are completely different.
You've been the victim of a phishing scam, and you've lost your entire down payment in the process.
But surviving the real estate closing doesn't mean you're in the clear. Homeowners have to continue to remain vigilant concerning their mortgage, as well-known financial institutions appear to be targeting homeowners to the point of harassment for refinancing that doesn't provide any significant benefit, and even draws out the time you'll spend paying off your mortgage.
While it's almost impossible to prevent these schemes aimed at preying on homebuyers and borrowers from happening altogether, individual consumers can learn how to spot red flags and avoid becoming a victim. Whether you're just dipping your toes into the housing market or you're halfway through your 30-year mortgage, here's what you need to know about scams targeting you and the money you've saved to pay for your home.
Faulty Purchase Wire Info
Sadly, stories of homebuyers losing significant portions of their down payment – or even entire home purchase – are becoming more common in the real estate industry, as real estate brokerages and title companies are struggling to employ security measures advanced enough to keep all hackers out of their systems.
Kaeti Bancroft, owner of Bancroft Properties Metro Brokers in Littleton, Colorado, came up against a phishing scam with clients last year. Having received the email from the title company with the settlement attachment and wire transfer information, Bancroft forwarded it onto her clients, who were purchasing the home for $360,000 with cash. "This was their life's work here," Bancroft says.
That's when the hackers struck, managing to intercept the email and change the bank name and account number before it reached the buyers. Fortunately, however, both the buyers and Bancroft noticed the money had not gone through, and they contacted Wells Fargo, which is where the buyers sent their money from and, coincidentally, where the hackers had their account as well.
"When we discovered there was a problem and the money hadn't arrived, [Wells Fargo was] able to look at that account that had received it, and freeze it," Bancroft says. The buyers got their money back, but Bancroft says if both accounts hadn't been with the same bank, it might not have been so easy.
In the District of Columbia, a lawsuit was filed in early August against Federal Title & Escrow Company and Close It! Title Services Inc., along with individuals related to the title company and involved with the real estate deal. The plaintiffs are a District of Columbia couple who fell victim to a similar wire transfer phishing scam, but they lost $1.57 million in the process.
The lawsuit alleges the title company was either so lax with its online security that it negligently allowed the money to be stolen or that it may even be possible the title company was a part of the conspiracy to defraud homebuyers.
Take advantage of workshops aimed at helping you get past the initial steps of purchasing a house.
In a press release about the case, Jennifer Routh, an attorney with McDermott Will & Emery, who is representing the plaintiffs, explains: "After hiring a reputable closing company to assist with the transaction, and following their directions to wire the funds, no buyer would ever expect to show up to closing and learn that the title company claimed they never received their money. But that's exactly what happened here, and we are seeking accountability from whomever is responsible and to recover our clients' money."
It's important for you as a homebuyer to take extra steps to ensure you don't fall victim to a phishing scam like this one.
Since the incident last year, Bancroft says she instructs all of her clients to have the title company and bank communicate directly. "Have the title company talk to the bank and verify where the money is going, what the value number is and what the account number is," she says.
For good measure, in any other situation where you have to authorize your bank or title company to do anything, rather than scanning and emailing any personal information or signed authorization, Bancroft instructs clients to send it via fax to eliminate the possibility of theft from an email hack.
A fax may seem antiquated, but when it comes to confirming social security numbers and wire transfers, it may be the safest option.
Beyond the real estate purchase process, homeowners paying down a mortgage must remain vigilant about the state of their loan, what they can afford and how they may be targeted for potentially predatory schemes.
Mortgage lenders appear to be targeting borrowers by offering refinancing options to bring down the borrower's interest rate slightly, along with the ability to skip a payment, failing to inform or educate the borrower on the fine print, explains attorney Brian Mahany.
"What they don't tell these borrowers is they're just tacking on years onto their loans," he says.
Mahany, who specializes in whistleblower and fraud recovery cases, is representing the plaintiffs in a class-action lawsuit against Freedom Mortgage Corp. for the lender's alleged aggressive tactics, calling borrowers to offer refinancing and neglecting to honor robocall laws established by the Telephone Consumer Protection Act.
The federal lawsuit, filed in New Jersey, particularly addresses Freedom Mortgage's alleged use of telemarketing and disregard for requests to stop calling as it tried to convince borrowers to refinance.
Mahany says in investigating the complaints he spoke with more than 200 people who have been getting calls from Freedom Mortgage. "It doesn't matter that somebody called five minutes ago, it doesn't matter that they said don't call me anymore," he says.
Mahany notes one alleged victim reported he was called so frequently he had to resort to a drastic measure: "He wound up getting a new phone number because it just wouldn't stop."
Homeowners may be tempted by low mortgage rates, but refinancing isn't always the best option.
Aggressive marketing tactics and failure to properly educate borrowers on what they're agreeing to could land lenders in hot water with the U.S. Consumer Financial Protection Bureau, which Mahany remarks has been pretty active in putting a stop to predatory tactics. However, he also notes the future of the CFPB and its power in oversight remains unclear under the Trump administration.
Similar to potential wire fraud, however, consumers should take it upon themselves to resist aggressive tactics. Refinance when it's in your best interest, and conduct your own independent research on options you qualify for to avoid falling victim to deceptive marketing. Shop around and get quotes from multiple lenders or mortgage brokers, and consider the entirety of the new loan, not just the interest rate or monthly payment to ensure you know all the fine print.
When it comes to phone calls on refinancing in particular, Mahany says not to trust them.
"There's no such thing as a free lunch," Mahany says. "And if some solicitor is telling you there is, you know, you should probably think twice and ask a lot of questions or get a second opinion."
7 Things First-Time Homebuyers Wish They'd Known
Buying your first home is an exciting – and often daunting – endeavor.
In addition to setting your budget, comparing neighborhoods and visiting properties, you'll likely also get a crash course in mortgages and home inspections, among other things. According to the National Association of Realtors' 2017 Home Buyer and Seller Generational Trends report, first-time buyers made up 35 percent of all homebuyers, up from 32 percent last year. U.S. News talked to seven first-time buyers from across the country to find out what they wish they'd known before jumping into the real estate market.Beware of wire transfer scams.
Beware of wire transfer scams.
Two hours before Shannyn Allan, founder of the blog Frugal Beautiful, was supposed to close on a home in San Antonio, she received a last-minute email with instructions on where to wire her down payment. Turns out, fraudsters had scraped her information from the title company and posed as the company when they emailed her instructions. She later discovered the fraud and spent weeks trying to get the banks to recover the funds so she could close. "I wish the title companies would have let me know what to watch out for with wire fraud, and advised me to do a cashier's check," she says.Don't skimp on upgrades.
Don't skimp on upgrades.
After freelance writer Leah Ingram and her husband built their first home in 1999 in New Hope, Pennsylvania, they immediately regretted choosing the smaller model with a lackluster kitchen and bathrooms. "A couple thousand dollars for those upgrades spread over a 30-year mortgage would not have been a hardship," she says. The couple also thought that buying on a cul-de-sac would ensure there were other kids nearby. There weren't, however, and they moved after seven years.Save extra money for closing costs.
Save extra money for closing costs.
Christine Cummings and her husband are in the process of buying a home in Somerville, Massachusetts. Cummings, who is VP of marketing at All Set, a mobile app that aims to connect homeowners with lawn service and house cleaning professionals, says she wishes she'd known how much to budget for closing costs. "There are all these little fees here and there adding up to the actual closing date, making the closing costs just a little harder to pay," she says. In addition to a down payment and closing costs, new homeowners should also budget for potential surprises such as a broken air conditioner and other maintenance costs.Check the sewer line.
Check the sewer line.
After buying a home in New Jersey in 2003, Kenneth O'Connor, founder of a YouTube channel on saving for college, discovered his single-family home had major sewer problems. "If there are large old trees on the path of the sewer line, you need to make sure the roots are not constricting the pipe and cracking it," he says. It used to be harder to detect sewer problems, but "now [a home inspector] can send a tiny camera down the sewer line to determine if it's safe," he explains, emphasizing the importance of not overlooking this step.Consider the school district.
Consider the school district.
When Ali Wenzke, founder of The Art of Happy Moving, and her husband bought a townhouse in Chicago, they didn't consider the school district because they didn't have kids yet. "When we sold our home four years later, we had three kids and their educations to consider," she says. "We moved because we needed the space, but we were lucky that we accidentally bought in a great school district." Even if you don't plan on having kids, she recommends investigating the school district for future resale value.Price out renovations in advance.
Price out renovations in advance.
After buying her first home in Atlanta, Kali Hawlk, founder of a marketing firm that specializes in working with financial advisors, wishes she'd factored in the cost of upgrading to double-pane windows. "I could never get the temperature downstairs above 65 degrees in winter because the entire back wall of the house was single-pane windows," she says. "I wish I had been aware of how expensive it would be to replace all of the house's single-paned windows with new ones," she explains. She thought upgrading the windows would be a simple fix, but it wound up costing around $10,000.Look beyond surface details.
Look beyond surface details.
Fancy fixtures and accent walls are nice, but some flipped homes mask bigger problems. "When we purchased our first home, we found out very quickly that aesthetically pleasing did not mean physically sound," says Dan Mackin, host of the Ditching 9 to 5 podcast. "Your inspector can't find things underneath the walls. Just because a flipped home is pretty doesn't always mean it's [of] better quality," Mackin says. His first home (a flip in Colorado) had so many problems, he moved out two years later and earned his real estate license so he could help others avoid the same issues.Read More
She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.
Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at email@example.com.
Devon Thorsby | June 5, 2019
Homeowners should not fret, as long as they're prepared for the possibility of a downturn.