The theft of escrow funds typically occurs when a participant in a real estate transaction is the subject of phishing or spoofing.
Once the perpetrator gains access to one party’s email, he has access to everyone’s email in the transaction. Those emails are monitored by the perpetrator who communicates with one or more of the participants, resulting in the theft of the seller’s net sale proceeds.
When the theft occurs, the title agent or company handling the escrow takes center stage as a target and main source of information to resolve the theft. The following are some tips for title agents in the event you become a target in such a scheme.
STEP ONE: FOLLOW THE MONEY
Determine as quickly as possible if any money is recoverable from the bank that received the wire. You will not get this information voluntarily. You may need to get a restraining order from a court in the jurisdiction where the theft occurred. If possible, contact the bank in writing with a request to freeze the recipient’s account. It is likely that the money will be gone before you become aware of the theft but that should not deter any efforts that you can take to determine if any amount of the money is recoverable.
You may be asked to sign a letter of indemnification by your bank in order to get this information. You should consult with a lawyer before doing so.
STEP TWO: PICK UP THE PHONE
Make phone calls, including to the other participants in the transaction. Be transparent about the theft. If you are hesitant to speak to the parties, engage a lawyer to do so. Call your underwriter and your errors and omissions insurance carrier. Check to see if you have coverage or any other policies that might afford coverage. Remember that this scheme is not “Cyber Fraud” so any insurance that you may have for that occurrence will not cover theft due to a phishing or spoofing scheme.
STEP THREE: ALERT LAW ENFORCEMENT
You can file a report with the FBI through the IC 3 portal on the web. Reports can also be made to local law enforcement, although their jurisdiction may be limited.
STEP FOUR: PROTECT THE DATA
It’s important to preserve and protect all communications in the targeted transaction. You should contact an experienced computer technician to segregate those communications so that they cannot be altered and to determine the identity of the perpetrator and the email addresses used by the perpetrator to facilitate the theft. You must preserve the evidence in case a lawsuit is filed.
STEP FIVE: CALL A LAWYER
If you have not already done so, get a lawyer involved as soon as you can to assist with insurance coverage issues, communications with the other participants and law enforcement and protecting evidence should a lawsuit be filed.
STEP SIX: PROTECT YOURSELF
It’s often difficult in the early stages of an investigation to determine who or how the theft occurred. You will need to determine the extent of your insurance coverage and follow the directives of your carrier. In that process, you may be asked to admit that you were negligent in handling the escrowed funds, either by your insurer or other participants. As with any matter which would result in litigation, speak to a lawyer before doing so.
Review, identify and resolve procedural issues in your office that will prevent future theft of funds. There are a number of resources available that can provide best practices and tools to counteract escrow theft, including resources provided by your underwriter.
STEP SEVEN: RESOLUTION
Depending on the facts of your case and the position of your insurance carrier, the case may be settled early in the process or result in litigation. You should be aware that an early resolution does not mean that your insurance carrier will issue a check to the seller overnight. They will need to conduct their own investigation either through a coverage lawyer or with your counsel’s assistance. That could take weeks or months so it is wise not to make any promises to the participants in the transaction.
Remember that resolving escrow theft is not a “one size fits all” matter. The fact patterns of the theft may and will change as perpetrators get more and more sophisticated. What is important is to be prepared when it happens to you (successfully or unsuccessfully).
Remember that you can best protect yourself by verifying information while the transaction is in process. It never hurts to make a phone call to the seller before wiring their funds.
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