COVID Concern: Digital Scams

The con is older than the internet–but all the more powerful in a real estate industry locked down by a pandemic and increasingly dependent on cyber-transactions. The digital scam nearly upended a deal just hours before closing.

Willow Glen agent Don Sabatini led his client, a savvy, professional woman with grown children, through the months-long home search–and a frantic effort to recover a $180,000 down payment unwittingly wired to a criminal’s account.

Sabatini, an agent with decades of experience in the Bay Area, had heard fraud warnings for years but never went through it. “It’s scary … I tell you,” he said.

Criminal Hacks Still Growing Problem

Real estate professionals say they are ever vigilant about wire fraud and criminal hacks, but it’s a growing problem. The FBI estimated 11,300 people were victimized in online real estate schemes in 2018, a 17 percent jump from the previous year, according to the most recent data available. The losses totaled $150 million, primarily through hacks and fake or spoofed email schemes, the agency said.

Now, coronavirus-related health restrictions have erected new walls between buyers, sellers, agents and lenders, forcing more business online. Open houses have been banned since mid-March, and only now can buyers tour homes under strict guidelines.

Some agents have closed deals without ever meeting clients in person. Under emergency powers, the state has also allowed more parts of the complicated real estate transactions to be conducted remotely.

Mortgage broker Jim Campagna said he conducted the state’s first remote notary authorization in May—a digital transaction commonplace in other states but only recently allowed in California because of the pandemic.

Nate Baker, CEO of real estate software startup Qualia, said security in real estate transactions “is an enormous issue today.” The San Francisco-based company created a secure platform to vet and verify title agents, lenders and their clients. Buyers can be particularly susceptible to scams because they infrequently navigate the emotional and sometimes frantic process, he said.

But the growing trust in digital transactions may create easier paths for scammers, hackers and criminals.

How the Scam Started

Sabatini and his client, a biotech professional, began her home search last summer. This news organization is not naming the victim, and she declined to comment through her real estate agent.

Even with a $1.1 million budget, the woman came up short on a dozen bids, he said. Finally, in early March, “one clicked,” and the house went into contract before the shelter-in-place orders took hold.

The pandemic delayed the pre-closing signing for more than two weeks, to the middle of April. Sabatini planned a low-exposure meeting at his office—with masks, gloves and social distancing—to finish paperwork and present a cashier’s check for the down payment. The buyer insisted on the cashier’s check. Everyone agreed.

“My client didn’t want to risk a wire transfer,” he said.

But the night before the scheduled signing, he said, her phone began to fill with belligerent and increasingly threatening emails. A scammer had been watching the earlier email traffic. He hacked one of the accounts, created new email addresses, and posed as the title agent, lender and Sabatini. The victim’s responses were funneled to the criminal’s email accounts—which closely mimicked the actual accounts in appearances and addresses.

“Due to the ongoing and quickly changing circumstances surrounding the Coronavirus we need to let you know that our office might temporarily be closed to public visitation,” read one email, marred by small typos, purporting to be from the title agent. “Due to this unforeseen circumstances, Please be advised that our escrow account is currently undergoing an audit and cannot receive closing funds at this time.”

Fraudster Bullied the Buyer

For the next several hours, the fraudster bullied the homebuyer to wire her down payment. On the morning of the signing, the homebuyer went to her bank and did the scammer’s bidding, Sabatini said.

When she arrived at Sabatini’s office for the 2 p.m. transaction, she explained she had wired the cash as she was instructed.

“Who was sending you emails?” Sabatini asked.

“You did,” his client answered.

A scan of the messages confirmed their panic—she’d been swindled.

They sped to the client’s bank and started calling every contact that could help. The chaos of the pandemic slowed communications. As Sabatini and his client waited for senior bankers to freeze the criminal’s account, they watched helplessly as the scammer began to spend the money.

A title agent got in contact with the FBI. Finally, senior bankers seized the money from the scammer’s account. The buyer’s losses totaled just $2,000, and the bulk of the money was returned to the woman’s account.

The woman insisted on completing the deal that day. She got a certified check, returned to the office with Sabatini and closed on the property.

She’s moved into the home. But everyone involved has become more wary of the risks, Sabatini said.

Law enforcement told him they would continue to investigate. But in the vast, anonymous and dark internet, he expects it will be a difficult search.

Source: Mercury News