Real
Estate Attorney Alerts to Problem of Fraudulent Wire Instructions for Real
Estate; Licensee Liable for Forwarding Fraudulent Wire Transfer Instructions
William Blanchard Esq cautions agents to avoid forwarding
emails that contain wire transfer instructions for real estate transactions
In light of the frequent scams involving wire transfers of
funds for real estate transactions, real estate lawyer William “Bill” Blanchard
alerts buyers and real estate businesses to this recurrent problem. The basic
model of the scam is that scammers intercept and replace wire transfer
instructions sent via email between the various parties to a real estate
transaction. The buyer then wires the funds for the scheduled transaction, only
to find that the funds were sent to the scammers’ accounts where they quickly
disappeared.
Recently a court had to address such issue. A federal
district court in Kansas upheld a jury verdict in this regard in the case of
BAIN v. PLATINUM REALTY, LLC. There, a jury found a real estate licensee 85%
responsible for the buyer’s losses, which occurred when the buyer transferred
purchase money to fake account after licensee allegedly forwarded email
containing fake wiring instructions to the buyer. In this case, a real estate buyer (“Buyer”)
purportedly received an email from the listing broker (“Broker”) that provided
new wiring instructions for the upcoming closing on a property. The Buyer used
the false instructions to wire the purchase money to the fraudulent account and
lost $196,622. The criminal had infiltrated the email exchanges between the
parties to the transaction and created fake email accounts that were very
similar to the email accounts used by the parties. The criminal had used these
accounts to transmit the false wire instructions that were eventually sent to
the Buyer.
The Buyer brought a lawsuit against a number of parties,
including the Broker. The Broker claimed that she had never sent the email with
the false wiring instructions. She had initially forwarded an email with the
false wire instructions but she had sent it to one of the fake accounts set up
by the criminal. She claimed that she had not sent the later email that the
Buyer did receive and used to send the purchase money to the fraudulent
account.
The case went to trial, and the jury found that the Broker
was 85% responsible for the loss and the court entered judgment against the
Broker for $167,129. The Broker filed a post-trial motion seeking a
determination in her favor. Defendants
argue that the evidence was insufficient to support the jury's finding in favor
of plaintiff on his claim of negligent misrepresentation. The Court instructed
the jury concerning the elements of that claim as follows:
One who, in the course of his or her business, supplies
false information for the guidance of another person in such other person's
business transactions, is liable for damages suffered by such other person
caused by reasonable reliance upon the false information if:
1. The person supplying the false information failed to
exercise reasonable care or competence in obtaining or communicating the false
information; and,
2. The person who relies upon the information is the person
for whose benefit and guidance the information is supplied; and,
3. The damages are suffered in a transaction that the
person supplying the information intends to influence.
The district court affirmed the jury verdict. The court
rejected the Broker’s argument that she did not send the email to the Buyer
that was used to send the wire, finding this was an issue of fact for the jury
to resolve as there was some evidence that the Broker had sent the later email.
The jury determined that the Broker had sent the email, and so the court
affirmed the jury verdict in favor of the Buyer.
William Blanchard notes
that “theft of closing funds or sale proceeds is nationwide problem. The
internet is everywhere, and it has become rather easy for a scammer to hack
into email accounts and/or create fake identities to divert the funds for a
real estate transaction. In some states, including Illinois, there are laws
requiring a ‘Closing Protection Letter (CPL)’. This is a form of insurance
issued by title insurance companies, insuring the actions of a particular
attorney, agent, and/or closer in conducting a closing. To bolster lender
confidence in agency closings, major title companies and underwriters issued
CPLs indemnifying lenders and buyers from losses occurring during the closing
process.”
“Courts in many states
without CPL legislation are struggling to justify decisions finding title
companies and individual agency or agent’s errors and omission insurers
responsible to the parties to real estate transactions that fail due to loss of
funds or to sellers whose proceeds end up somewhere other than intended. Even
though millions of dollars are being hijacked by unscrupulous closing agents,
attorneys and hackers, there are no appellate or supreme court cases on the
issue of title insurance company responsibility for loss due to fake wire
transfer instructions involving CPLs,” concludes Mr. Blanchard.
The underlying case is JERRY BAIN, Plaintiff, v. PLATINUM
REALTY, LLC and KATHRYN SYLVIA COLEMAN, Defendants, Case No. 16-2326-JWL United
States District Court, D. Kansas (June 25, 2018). The Court’s memorandum and
order upholding the jury verdict is at https://www.gpo.gov/fdsys/pkg/USCOURTS-ksd-2_16-cv-02326/pdf/USCOURTS-ksd-2_16-cv-02326-3.pdf
**** Mr. William B. Blanchard (“Bill Blanchard”) is a Real Estate Attorney with offices in St. Charles and Oakbrook Terrace, Illinois. Bill specializes in representing real estate clients for purchases and sales as well as home owner real estate tax assessment appeals. Mr. Blanchard is General Counsel for Gaia Title, Inc. a title insurance agency and settlement services provider. The Company is owned by real estate attorneys who demand exemplary title insurance services and accurate and efficient settlement services. As General Counsel he is responsible for title examination, commitment and policy review, escrow settlement supervision and regulatory review. - Attorney Profile: https://solomonlawguild.com/william-b-blanchard%2C-esq - Attorney News: https://attorneygazette.com/william-blanchard%2C-esq#40b43d7b-94b2-48d3-b055-1979a636f1e7
