Homebuyers

A Guide to Preventing Mortgage Fraud

In today's digital age, one wrong click could turn your dream of homeownership into a devastating nightmare. Mortgage fraud is rising, and cybercriminals increasingly target homebuyers through sophisticated email scams. With billions lost yearly, this growing threat is something no homebuyer can afford to ignore.

"It's very scary and unfortunately quite common, but it does boil down to consumer email accounts," said Amy Avitable, SVP, Legal, and Assistant General Counsel at New American Funding. "If the consumer sends the money to the fraudster and the fraudster empties the account before the FBI can stop it, that money is gone."

Business Email Compromise (BEC) is a fast-growing and costly internet crime. In 2022, the FBI received 21,832 complaints, a significant 9% increase from the year before. These complaints represented adjusted losses of more than $2.7 billion, according to the FBI's Internet Crime Report. This is a massive jump from $360 million in 2016.

Real Estate Wire Fraud (REWF), a dangerous offshoot of BEC, can wipe out a homebuyer's life savings in a single click. Phishing attacks, where criminals send emails that appear to be from trusted sources to trick individuals into revealing sensitive information or transferring money, are becoming more sophisticated. With AI possibly making phishing scams harder to detect, buyers need to be more vigilant than ever to protect their financial future.

How BEC mortgage fraud happens

BEC scams usually start with a fake email. Criminals send emails that look like they come from a real person, like a bank, real estate agent, or title company. These emails are designed to look authentic, complete with logos, professional language, and sometimes even the names of real people involved in the transaction.

"The hacker sits there and watches all the borrower's emails back and forth with the real estate agent and the loan officer," said Avitable.

"Then all they have to do is set up some cheesy email address like 'closingagent@yahoo.com,' and then they copy and paste the signature line from one of the parties, and they start emailing the consumer, and they look like the title company or the closing agent," Avitable continued.

"The consumer turns around and wires hundreds of thousands of dollars to a fraudster because they didn't check the email address closely enough to realize that that is not the right email address."

The scammer's goal is to deceive the recipient into believing the email is genuine. They may provide instructions to wire money to a specific account, claiming it's part of the closing process. For example, the email might tell the homebuyer to transfer their down payment, escrow payment, or other large sums to what appears to be the title company's account. In reality, the account belongs to the scammer.

Once the victim wires the money, it's quickly moved through various accounts, often including cryptocurrency platforms, to make it nearly impossible to trace or recover. The funds might be split across multiple banks, withdrawn as cash, or sent overseas, all within a matter of hours.

By the time the victim realizes they've been scammed—usually when the legitimate party asks why the funds haven't been received—the money is long gone.

If the fraud isn't caught in time, the victim can lose their entire down payment or more, and there's little chance of getting the money back. This not only delays the homebuying process but can also lead to financial ruin for the victim.

"It's actually very common; we see a couple of cases like this every month," said Avitable.

"What you often see is the funds from the sale of the old home, which are supposed to pay off the previous mortgage and serve as a down payment for the new home, get intercepted by a fraudster," Avitable said. "The scammer sneaks in by monitoring the emails exchanged during the transaction, getting access to the payoff statement, and then sending fraudulent wire instructions."

In one recent case, Avitable described how a family lost approximately $250,000.

"The payoff quote was sent to our team, then emailed to the loan officer. At some point, the fraudster intercepted this information, inserted themselves into the communication, and redirected the funds to their own account," she explained.

"The result was devastating. The money was gone to pay off the old mortgage and secure the new home," she continued. "The family ended up in a terrible situation, needing to take out a new loan on the new house while still carrying the debt from their old home—because the original mortgage was never paid off."

Avitable emphasized the seriousness of the situation: "Once the funds are transferred to a fraudster, there's often nothing we can do to recover them. The buyer is left with the financial burden, and in some cases, they could even lose the house they were trying to buy," she said.

"If caught right away and reported to the FBI, there's a slim chance the money could be recovered, but it's not likely—especially if the fraud occurs on a Friday and isn't noticed until Monday."

What to watch out for and how to protect yourself

BEC mortgage fraud is a serious threat, but there are steps you can take to protect yourself. The first and most important step is to verify any email requesting a transfer of funds.

Always call a trusted phone number you know is correct to confirm wiring instructions. Be particularly cautious of email addresses that look almost right but have subtle differences, like a single character change.

"This simple step could save you from losing your life savings," advises Avitable.

You should also consider setting up multifactor authentication on your email accounts, as it is another effective way to prevent scammers from accessing your communications. This extra security makes it harder for hackers to get into your accounts.

If you need to provide financial details online, ensure the site is secure by checking for a URL that begins with "https". Be careful with email attachments and downloads. Even if an email seems to be from a trusted source, opening attachments or downloading files can bring malware that makes your computer less secure.

The FBI has prioritized combating BEC and phishing by working with domestic and international partners to dismantle criminal networks and educate the public. Still, they tell homebuyers to be careful, recheck all messages about money transfers, and report any suspicious activity immediately.

"That's why we encourage loan officers and everyone in the process to educate consumers," said Avitable. "But it really comes down to the consumer being proactive and realizing that they need to put multifactor authentication on their email."