Summary: Wire fraud is an increasingly common problem with devastating results, especially if it involves the down payment for your rental property purchase. In this article, we tell you how these scams work and how to avoid falling victim to wire fraud when buying rental properties. We also provide a real life example from one of our readers. Read on to find out what happened!
Imagine you are about to purchase your first rental property. You’ve found an amazing deal, and you are excited about starting your journey to financial freedom.
But then your worst nightmare happens. You wire funds to close–tens of thousands of dollars–but you soon learn that the title/escrow company never received the funds. You call around frantically trying to figure out what happened. The title/escrow company asks where you wired the funds. You forward them the wiring instructions you used. You get a call back from the title/escrow company and you find out that the wire instructions aren’t theirs. They’re fake.
You’re now among the many victims of wire fraud.
What is Wire Fraud?
According to Investopedia, wire fraud is:
“A crime in which a person concocts a scheme to defraud or obtain money based on false representation or promises. This criminal act is done using electronic communications or an interstate communications facility. These can include a phone call, a fax, an email, a text, or social media messaging, among others.”
Wire fraud involving a rental property purchase is especially devastating because it involves such a large sum of money. For some people, it’s their entire life’s savings.
Even worse, this money is generally not recoverable. There’s no insurance policy to protect you against such losses. The title/escrow company or lenders aren’t responsible to you for these losses. It’s all on you.
How Do These Scams Work?
While there are a wide range of scams, the one we’ll focus on in this article occurs when you are just about to complete the purchase of your rental property, also referred to as closing.
Investment properties generally require a significant down payment, around 25-30% of the purchase price. So if you are buying a $200,000 rental property, you are required to put down $50,000 to $60,000. This is the sum of money that you’ll be wiring just before closing (normally it’s more than just the down payment because you also have to include closing costs).
This is what internet scammers are targeting. They devise sophisticated methods to trick you into wiring this down payment into their accounts instead of the title/escrow company.
Usually what happens is, you get an official-looking email from what seems like your title/escrow company. Generally, the email creates a sense of urgency. They tell you to act quickly or else the closing might be delayed. The email also includes wiring instructions. In some cases, you’ve already received wire instructions from your title/escrow company, so the email explains the reason for the change in plans.
The email usually looks legitimate. It might have the name of your title/escrow company and/or representative. It might even have the name of your realtor, or reference the exact property you are purchasing and the correct wiring amount.
So if you don’t look carefully or you aren’t aware of the possibility of wire fraud, it’s easy to mistake this for a legitimate email.
So What Can You Do About It?
While there are probably a long list of things you can do to avoid being scammed, there are two that stand out above the rest and will likely keep you out of trouble.
First, just knowing that such scams exist and being hyper-vigilant whenever you receive any form of electronic communication is an extremely important step. Oftentimes the emails you receive appear legitimate, however, there are often small inconsistencies or errors that can be picked up on if you are careful. Sometimes there are grammatical or spelling mistakes. Some emails use language that appears to be written by a non-native English speaker.
Second, it’s critically important to voice-verify wire instructions and the exact amount with your title/escrow representative. This means picking up the phone and speaking directly to the person you have been working with throughout the process. Don’t accept instructions from anybody else, even another representative in the office, unless you know them.
Remember, as the buyer, you get to choose the title/escrow company so it’s best to develop a relationship with a title/escrow company as well as with the designated representative to help you avoid this type of scam.
A Real Life Example From One of Our Readers
One of our readers was about to purchase their second rental property. Just before closing, she received the following email.
She told me that the information was largely accurate. The scammers knew that the closing date was just around the corner. It contained the correct address of the property and the name of her title/escrow officer.
She was about to wire the funds but something didn’t feel right. She looked at the email again and the wiring instructions and felt something was off.
Fortunately, she called her title/escrow officer, and they told her that they never email wire instructions. Wire instructions are only sent via a secure email system. This was clearly a scam.
And our reader almost wired tens of thousands of dollars to the scammer.
Luckily, she didn’t fall victim to wire fraud and hopefully this article will help you avoid being scammed out of your hard earned money!
Have you or someone you know ever experienced a wire fraud scam? Tell us about it!
