The email looked right. It carried the title company's logo, the closer's name, the file number, and the property address, and it explained that because of an internal audit the wiring instructions had been updated. You sent the funds the morning before closing. At the closing table the next day, the closer says the money never arrived, and when you show her the email she tells you she did not send it.
This is among the most common large frauds in residential real estate. Buyers lose down payments and sometimes the entire purchase price, and sellers lose proceeds and loan payoffs through the same method. Recovery depends on two things that happen on different clocks: how fast the transfer is reported, and afterward, who among the banks, agents, and professionals involved bears responsibility for the loss.
How does closing wire fraud happen?
Someone's email is compromised. It may be the real estate agent's, the title company's, the lender's, a lawyer's, or the buyer's own. The criminals read the correspondence, sometimes for weeks, and learn the names, the amounts, and the schedule. Shortly before closing they send a message from the compromised account, or from an address that differs from the real one by a single character, with new wiring instructions. The account that receives the money belongs to an intermediary, and the funds are moved again, often out of the country, within hours or days.
What has to happen in the first hours?
Call the fraud department of the bank that sent the wire and ask it to recall the transfer and to contact the receiving bank to freeze the funds. Do this by telephone, immediately, and follow in writing. File a complaint with the FBI's Internet Crime Complaint Center, which works with banks to stop transfers reported quickly, and report the theft to local police. Ask your bank for the name of the receiving institution and contact its fraud department directly as well. Notify the title company, the agents, and the lender so that they can secure their systems and their insurers can be told. Preserve the fraudulent email with its full technical headers, and do not delete anything. Money reported within a day is sometimes frozen and returned. Money reported a week later is usually gone.
Can the banks be held responsible?
Rarely, and it helps to know why. Wire transfers are governed by a part of the Uniform Commercial Code that Florida has adopted, and it replaces most ordinary negligence claims with its own narrow rules. The bank that sent the wire carried out an order its customer authorized, and that is generally the end of its liability. The receiving bank is generally entitled to rely on the account number in the order even when the name on the account does not match the named beneficiary, unless the bank actually knew of the mismatch. Claims against receiving banks exist where that knowledge can be shown, and they are difficult.
What about the title company, the agents, and the lawyers?
This is where most recoveries are found. A professional whose email system was breached, or who handled the transaction carelessly, may be liable for negligence or for breach of a fiduciary duty. The questions are concrete. Was the email account protected by basic security, such as multifactor authentication? Were buyers warned in writing about wire fraud and told how instructions would be delivered? Were the instructions sent by unsecured email? Did anyone notice that the funds had not arrived when expected? Closing agents hold other people's money and owe duties that reflect it. Most carry professional liability or cyber insurance, although those policies often limit coverage for fraud induced by deception, and a dispute over the coverage sometimes runs alongside the main claim. The written terms of the closing agent's engagement, and any disclaimer about emailed instructions, will be read closely by both sides.
Will your own conduct reduce the recovery?
It may. Florida apportions fault, and the defense in every one of these cases is that the person who sent the wire could have prevented the loss with a phone call. Courts look at who was in the better position to avoid the theft. Did the closing documents contain a warning never to rely on emailed changes? Was a known telephone number called to confirm? Was the buyer's own email the account that was compromised? A buyer who verified the instructions by phone, using a number from an independent source, stands in a far stronger position than one who did not. Fault is often divided among several parties by percentage.
Does insurance cover the loss?
Not in the way people assume. A title insurance policy protects against defects in title; it does not cover funds stolen before closing. A homeowner's policy generally does not respond either, though some carry identity theft or cyber endorsements with modest limits. Businesses may have crime or cyber coverage that applies, depending on the wording. The insurance that matters most is usually held by someone else: the closing agent, the brokerage, or the law firm whose conduct is in question. Finding those policies early, and putting the carriers on notice, is part of pursuing the claim.
What should buyers and sellers do before sending money?
Treat every change to wiring instructions as fraudulent until you have proven otherwise. Confirm the instructions by calling a number you obtained independently, from an earlier document or the company's own website, never the number in the email. Confirm again that the funds arrived. Be wary of last-minute urgency, which is a feature of nearly every one of these messages. Use the secure portal if the closing agent offers one. Sellers should apply the same caution to instructions for their proceeds and for any payoff of their mortgage. If the money is already gone, act within the hour on the steps above, and then get advice on who bears the loss, because those claims have deadlines of their own.
Salomon Smith PLLC represents buyers, sellers, and businesses in real estate fraud disputes across South Florida, including claims arising from diverted closing funds. If a wire for your closing went to the wrong account, call (305) 297-1018 for a free consultation, or learn more about our real estate fraud practice.
This article is for general informational purposes only and is not legal advice.