{"id":4369,"date":"2024-07-10T08:07:41","date_gmt":"2024-07-10T12:07:41","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=4369"},"modified":"2024-07-10T08:07:42","modified_gmt":"2024-07-10T12:07:42","slug":"wire-fraud-at-closing-whos-on-the-hook","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/wire-fraud-at-closing-whos-on-the-hook\/","title":{"rendered":"Wire Fraud at Closing. Who\u2019s on the Hook?"},"content":{"rendered":"\n
\"\"<\/figure>\n\n\n\n

Over the past three years, wire fraud in home purchases<\/a> has gone up sharply.<\/p>\n\n\n\n

Many victims are turning to court to seek damages after losing much of their life savings to the scammers involved. But who can they go after? The bank? An insurer? The title company? The agent?<\/p>\n\n\n\n

Some of the players (like banks and insurers) have better shields than most.<\/p>\n\n\n\n

Title professionals, real estate agents, and their clients are most likely to be left holding the bag. Public pressure is mounting on lawmakers to change this, according to the latest report from the wire fraud prevention firm CertifID.<\/p>\n\n\n\n\n\n\n\n

Increasingly, Real Estate Pros Are Holding the Bag<\/h2>\n\n\n\n

Title and escrow professionals, and in some cases buyers\u2019 agents, are increasingly being held liable for losses when client escrow funds are diverted by fraud.<\/p>\n\n\n\n

While swindlers are really to blame, courts are holding real estate professionals responsible \u2014 especially if they aren\u2019t using solid security measures and educating their customers.  <\/p>\n\n\n\n

According to legal experts<\/a>, \u201ccourts have held that the party most responsible for causing the payment to be misdirected must bear the loss…\u201d The person closest to the \u201cmisdirection\u201d could be the title agent, the broker, or the buyer\u2019s real estate lawyer, depending on the norms in a given state.<\/p>\n\n\n\n

The question of who\u2019s liable for a fraudulent misdirection of closing funds came up in Hoffman v. Atlas Title Solutions, Ltd<\/em>. Conor Hoffman and Macie McMahon were getting married, and they wanted a home of their own. The Atlas Title company did their escrow and title work. The couple successfully sued Atlas Title, claiming the company failed to implement adequate email safety procedures.<\/p>\n\n\n\n

Banks Have a Legal Shield: The UCC<\/h2>\n\n\n\n
\"\"<\/figure>\n\n\n\n

Courts typically let banks off the hook for wire fraud losses, declares CertifID, as long as the account holder initiated the money transfer.<\/p>\n\n\n\n

Specifically, Article 4A of the Uniform Commercial Code shields banks from liability for diverted electronic transfers. To use Article 4A, banks just need to apply \u201ccommercially reasonable\u201d security protocols.<\/p>\n\n\n\n

So, real estate companies are unlikely to succeed if they try to blame banks. Will the brokers\u2019 insurance companies come to the rescue? Unlikely. Courts have backed the insurers when the particular type of loss isn\u2019t expressly and clearly covered in the policy. Without \u201cspecific insurance coverage for stolen funds\u201d and to-the-letter adherence to an insurance policy\u2019s stated procedures, the broker or title agent will likely be held liable, CertifID says.<\/p>\n\n\n\n

In a case named Helms v. Hanover Insurance<\/em>, a couple wired $120,000 to fraudsters. The couple was not about to accept the loss, so they sued their broker and real estate agent, alleging negligence. The agent went to Hanover, its insurer, to recover the lost funds under its errors and omissions coverage. The court sided with the insurer, declaring that the policy plainly excluded coverage for \u201cclaims based on or arising out of the theft, stealing, conversion, or misappropriation of funds.\u201d \u200d<\/p>\n\n\n\n

For some situations, <\/strong><\/em>enhanced title insurance<\/em><\/strong><\/a> can help fight the costs of being victimized through fraud. Learn more with Deeds.com.<\/strong><\/em><\/p>\n\n\n\n

There\u2019s a more general message here for us all. Ask your insurance broker probing questions about coverage and exclusions whenever you buy, update, or renew a policy.<\/p>\n\n\n\n

Are Banks Ever<\/em> Liable for the Lost Funds?<\/h2>\n\n\n\n

Banks have strict compliance mechanisms to keep them out of liability. Banks regularly go through hacker drills. Seek out the benefit of their knowledge! Bank and credit union customers should fee encouraged to talk to someone at the institution about fraud well before the closing date.<\/p>\n\n\n\n

You might wonder: Do banks ever drop the ball? Would a court ever hold a bank liable for the botched transfer? The answer is yes. But only in narrow circumstances. Here are two scenarios where a financial institution could be responsible for a fraud-related loss:<\/p>\n\n\n\n