Failure to warn clients about wire fraud scams could mean financial loss for your clients—and legal trouble for you.

Benjamin and Joyce Fox were eager to move to a home near family and settle into retirement. In 2017, after a three-month house hunt, they found a three-bedroom townhouse in Lafayette, N.J.

The townhouse was a foreclosure, owned by JPMorgan Chase. The Foxes agreed to pay cash for the $91,500 listing. They withdrew the money from a home equity line of credit on their current house. On Aug. 29, 2017, Joyce received wire transfer instructions via her Yahoo email account. An email from her real estate attorney had told her to expect such instructions. She wired the $91,500.

On closing day, Sept. 1, 2017, the couple’s homebuying dream turned into a nightmare. The closing representative scrutinized the wire transfer receipt: “That’s not our bank, and that’s not our account number.”

The Foxes had fallen victim to an elaborate wire fraud scam that has become all too familiar to anyone who works in real estate sales—a scam that involves infiltrating email accounts and sending fraudulent wire transfer instructions. In this case, the scammers had sent fictitious emails to the Foxes, impersonating both their real estate attorney and real estate agent, for weeks leading up to closing.

Today, more than two years later, the couple is still paying the $91,500 for a home they’ve never owned. They’ve filed suit, seeking to hold their attorney, agent, and others accountable for not warning them of the dangers of such scams.

Could You Be Held Liable?

Real estate mortgage closing scams are one of the top five wire fraud schemes, according to the FBI’s Internet Crime Complaint Center, accounting for $150 million in losses in 2018 alone.

As cyberfraud scams grow more sophisticated, real estate pros are finding themselves more at the center of such lawsuits. In one case from 2018 (Bain v. Platinum Realty LLC), a Kansas court found a real estate agent and her brokerage liable after fraudulent wire instructions that the agent allegedly forwarded to the buyer resulted in the buyer losing $196,622. The agent denied sending the email. A jury found the agent and her brokerage 85% liable and ordered them to pay the buyer $167,129 in lost funds. A federal court upheld the verdict.

Protect Yourself—and Your Clients

The Foxes accused their agent of using an unencrypted, personal email account to send contracts that the couple argues put their personal information at risk. Upon further investigation of what went wrong, the Foxes had received all incoming and outgoing messages from Joyce Fox’s Yahoo account leading up to the wire transfer. The actual transfer instructions from their attorney’s office came in just seven minutes prior to the fraudulent instructions; the scammer had taken control of Joyce Fox’s account, deleted the attorney’s message, and replaced it with fake instructions. The fake message was sent from an email address that omitted just one “l” from the attorney’s email address.

“The best practice to prevent liability is to not let your clients become a victim in the first place, and that means educating them up front—and often—and especially as money is exchanging hands,” says Lesley Muchow, deputy general counsel at the National Association of REALTORS®.

NAR is working with the FBI and other real estate industry groups to help warn consumers and arm real estate professionals with tools to educate consumers about the dangers of wire fraud scams. There are videos, pamphlets, and checklists for brokerages to use, urging agents to:

• Have face-to-face conversations with clients to clearly explain the risks. Urge them to always call and verify all wiring instructions they receive by calling a known person through a trusted phone number, not the phone number provided in the email with the wire instructions. Calling a number in the email could result in connecting directly with the scammer, who will confirm the false wire instructions. “A real estate professional has the opportunity to sit down, look the client in the eye, and say, ‘This is a problem,’ ” says Bruce Phillips, chief information security officer at West, a technology subsidiary of Willston Financial Group. There’s a customizable brochure(link is external) available from NAR that agents can use to guide these conversations.
• Add a disclosure form as a risk management tool for your brokerage. Several state associations and brokerages have developed a wire fraud disclosure form that real estate pros can use to warn clients about cybercrime risks. Access sample forms at nar.realtor.
• Consider insurance to reduce your liability. Visit nar.realtor to access a report about cyber insurance
• Adopt greater security precautions to safeguard your transactions. NAR has developed a cybersecurity checklist, available to download at nar.realtor.

It includes tips such as:

• Use encrypted email, a transaction management platform, and a document-sharing program when sharing sensitive information.
• Use two-factor authentication.
• Avoid using unsecured Wi-Fi connections when conducting business.
• Use complex passwords.
• Keep software, firewalls, and operating systems up-to-date with the latest patches.
• Urge clients to confirm all instructions in person or over the phone with a trusted representative and never simply follow emailed instructions.

©National Association of REALTORS®
Reprinted with permission

Know how escrow funds are handled if a deal falls through.

In an ideal world, every transaction closes without a hitch. However, it’s important to prepare for those times when the sale does not close. In those cases, we are left with the question of how to deal with funds held in escrow.

Closing procedures vary by state. You need to be familiar with the process, whether you do business in an escrow or non-escrow state. The majority of states are non-escrow; in those states, the parties typically sign a purchase agreement and schedule a closing date. On closing day, the parties exchange all necessary documents and funds. In escrow states, like California and Arizona, the parties sign a purchase agreement (or escrow instructions), along with all pertinent documents; these documents are held in escrow until the date of closing.

Despite the differences, there are general principles involving default that apply nearly everywhere.

First, it’s important to confirm that your contract for the sale and purchase contains provisions regarding the duties of an escrow agent, if applicable. When the parties cannot come to an agreement as to the release of escrow, and they make conflicting demands for the funds, the escrow agent will generally not be able to release the funds to either party. An escrow agent (or broker) shouldn’t release funds unless both parties sign a release.

However, if you’re working with a seller who wants to make a claim on the escrow funds, promptly notify the escrow agent or broker to avoid inadvertent disbursement. It’s important that you communicate with your broker, the escrow agent, and the closing agent to let them know your objection to the release of an escrow deposit. Make sure you carefully follow the notice requirements of your contract.

When the parties cannot come to an agreement as to the release of escrow, and they make conflicting demands for the funds, the escrow agent will generally not be able to release the funds to either party. An escrow agent (or broker) shouldn’t release funds unless both parties sign a release.

Depending on your location, your contract may require that the parties attend mediation or arbitration before proceeding to litigation to determine entitlement to the escrow deposit. The actual remedy may vary if the escrow is being held by a broker, by a title company, or by an attorney. Assuming your contract doesn’t have a provision for mediation or arbitration—or that both steps have been completed—the escrow agent would typically file a lawsuit, known as an interpleader action, in order to be removed from the dispute. Funds are thereby deposited in the registry of a court. The amount of time that an escrow agent may be willing to wait to initiate a lawsuit will vary depending on each agent’s policies. It’s common practice for an escrow agent to hold the funds if the parties are making progress toward a resolution.

Occasionally, the deal may be disrupted at a point where the escrow agent is already holding the down payment and funds from the lender. Lenders normally require that a closing agent return the loan proceeds if the transaction doesn’t close. Likewise, the down payment tendered by the buyers is generally returned and not subject to the procedures and terms outlined in the purchase agreement for escrow funds.

When filing an interpleader action, an escrow agent is typically reimbursed from the funds in escrow for any attorney’s fees and costs incurred in the filing. This will inevitably diminish the amount of funds available to be distributed between the parties. That’s why purchase contracts—and common sense—dictate that buyers and sellers should try to come to an amicable settlement to avoid the cost and other challenges of litigation.

©National Association of REALTORS®
Reprinted with permission

COVID-19 raises legal concerns related to evictions and fair housing.

COVID-19 has altered the rulebook for property managers and investment property owners for the foreseeable future. Balancing the pressures faced by tenants struggling to pay rent due to job loss with your need to keep up with expenses and safety measures presents distinct challenges. Two of the biggest concerns affecting rental properties are the patchwork of eviction moratoriums and the unique fair housing issues and disability protections related to COVID-19. Here’s how to navigate these issues.

Evictions and Tenant Rights

The CARES Act enacted in late March instituted a temporary moratorium on certain evictions. Through July 25, the law prohibits landlords from initiating eviction actions or charging late fees or other penalties for nonpayment of rent to tenants residing in a property that participates in a federal assistance program or is subject to a federally backed mortgage or federally backed multifamily mortgage loan. That said, however, this temporary moratorium neither precludes a landlord from initiating an eviction for reasons other than nonpayment nor relieves tenants from responsibility for payment of the late rent once the moratorium is lifted.

But take note: After the moratorium is lifted, the CARES Act requires landlords to provide 30 days’ notice before evicting a tenant for nonpayment. And states, along with numerous counties and cities, have similarly responded to concerns over displaced tenants during COVID-19. As of May, a reported 42 states and the District of Columbia, plus many counties and cities, have also issued eviction moratoriums.

These pauses may be more expansive than the CARES Act. This means that property managers and owners should be sure to familiarize themselves with all applicable laws before initiating an eviction proceeding or taking any action against a tenant for nonpayment of rent.

Fair Housing Compliance

The pandemic also raises unique fair housing issues, including whether COVID-19 constitutes a disability under the federal Fair Housing Act. While a court may ultimately need to resolve this question, given the severity of the virus, it is advisable that COVID-19 be treated as a disability for purposes of the act.

Property managers and other real estate professionals should be sure to provide equal housing opportunities for individuals with disabilities, and engage with tenants who request reasonable accommodations due to COVID-19. Such reasonable accommodations may include allowing a tenant to remain in the unit beyond the lease term in order to self-isolate, temporarily ceasing any entry by others or showings of the unit, and making an exception to a no-visitors policy for caregivers.

All that said, the Fair Housing Act doesn’t require real estate professionals to provide assistance or housing to someone who poses a direct threat to the property manager or others. So, unless the threat posed can be mitigated by a reasonable accommodation, the property manager may not be required to assist the individual.

Keep in mind these fair housing best practices for working with the public in the wake of COVID-19:

• Limit in-person activity, and instead leverage technology to meet with prospective tenants, complete rental applications, and execute leases.
• Offer contactless key exchanges.
• Take precautions when in-person activity must take place. Ensure social distancing, require face coverings, and limit the number of people at a showing or meeting.
• Consider using a health questionnaire to ask all prospective tenants to self-disclose if they have COVID-19 or are experiencing symptoms.

To learn more about fair housing compliance during the pandemic, visit nar.realtor/coronavirus.

©National Association of REALTORS®
Reprinted with permission

Five measures brokerages are taking that you can adopt to fight discrimination and foster inclusion.

Since the killing of George Floyd in May, the topic of systemic racism has galvanized the nation’s attention. Many real estate professionals are becoming part of the movement for change. Here are five measures brokerages are taking that you can adopt to fight discrimination and foster inclusion.

1. Examine diversity in your office, and make sure many different voices are represented in the discussions you have at work. Brokerage leaders can create a task force to address racial disparities that may be present within the company.
2. Adopt policies that stand firmly against discriminatory practices and offensive communications, including inappropriate social media posts.
3. Develop partnerships with key community players like city councils, chambers of commerce, police departments, and health care facilities to help mobilize ideas for change.
4. Partner with local Black-owned businesses to help promote them and share referrals.
5. Learn from history. Research the historical real estate practices of redlining, steering, and blockbusting so you and your team are aware of where the industry has been. Find NAR resources for creating a more inclusive business at magazine.realtor/inclusive-plan.

Sources: Sandra Butler, AHWD, Sibcy Cline Inc., Cincinnati; Raelenna Ferguson, Realty Executives Edge; Cape Girardeau, Mo.; John Graff, AHWD, SFR, Ashby & Graff Real Estate, Los Angeles; Julia Israel, AHWD, Keller Williams Integrity Realty, Minneapolis; Nate Johnson, AHWD, GRI, Real Estate Solutions, St. Louis

©National Association of REALTORS®
Reprinted with permission

Minimizing the chance of liability claims against your brokerage and your clients starts with clear communication about those risks.

During the pandemic, of course you want to serve your clients to the best of your ability while being attuned to health and other risks. Minimizing the chance of liability claims against your brokerage and your clients starts with clear communication about those risks. While you should always consult with your broker and an attorney to assess the risk and the effectiveness of addenda and other contractual language, here are general guidelines on legal forms related to the pandemic:

Hold harmless agreements: In general, a hold harmless agreement protects a party from liability if another party is injured on their property or is injured during an inherently dangerous activity. In the case of a pandemic, where the effects of the associated disease are not only widely known but also widespread, easily transmitted, and unlikely to show symptoms for days after exposure, proving causation could be difficult from a legal standpoint.

Purchase agreement addenda: Coronavirus closures and other government orders in March left many practitioners scrambling for an addendum to the purchase agreement that specifically addressed potential delays related to the pandemic. Many brokerages and REALTOR® associations have created these addenda, which extend the closing date if necessary, and address other issues including the potential unavailability of inspectors or appraisers; a party’s inability to travel to sign documents; a party being subject to a mandatory quarantine; and closings of or delays in relevant government and business services, such as deed recorders, lenders, and title or escrow companies, necessary to close the transaction. View a sampling of such forms by downloading “2020 Legislative Meetings RMIC Workgroup Forms & Addendums” at nar.realtor/RM-RMIC.

©National Association of REALTORS®
Reprinted with permission

Resources from NAR can help you develop more inclusive business plans.

Your association can help you make real strides toward a more inclusive business. For a decade, the National Association of REALTORS® Code of Ethics has gone beyond the law when it comes to fair housing. But many real estate practitioners are looking for ways to make a deeper and more visible commitment to equality. Resources from NAR can help.

1. Display the Equal Housing Opportunity logo on your company windows and in advertising. Decals, as well as a customizable poster, are available from the REALTOR® Team Store(link is external), or download the logo from nar.realtor.
2. Write a diversity and inclusion statement to promote as part of the personal or company mission. NAR’s statement says, in part: “We fully embrace perspectives from all walks of life—regardless of race, ethnicity, gender, religion, age, sexual orientation, gender identity, disability, national origin, socioeconomic status, political affiliation or any other qualities by which we may define ourselves. We commit to bringing out the best in ourselves, uncovering our hidden talents, and celebrating differences in our day-to-day interactions. These beliefs are essential as we serve our members who help fulfill the dream of home and property ownership in America.”
3. Be open to self-examination. For insights into how your mind perceives and responds to differences, check out the fascinating, no-cost workshop from NAR, “Bias Override: Overcoming Barriers to Fair Housing.” This 50-minute video program was developed in partnership with the Perception Institute, an organization that worked with other professionals, including judges and teachers, to overcome implicit bias. Watch the video, and use the online tool to test your own implicit biases.
4. Adopt the Equal Professional Service Model(link is external) for your practice. Developed by NAR, the model has four key steps that should be applied consistently in interactions with buyers:
   
   • Do I use systematic procedures?
   • Do I have objective information?
   • Has my customer set the limits?
   • Have I offered a variety of choices?
    
5. Earn NAR’s At Home With Diversity® certification. This day-long, interactive workshop—recently retooled—offers a wide range of insights and exercises to help you not only provide equal service but also transcend racial and cultural differences. Bonus: The program is available for continuing education credit in many states and counts as an elective credit toward several NAR designations.

For more resources—including information on diversity and inclusion grants available to local and state REALTOR® associations—visit nar.realtor/diversity.

©National Association of REALTORS®
Reprinted with permission