Fraud is becoming increasingly prevalent in the real estate industry and it’s essential to be vigilant throughout the process of buying or renting a home
The spike in digital fraud has prompted financial institutions to urge clients and property professionals to be alert for any irregularities and verify credentials. The increase in scams perpetrated by the electronic interception of communication between attorneys, estate agents and their clients, has been so significant that the Attorneys Indemnity Insurance Fund no longer covers attorneys who fall victim to cybercrime, says Eduan Milner of Eduan Milner Attorneys, Notaries and Conveyancers.
Electronic communication scams
Losses arising out of cybercrime include payments made into an incorrect or fraudulent bank account. This type of fraud entails a phishing-type email aimed at intercepting correspondence to one of the parties and the progress of the transaction is then monitored, with the fraudster sometimes even phoning for updates, says Milner. “Shortly before payment is due, they send an email from an almost identical email address notifying the purchaser or conveyancer of a change in bank details. The email addresses are sometimes so similar that it’s easy to miss the small discrepancy.”
Milner says that, if successful, this scam has serious ramifications for all concerned. “If the buyer is deceived into paying into a fraudulent account, he can no longer financially perform in terms of the agreement of sale which places him in breach of contract and liable for damages to the seller. It’s a horrible two-fold blow because buyers lose their money, they don’t get the house, and have to pay for damages.” Similarly, if conveyancers get duped into paying the fraudster, they are also liable. Milner also cautions that fraud can happen at any point of the transaction – even after a sale has been cancelled.
Grahame Diedericks, manager principal in Midrand for Lew Geffen Sotheby’s International Realty, cautions against syndicates posing as estate agents, sellers, and even registered attorneys. “One method is to sell homes that are not for sale. This is usually done in one of two ways. Firstly, when someone poses as the owner, the property is transferred, and proceeds paid without the owner being aware of the sale. This will only be successful if the agent and conveyancer are negligent in authenticating the identification of the seller, because to transfer ownership, you need an original title deed and a special power of attorney from the owner authorising the conveyancer to make the transfer.
“Fraudsters may also identify homes that are legitimately on the market, post an advert, pose as an estate agent and take an unsuspecting buyer for viewing. A keen buyer is then taken to the ‘agent’s’ lawyer to sign a sales agreement and instructed to deposit the money, but this is immediately transferred to various other accounts and withdrawn.” Milner says buyers can also be liable for committing fraud when they intentionally misrepresent or omit information which financially impacts the seller. Sellers can be held liable for omissions about a property’s history, especially relating to zoning restrictions, significant structural damage, the presence of undiscovered nuisances, mould, or other toxic damage.
Diedericks cautions for vigilance with rentals too. “Use a reputable agency to vet all parties, but if you rent directly and you have any doubt, don’t do it.” He adds that you can insist that an attorney hold the funds for release to the landlord once an inspection is done.
Milner offers the following advice to protect all parties against fraudulent real estate scams:
- It’s important for agents and attorneys to verify and know their clients and always personally verify any change in payment instruction.
- Be especially vigilant if bank details are changed and independently verify the bank account details directly with the bank.
- Never pay money into an account that does not belong to a bona fide party to the transaction.
- Confirm that your estate agent is legitimate. You can also do so via the Estate Agency Affairs Board website.
- Never just click reply to an email when you are sending important information. Rather create a new email and input the email address directly. This will ensure that you never send information to a fake email address that looks similar.
- Important documents should always be signed in person and verification of bank details always completed.
- Be on the lookout for spelling errors in emails or other messaging systems, the presentation of sudden changes or decisions as having strict deadlines, hasty changes to terms and conditions of the contract, or refusal to speak on a phone.
- Property professionals should be adequately insured.
Advises Milner, “Follow your gut instinct if you feel uneasy about any aspect of the transaction. And if you do fall victim, contact the fraud department of the recipient bank and of your bank immediately as they may be able to stop the money from leaving the account.”