A pervasive scam that can victimize lawyers, homeowners and real estate professionals is showing no signs of letting up in southeast states.
State bars and legal insurance officials are urging lawyers in Virginia, North Carolina and South Carolina to take extra precautions to make sure that payments for real estate transactions are wired to the right recipient.
Fraudsters have learned to mimic the typical designs and layout of emails used by professionals to trick unwary lawyers and agents into wiring large payments directly to the bad guys’ accounts.
The scammers made off with $640,000 in one North Carolina transaction, according to an insurance company official.
The North Carolina State Bar posted a warning of the continuing threat on May 23, a warning promptly echoed by the Virginia State Bar. The South Carolina Bar offered advice on avoiding scammers in a Jan. 18 notice.
Lawyers also are urged to check their insurance coverage. It’s not clear whether conventional business and professional liability insurance will cover an accidental loss of money, and so-called “cyber” insurance policies may be no help either.
North Carolina may be a hotspot for attorneys as victims, since state law requires the involvement of lawyers in real estate closings, insurance claims officials said.
“It really has not let up. If anything, it feels like they’ve picked up steam in North Carolina with the number of attempts,” said Peter Bolac, trust account compliance counsel with the North Carolina State Bar. “We’ve been inundated with this for at least two years.”
In Virginia, lawyers in the Tidewater area may be targeted, especially those who practice across the state line in North Carolina, said James M. McCauley, Virginia State Bar ethics counsel.
“I’ve heard the word ‘epidemic’ coming from some folks,” said Frank McCormick of Richmond, a senior vice-president and Virginia agency manager with Fidelity National Title.
Charles M. Lollar, a Norfolk lawyer with an active real estate practice, said he frequently sees phony wire payment instructions in his email.
“I’ve gotten multiple ones over an extended period of time,” he said.
South Carolina has seen the same fraud, according to a North Carolina insurance professional.
The scammers often gain access to the email account of a real estate professional and lie in wait. They can change settings on the account to hide certain emails and redirect messages to the scammers’ own inboxes.
“These are all part and parcel of the same cyber attack,” McCauley said. “There’s a certain amount of social engineering going on, too.”
More than a dozen attempts at misdirected wire transfers arose from one North Carolina development, Bolac said. The hackers had gained access to the email account of the general contractor and viewed details of every closing transaction.
“That’s how some lawyers or firms become targets multiple times,” Bolac said. “It’s really scary.”
Bolac said lawyers should be sure to discuss with new clients and other professionals the ground rules for wire transfers, including advising that the firm will never send wire instructions by email.
Any email that requests a change in wiring instructions should be suspect.
“That should always be followed up with a phone call to make sure those instructions are valid,” McCormick said.
McCormick said he has seen a phony email that carried the same pictures and logos used by the office it purported to come from.
“They don’t check, and – boom – the money’s gone,” he said.
An in-person confirmation is preferred, said Crawford.
Insurance coverage uncertain
Two insurance professionals urged lawyers to make sure they know what their insurance covers and what it does not.
Wire instruction fraud might be described as “business email compromise.”
“It may or may not get covered by the policy,” McCormick said, referring to errors and omissions coverage for lawyers.
In North Carolina, Troy Crawford said there are similar ambiguities in attorneys’ policies.
Crawford is claims counsel with Lawyers Mutual of North Carolina. “These matters are slowly making their way across the courts,” Crawford said.
He said he expected the industry to move to considering such losses as a “separate risk,” with coverage offered at an added premium.
Even if a loss is covered, resolution may take time, McCormick cautioned.
“It’s not going to be resolved for months,” he warned. In the meantime, “you’ve got a very angry and upset seller out there.”
Big fish escape capture
Crawford said law enforcement has had little success trying to put an arm on the bad guys. He said in a few cases, the scammers would send people to a bank to give wiring instructions in person.
While arrests were made, those charged were “very low level,” he said.
“Some may not even realize what they’re involved in,” he said.
If the fraud is quickly discovered, there is hope that a loss can be prevented, Crawford said.
“If people react quickly, we’ve had a lot of success getting the money back,” he said.
Generally, money can be recovered if a victim acts within 24 hours, he said. By 48 hours, the loot is usually gone. In between: “That’s when minutes really matter,” he said.
“We’ll always be one step behind the newest trend. We just have to make everyone aware of precautions,” Bolac said.