Best Practices To Avoid Wire Fraud In Commercial Real Estate Closings

Author

Ken Wimberly

Introduction

Wire fraud has become increasingly prevalent in the world of commercial real estate. Criminals target both buyers and sellers in commercial real estate transactions, attempting to redirect wire transfers to fraudulent accounts. To ensure that your commercial real estate closing proceeds smoothly and securely, it is vital to follow best practices to avoid falling victim to wire fraud. In this blog post, we will outline the steps you can take to protect yourself and your business from wire fraud during a commercial real estate closing.

Verify and confirm all contact information

The first step in preventing wire fraud is ensuring that all parties involved in the transaction are who they say they are. Obtain contact information for the buyer, seller, closing agent, and other relevant parties at the outset of the transaction. This includes email addresses, phone numbers, and physical addresses. Verify these details independently and do not rely solely on information provided in emails or other forms of electronic communication, as this information can be easily manipulated by cybercriminals.

Establish secure communication channels

When exchanging sensitive information related to a commercial real estate closing, use encrypted and secure methods of communication. Avoid sending critical details through regular email, as this is one of the most common ways that cybercriminals intercept and manipulate information. Instead, consider using a secure portal or encrypted messaging app to share important documents and instructions.

Be cautious with wire transfer instructions

Be extremely cautious when you receive wire transfer instructions. Criminals often send fake instructions that appear to come from a trusted party, with the goal of having funds wired to their own accounts. Here are some tips for avoiding this type of fraud:

1. Confirm the authenticity of wire transfer instructions by calling the party that supposedly sent them, using a phone number that you have independently verified. Do not rely on phone numbers provided in the email or document containing the instructions.
2. Double-check account numbers, bank names, and other details in the instructions.
3. Be suspicious of last-minute changes to wire instructions, especially if they involve changes to account numbers or banks. If you receive new instructions, verify them through a trusted, independent source.
4. Familiarize yourself with the wiring process and the typical steps involved so that you can better recognize any anomalies.
5. Educate your team
6. The security of your commercial real estate closing is only as strong as its weakest link. Ensure that all members of your team are aware of the risks associated with wire fraud and the best practices to avoid it. Encourage them to question and verify any requests or instructions that seem out of the ordinary. Regularly update your team on new threats and tactics used by cybercriminals.

Use multi-factor authentication

Multi-factor authentication (MFA) adds an additional layer of security to your online accounts and should be used whenever possible. MFA requires users to verify their identity using at least two different methods, such as a password, a fingerprint, or a one-time code sent via text message. Enabling MFA on your email and financial accounts can help prevent unauthorized access and make it more difficult for cybercriminals to intercept or manipulate sensitive information.

Monitor account activity closely

Regularly review the activity in your business and personal bank accounts. Look for any suspicious or unauthorized transactions, and report them to your financial institution immediately. Promptly identifying and reporting fraudulent transactions can help minimize your losses and assist in the investigation of the crime.

Secure your email account

As mentioned earlier, email is a common target for wire fraud attempts. To help protect your email account from being compromised:

1. Use strong, unique passwords and change them regularly.
2. Enable multi-factor authentication.
3. Be cautious when opening attachments and clicking on links in emails, as they may contain malware designed to steal your login credentials or compromise your system.
4. Keep your computer and email software up-to-date with the latest security patches and updates.
5. Avoid using public Wi-Fi networks to access your email or conduct sensitive transactions, as these networks are often less secure and more susceptible to hacking.
6. Establish protocols for verifying instructions
7. Develop clear procedures for verifying any changes to payment instructions, such as requiring verbal confirmation from a known and trusted contact. Make sure everyone on your team is aware of and follows these protocols. Having a standard process in place can help prevent unauthorized changes from going unnoticed and reduce the risk of wire fraud.

Consider using a third-party escrow service

A third-party escrow service can provide an additional layer of protection during a commercial real estate closing. These services act as a neutral party, holding funds in a secure account until all parties have met the conditions of the transaction. By using a reputable escrow service, you can minimize the risk of funds being misdirected or misappropriated.

Maintain cyber liability insurance

While taking all possible precautions to avoid wire fraud is essential, it’s also important to be prepared for the possibility that your business could fall victim to this type of crime. Cyber liability insurance can help protect your business from the financial consequences of wire fraud and other cybercrimes. Speak with an insurance professional to determine the appropriate level of coverage for your business.

Conclusion

Wire fraud poses a significant threat to commercial real estate closings, but by following best practices and implementing security measures, you can help protect your business and minimize the risk of falling victim to this type of crime. Vigilance, communication, and education are key components in preventing wire fraud. Ensure that your team is aware of the risks and knows how to identify and respond to potential threats. By taking a proactive approach to security, you can help ensure the success and safety of your commercial real estate transactions.

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