While an increasing number of Canadians have been receiving a number of scam calls, there is another type of fraud, with significantly large monetary losses, that people, particularly homebuyers, should be aware of.
Earlier this month, online scam expert Ben Taylor, known as Pleasant Green on YouTube, told Yahoo Canada a scam that has been particularly concerning for law enforcement in Canada and the U.S. is “mortgage closing fraud,” when a homebuyer receives fraudulent information for the transfer of their downpayment, with the scammer pretending to be their real estate or mortgage broker.
This week, CBC News reported that a man from Calgary was scammed out of $800,000, his retirement savings, due to a wire transfer to a fraudulent account, while in the process of purchasing a property in California. The retiree is now suing his bank for "negligence, breach of contract and breach of fiduciary duty.”
This incident has raised questions about what protections are in place for people engaging in these large money transfers, and what the reality is for victims hoping to get their funds back.
“If the bank cannot freeze the funds in time, then the prospects of recovering the money are near zero and their only recourse would be to attempt to claim against the bank, title/escrow agent, real estate brokerage/agent, attorneys, etc.,” Nick Poon, an associate at Gilbertson Davis LLP said in a statement to Yahoo Canada.
Mark Dunn, a litigation partner with Goodmans LLP, explained that the victim in this scenario has a strong legal claim against the fraudster, but the ability to find and collect the funds from the individual, usually using an offshore account, is “difficult to impossible.”
“The victim is then stuck looking for other places where they might be able to recover money, which turns into a contest between two people who were typically both defrauded,” Dunn said.
Like Rod McLeod’s claim in Calgary, there have been complaints against banks on the basis that they should have caught the fraud before releasing the funds, and similar claims have been made against real estate brokers whose emails were spoofed, and potentially could have caught the issue.
“The victim would have to prove that their bank made a mistake of some sort...and then they would have to sue the bank for negligence, gross negligence, breach of contract or breach of fiduciary duty,” lawyer Jean-Alexandre De Bousquet said.
According to Dunn, the likelihood of success for someone making these claims is specific to the individual situation and whether another party “could or should have done about it and what duty they owed to the defrauded party.”
“The factors that would allow somebody to win a case like that would be, [did] the bank...ignore protocols in place...to protect the bank’s customers or ignored industry best practices,” De Bousquet said. “This is especially the case where the bank...advertises that they...have the highest standards of financial safety and security in place.”
Beware of U.S. deals
According to Jeff Thomson, senior RCMP intelligence analyst with the Canadian Anti-Fraud Centre, this type of fraud is something they are more aware of occurring in the U.S.
“It’s something we’re aware of that’s hitting the U.S., we’re not aware of it affecting the Canadian real estate market, if I can say it that way,” Thomson said. “There [are] potential cases where, say a Canadian buying...property or a house or something in the U.S., could be [victim] to it.”
Legal experts have identified that the process by which deposits are sent in the U.S. could make these transactions more susceptible to fraud.
“These types of wire fraud do not usually happen in Ontario because we do not use escrow/title agents to hold any funds related to the real estate transaction...the listing brokerage typically receives the deposit (as a bank draft or certified cheque directly from the purchaser) and holds it in trust,” Poon said.
“In the United States, the deposit is typically wired to escrow/title agents and fraudsters, purportedly acting as the escrow/title agents, take advantage of this and send fake urgent wire instructions to purchasers by email.”
Another thing to keep in mind in a cross-border transaction, is that the people involved are less-likely to know each other personally, which could also impact a fraudster’s ability to get away with the scam over email.
“If somebody’s buying a property in the United States..their real estate broker is less likely to know the other real estate broker and there may be a greater tendency to communicate by email in that context,” Dunn said.
“If they are buying something in the U.S...they’re less likely to do their due diligence,” De Bousquet said. “People should be very vigilant, so homebuyers should be aware that they may be targeted by scammers.”
How to avoid falling victim to a similar scam
Consensus with both scam and legal experts is that prevention should be the priority for anyone worried about the possibility of transferring a large amount of money to a fraudulent account.
“It’s verbal authentication,” Thomson said. “If you’re getting this email requesting this urgent transfer, some sort of transfer, make sure you verbally authenticate it.”
Dunn recommends that in a real estate deal, you will usually be given a phone numbers before the transaction is entered into and that’s something you should keep on hand to confirm payment instructions sent through email.
“There’s no sort of specific legal regime, as far as I know, that would protect Canadians against this sort of activity,” Dunn said.
If you do realize that you have been a victim of this type of wire fraud, Poon says you need to try to get the funds frozen as soon as possible.
“If Canadians discover they are victims of wire fraud, they should immediately report the fraud to their bank to freeze the funds. It may be necessary to retain counsel to seek an immediate freezing order,” Poon said.
“Thereafter, they should report the fraud to the police, FBI, real estate brokerage/agent and attorney.”
According to De Bousquet, homebuyers should make a point to communicate with their bank throughout the transaction process.
“While not all banks will follow extra precautionary measures you’d like to have in place, most will be willing to honour self-imposed checkpoints provided they are not overly cumbersome and/or onerous for the bank,” he outlined in a statement to Yahoo Canada. “Customers closing a real estate transaction can ask that additional steps be put in place prior to green-lighting wire transfers.”
You should also take a very close look at any email you receive pertaining to the wire transfer, in an effort to spot any identifiers that this is a fraudulent message.
“Most fraudsters...accomplish this by creating copycat emails and phone numbers that are identical on a cursory glance,” De Bousquet said. “On closer more diligent inspection, the email addresses and phone numbers are off by just one letter or digit.
“Many victims of wire fraud scams acted hastily out of a fear of losing out on a deal.”