Wire Fraud Continues to Impact Real Estate Industry
Wire Fraud is unfortunately happening too often and sometimes with devastating results. Everyone needs to become more aware and more vigilant against these criminals as everyone is at risk. For example, Lori Sattler, an acting State Supreme Court justice in New York, was in the process of selling her Upper East Side apartment. She received an email that she thought was sent to her by her real estate lawyer. The email stated to wire $1,057,500 to a specific account. It turns out the account she wired the money to was at Commerce Bank of China. Yes, a State Supreme Court justice lost over one million dollars to wire fraud.
A Colorado couple found what they thought was their dream retirement home. It was close to their son and had plenty of space for the grandchildren to play and visit. However, within 24 hours of the transaction closing, they discovered they lost their entire life savings, over $272,000. They were also victims to wire fraud. They are currently in the process of suing the bank, escrow company, realtor company, and the realtor personally. The couple states that none of these professional companies did enough to safe guard their personal information because they transmitted data without using secure means.
These two examples illustrate just how costly and devastating wire fraud can be. There are many things people can do to protect themselves, and their clients if they are a real estate professional. There are no 100% guarantees that you won't fall victim to wiring fraud, but being vigilant and careful can help reduce the chances that you too will fall prey. Here are some recommendations for minimizing you and your client's risks in this area:
- Minimize Emailing Data
- Only Use Secure Email for Non-Public Personal Information and Financial Data
- Use a Secure Server
- Get Contact Info for Consumers Up Front
- Ask Consumers Questions When They Call to Verify Their Identity
- Verify Email Address on All Communications
- Refuse to Provide Wiring Info Without Speaking to Consumers
- Warn Consumers of Risk of Fraud in Writing and Orally
- Require Notarized Wiring Instructions
- Do Not Accept Changed Wiring Instructions
- Setup A Code Word with Consumers
- Text Code to Consumer's Cell to and Require that Info Before Wiring
- Beware of Unusual Circumstances, Foreign Seller, Non-Technical Parties
- Don't Fail to Follow Your Own Procedures
- Notify Your Bank if There is an Attempt on You or One of Your Clients so the Account can be Flagged
Following these procedures will not guarantee that funds will not be lost, but they will make it much harder for you and your clients to be fooled by scammers into sending money to the wrong place.
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Case of the Month
Murr et al. v. Wisconsin et al.
The St. Croix River forms part of the boundary between Wisconsin and Minnesota. Many parts of the river allow people to enjoy hiking, fishing, boating, and trips to its miles and miles of beaches. The river is lined with many historic river towns. It is also protected by federal, state, and local law. The Murr family owns Lot E and Lot F along the lower portion of the river in the town of Troy, Wisconsin. In the area where the family owns two adjacent lots, state and local regulations prevent the use or sale of adjacent lots under common ownership as separate building sites unless they have at least one acre of land suitable for development. A grandfather clause relaxes this restriction for substandard lots which were in separate ownership from adjacent lands on January 1, 1976, which is the effective date of the regulation.
The Murr parents purchased both Lots E and F separately in the 1960s. Both lots were maintained separately until 1994 when Lot F was transferred to the Murr children (two sons and two daughters). Lot E was transferred in 1995. Both lots are more than one acre in size. However, due to the topography of the land, neither have one acre of suitable land for development. In fact, if both lots were combined into one lot, there would only be 0.98 acre of suitable land for development.
The Murr children wanted to sell Lot E in order to pay for building on Lot F. When they petitioned the St. Croix County Board of Adjustment to sell Lot E, they were denied. The Board determined that the local ordinance had effectively merged the lots into one lot and the family could not sell Lot E. Of course, the family filed a suit against the Board. The Murr children argued that the local ordinance effectively became a "regulatory taking" by the government that deprived them of all, or practically all, of the use of Lot E. A regulatory taking is a situation by which a government regulation limits the use of private property to such an extent that the regulation effectively deprives the property owner(s) of economically reasonable use or value of the property to such an extent that it deprives the owner(s) of utility or value of that property, even though the regulation does not formally divest the owner(s) of title to the property.
The County Circuit Court granted summary judgment against the family. The Court explained that the family had other options in which they could enjoy the use of the property, including eliminating the current cabin on Lot E and building a new residence on either lot or across both lots. The Court also determined the family were not deprived of all economic value of the property because the decrease in market value of the unified lots was less than 10 percent. The family appealed the decision. The State Court of Appeals affirmed the County Circuit Court's ruling. The family has appealed each court decision all the way to the US Supreme Court.
The US Supreme Court stated there are two major components to determine if a regulatory taking did occur. The first is if the regulation denies the economic benefit or productive use of the land. It was determined that this was not the case with the Murr's situation. Second is a series of "complex factors" including (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the governmental action. The Supreme Court has determined the lower courts were correct and affirmed the decision that there was not a regulatory taking. The opinion stated the Murr family were not deprived of all economical beneficial use of their property. Further, the regulation is not a new one, and the family has known about the regulation for decades. It has been a very long and difficult road that the Murr family chose. However, they now have the final court decision and can now best determine how to move forward.
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What Is Specific Performance?
When a party wins a civil court case, the usual remedy is money. There are many articles of courts awarding an entity an outrageous amount of money, which captures headlines. But, there are times when money cannot "fix" the issue. Instead, a specific action is ordered by the court. Such a remedy is called Specific Performance.
Specific Performance in real estate court cases is rare, but it does happen. Most remedies for civil action in real estate are monetary. Part of the difficulty is that civil cases can take many years until they are resolved. Add to that time frame any appeals, and it can take even longer. The value of the property at question can fluctuate during those years, making a final court decision even more difficult. Just think of how quickly property values changed during the 2007-2008 years.
One court case in California that was decided in June 2017 included Specific Performance. In this case, the Sellers failed to perform their duties and finalize all the documents required to transfer title to the Buyer. The Buyer was awarded incidental damages as well as attorney fees, which are close to $300,000.00. In addition to this monetary award, the Buyer is awarded Specific Performance compelling the Sellers to "do all things necessary and to execute, acknowledge, and deliver all documents necessary to convey to Plaintiff title to the real property and improvements...". The penalty for not performing a court ordered Specific Performance is contempt of court.
Escrow Professionals find themselves in a difficult position when civil litigation commences on a real estate transaction. During pending litigation, a Notice of Pendency of Action is usually filed (also called a Lis Pendens) which blocks the title from being transferred. This is done so the Seller cannot sell the property to a different Buyer during the litigation process. Therefore, the Escrow Company is usually stuck holding funds for potentially years while the litigation goes through the courts. Even after the litigation is completed and remedies are ordered, it can be difficult to get both parties to perform their legal duties. What is an Escrow Professional to do while they are stuck in this cycle? For most circumstances, they can just ride it out until the courts decide what to do. If things get really messy, it's best to consult with your favorite escrow attorney.
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Upcoming Speaking Engagements
For July 2017, Jennifer has the following speaking engagements:
Ventura County Escrow Association - Wednesday, July 12, 2017
California Escrow Association Northern California Educational Conference - Friday, July 21, 2017
West End Real Estate Professionals - Friday, July 28, 2017
For details about one or more of these events feel free to contact our office.
Also, Jennifer will be teaching a class for the Escrow Training Institute on Saturday, July 15, 2017, on Escrows in Probate, Bankruptcy, Divorce and More. For more information on the class or to register please visit:
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