Real Estate Industry Tries to Solve Its Scammers Problem

Summary

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Podcast Summary: WSJ Your Money Briefing

Episode: Real Estate Industry Tries to Solve Its Scammers Problem
Date: August 16, 2019
Host: J.R. Whalen
Guest: Beth DeCarbo (WSJ Mansion Columnist)

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Main Theme

This episode investigates the growing problem of wire fraud and scams within the U.S. real estate industry, highlighting losses, vulnerabilities, and the steps being taken by industry professionals and startups to protect buyers, sellers, and firms from sophisticated fraudsters.

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Key Discussion Points & Insights

The Scale of Real Estate Fraud

• The real estate sector lost over $150 million last year alone due to wire fraud scams, impacting more than 11,000 victims.
• Fraud is primarily occurring during transactions, exploiting the many parties involved and weaknesses in communication channels.
  • (02:31) “There are so many players in just one transaction... just one weak link in this chain can lead to fraud.” — Beth DeCarbo

Real-life Case: Sun Title Company

• Case Study: Tom Cronkright, CEO of Sun Title Company (Grand Rapids, MI), faced a major scam involving a $185,000 down payment check that bounced after the company wired $180,000 to a seller who turned out to be a fraudster.
  • (02:53) “The buyer mailed a check... Sun Title deposited that check... sent a wire transfer... and five days later, they learned that the check had bounced for insufficient funds and both the buyer and the seller vanished without a trace.” — Beth DeCarbo
• Recovery was difficult: it took years and extensive effort (“shoe leather”), and only partial funds were recovered, often at a cost higher than the loss.
  • (03:38) “They were able to recover about $140,000, but... their cost of recovery exceeded the amount that they were able to get back.” — Beth DeCarbo

Industry Response: Creating Secure Transaction Platforms

• After dealing with multiple scam experiences, Cronkright helped develop CertifID, an online portal that authenticates all participants and encrypts wire instructions — eliminating insecure email communications.

  • (04:05) “That experience... led Mr. Cronkright and colleagues to create a company called Certified... that authenticates the identities of all the parties... and sends encrypted wire transfer instructions.” — Beth DeCarbo

• Other innovations include:

  • Modus (WA): Secure portal for earnest money transfers.
  • TrustFunds (MN) & Zoccam (TX): Apps/portals to bypass email instructions and securely transfer earnest money.

Persistent Challenges: Lack of Standardization

• No industry-wide or nationwide protocol exists; each party and state often manages transactions differently, leading to confusion and vulnerability for consumers.
  • (05:20) “The larger issue is that agents, lenders, title and escrow companies... manage transactions differently. And states themselves have different rules. There's no standard protocol... consumers have no way of knowing if home sales are handled securely.” — Beth DeCarbo

Why the Industry Remains Vulnerable

• Many transactions still rely on insecure methods: email, paper, and phone calls, all susceptible to interception and fraud.
  • (05:54) “As long as real estate professionals handle sensitive business matters using paper email phone calls, they're leaving themselves and their clients vulnerable to identity theft and fraud.” — Beth DeCarbo

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Safety Tips & Practical Precautions

• Never follow wire transfer instructions sent via email.
  • (06:18) “That is certainly key. Anybody in the transaction needs to verify the closing instructions with the trusted representative, either in person or using a predetermined phone number.” — Beth DeCarbo
• Double-check email addresses to catch spoofing (e.g., subtle changes in spelling or domain names).
• Maintain cybersecurity hygiene:
  • Regularly update security patches and antivirus software
  • Change passwords every 90 days
  • Enable two-step authentication on email accounts
• If a fraud is suspected:
  • Immediately contact the bank and request a wire recall
  • For large/international wires, ask the bank to contact the local FBI and request a “financial fraud kill chain”
    • (07:00) “If, however, this still gets through and they suspect a scam, they should contact the bank immediately and request a wire recall... they can ask the bank to contact the local FBI office and request a financial fraud kill chain.” — Beth DeCarbo

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Memorable Quotes

• (02:31) “There are so many players in just one transaction... just one weak link in this chain can lead to fraud.” — Beth DeCarbo
• (03:54) “The owner... learned a lesson, and he was actually involved twice in scams. And he also helped to develop a tool to help eradicate the problem.” — J.R. Whalen
• (05:20) “There’s no standard protocol and as a result, consumers have no way of knowing if home sales are handled securely.” — Beth DeCarbo
• (06:18) “Never follow wire transfer instructions that you might receive over email.” — Beth DeCarbo

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Notable Timestamps

• Real estate fraud context & loss figures: (00:35–02:31)
• Case study: Sun Title scam story: (02:53–03:54)
• Creation of secure platforms (CertifID, Modus, etc.): (04:05–05:08)
• Industry-wide problems and lack of standards: (05:08–05:41)
• Security tips for buyers and sellers: (06:06–07:21)

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Transcript

[A]

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[B]

Here's your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. The real estate industry has a big problem with scammers and schemers to the tune of $150 million. And that was just last year. In a moment, we'll find out what the industry is doing to fix the problem. First, some money and market news you should know. With a new tax law in 2017 came a new set of tax withholding tables. But many consumers never updated how much the feds would take out of their paycheck. And as a result, many were paying too little and facing the possibility of a penalty on top of their tax bill. Well, the IRS is giving people in that situation a break by waiving the penalty. It turns out there are 400,000 taxpayers affected by the changes brought on by the new tax tables. Now, ordinarily, people who haven't paid at least 90% of their federal tax bill come tax season can be penalized for paying too little. Up to that point, the IRS realized people were having a hard time adjusting to the new tax rules, so the agency reduced that threshold for the penalty to 85% back in January and then 80% in March. It goes back up to 90% next year. And by the way, the IRS says the average tax refund this year was $2,729. The real estate industry has been hit with a wave of wire frau schemes over the past several years. In fact, just last year alone, more than 11,000 victims have been swindled out of about $150 million. And Wall Street Journal mansion columnist Beth DeCarbo is on the line with us to explain how the industry is trying to fix the problem. So, Beth, in your column, you say the fraudsters have devastated the industry with scams and schemes over the past five years. Did the industry feel insulated from such problems?

[C]

I think real estate professionals by now there's a problem, but there are so many players in Just one transaction. The buyer, the seller, both of their agents, lawyers, title companies, that just one weak link in this chain can lead to fraud.

[B]

Tell me about the experience of the owner of the Sun Title company that you profiled in your column.

[C]

Tom Cronkright is the CEO of Sun Title Company based in Grand Rapids, Michigan. He was working on the sale of a $670,000 property. The buyer mailed a check for $185,000 to cover the down payment on the property and the title company's fee. Then Sun Title deposited that check in the bank and sent a wire transfer of 180,000 to the seller the following day. Five days later, they learned that the check had bounced for insufficient funds, and both the buyer and the seller vanished without a trace. They were just scams. Sun title was out $180,000.

[B]

Oh, wow. Did they ever find out who did that?

[C]

It took them several years, and it was really their own shoe leather that got it back. And they were able to recover about $140,000, but they estimate that their cost of recovery exceeded the amount that they were able to get back.

[B]

And the owner of the title company learned a lesson, and he was actually involved twice in scams. And he also helped to develop a tool to help eradicate the problem.

[C]

That's right. That experience, plus another scam involving an email hacker and a buyer, led Mr. Cronkite and colleagues to create a company called Certified. It's an online portal that authenticates the identities of all the parties in a real estate transaction and sends encrypted wire transfer instructions. So there's nothing done by email.

[B]

There are a few startups also that are aiming to eradicate fraud fraud in the industry as well.

[C]

In addition to Certified, there's a Washington state title and escrow company called Modis that created a secure portal for real estate agents and their clients to transfer earnest money deposits. And similarly, two other companies, Trust Funds in Minneapolis and Zachem in Dallas, created ways to bypass emailed instructions and transfer earnest money using apps or portals on their own. But again, this is mainly earnest money and not the large sums that are involved in a down payment or paying off a mortgage.

[B]

It seems that a central problem up to this point has been that the industry hadn't settled on universal tools to combat fraud and schemers or even recognize that fraud is such a widespread problem.

[C]

That's for sure. The larger issue is that agents, lenders, title and escrow companies all across the US Manage transactions differently. And states themselves have different rules for real estate deals. There's no standard protocol and as a result, consumers have no way of knowing if home sales are handled securely.

[B]

Wow. That's not good for the sellers or the buyers. And because of the nature of how business is done in real estate, you mentioned a lot of emailing clients. Data can in some cases be easily accessed by the bad guys.

[C]

As long as real estate professionals handle sensitive business matters using paper email phone calls, they're leaving themselves and their clients vulnerable to identity theft and fraud.

[B]

And then there are several good tips and precautions in your column on WSJ.com and the WSJ app. One of them specifically is to never follow wire transfer instructions that you might receive over email.

[C]

That is certainly key. Anybody in the transaction needs to verify the closing instructions with the trusted representative, either in person or using a predetermined phone number. But in addition, when there are any kind of instructions sent, pay attention to the email address. An address like john doebc.com could be confused with a hacker's spoof email like john doebcd.com Also, people should remember to keep their security patches updated, their antivirus software up to date, change their passwords every 90 days, and enable two step authentication on their email accounts. If, however, this still gets through and they suspect a scam, they should contact the bank immediately and request a wire recall. The faster the better. If it involves a large international wire transfer, they can ask the bank to contact the local FBI office and request a financial fraud kill chain.

[B]

All right, Good advice for the real estate industry and really any industry in the business world. And that's Wall Street Journal Mansion columnist Beth DeCarbo on the line with us. Beth, thank you so much for coming on the show.

[C]

Thank you.

[B]

And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.

[A]

This podcast is brought to you by reliaQuest. Cybercriminals are constantly attacking. They want your data, they want your identity, they want your innovation. ReliaQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise. Learn more at reliaquest. Com. That's R E L I A Q U E S T Com.