The diverting of money being wired into escrow accounts to close real estate transactions is a real problem, but the authorities are on it – they have recovered $350 million! Unfortunately, they also mention here that $3.7 billion in losses have been reported:
Federal authorities announced today a significant coordinated effort to disrupt Business Email Compromise (BEC) schemes that are designed to intercept and hijack wire transfers from businesses and individuals, including many senior citizens. Operation Wire Wire, a coordinated law enforcement effort by the U.S. Department of Justice, U.S. Department of Homeland Security, U.S. Department of the Treasury and the U.S. Postal Inspection Service, was conducted over a six month period, culminating in over two weeks of intensified law enforcement activity resulting in 74 arrests in the United States and overseas, including 29 in Nigeria, and three in Canada, Mauritius and Poland. The operation also resulted in the seizure of nearly $2.4 million, and the disruption and recovery of approximately $14 million in fraudulent wire transfers.
BEC, also known as “cyber-enabled financial fraud,” is a sophisticated scam often targeting employees with access to company finances and businesses working with foreign suppliers and/or businesses that regularly perform wire transfer payments.
The same criminal organizations that perpetrate BEC also exploit individual victims, often real estate purchasers, the elderly, and others, by convincing them to make wire transfers to bank accounts controlled by the criminals.
A homeowner told police his house was tented for termites, and part of the tenting process included placing cameras inside the house to detect an intruder.
The camera system later alerted the homeowner to the intruder’s presence, and within minutes the Carlsbad P.D. had this house surrounded, but apparently the culprit escaped – though he was caught a few hours later:
It happened to us – hackers got into somebody’s account.
They posed as the escrow officer and tried to divert my buyers’ down payment to the wrong bank account. Their timing was impeccable too.
Six days before closing, an email was sent to the buyers that looked like a normal email from the escrow officer:
Good morning (buyers’ names),
We are getting close to closing. It is important that we get the Cash to Close to avoid delays in closing.
Please tell me when you would wire the Cash to Close.
Regards, (escrow officer’s name)
The buyer asked for the amount and for wire instructions by email – and the hacker responded three times by email and even sounded like the escrow officer. This was the tip-off though:
Please find attached the wiring instructions. It is an account of one of our subsidiary company as our main account is currently undergoing compliance audit. As such, any funds entering the account would be held for review which would grossly affect the scheduled closing date. The total closing cost is X.
The hacker asked for an amount that was within $2,000 of being accurate, and if the buyers had been in a big hurry, they might have just sent it.
Thankfully, Mr. Buyer called the escrow officer direct to verify. The escrow officer was stunned – she hadn’t sent any emails to the buyers that day!
Because no crime was actually committed, the escrow, title, and mortgage companies just shrugged it off. We won’t ever know who the hackers were, or how they got in, but to call it unsettling is an under-statement.
From my buyer:
We felt very unnerved yet relieved. I couldn’t sleep that night, knowing how close we came to losing a substantial amount of money, by nearly anyone’s standards. I personally felt helpless, because I’m not sure what I could have done to recognize this fraud. We consider ourselves pretty plugged in and so we didn’t think twice about getting a wire request from escrow.
The bottom line is, escrow and bank request a lot of items and need responses ASAP so that escrow proceeds to a timely close. Therefore buyers are, in many cases, reading highly technical documents ‘on the fly’, often from smart phone screens. In my case, this meant that I was usually just skimming documents and electronically signing without really studying the material.
The escrow company did say in their instructions that buyers should call before wiring any funds. I didn’t notice this until after the attempted theft of our money. In the future, I would like to see escrow go back to speaking with buyers more often, instead of just emailing documents for signature. It sets a more personal tone and makes buyers more comfortable in picking up the phone to talk to the escrow agent with questions, rather than always relying on electronic communication.
Some escrow companies are now encrypting their wire instructions, but they are missing the point. The hackers are way ahead of us! All they need is a copy of the purchase contract (which agents, buyers, sellers, escrow and lenders email around unsecured), and the hackers can figure out the rest.
They just pose as the escrow officer a day early, and ask the buyers to wire the down payment and closing costs to them!
While we all are concerned about cybercrime and identity theft, it appears taking someone’s money the old-fashioned way has reappeared in a short sale scam in Southern California.
The alleged scam appears to follow the same basic format. A short sale agreement was entered into four to six months ago. The buyer made an initial deposit in the $5,000 to $15,000 range into the listing broker’s non-independent broker escrow. As with most short sales, the process takes several months and the selling agent is assured that the listing agent is working towards lender approval – it is just taking more time. Then the communication slows down, the selling agent begins to get concerned and calls the listing broker’s escrow. There is no answer, no return call, no other number to contact, and the earnest money deposit is gone.
We did open escrow before Thanksgiving on the sale of the two-bedroom home in Trilogy 2 in Carmel Valley.
The MLS entry had been on Friday morning, with open house scheduled for 12-3 on Saturday and Sunday. The weather was somewhat overcast, it is a gated community, and it was the week before Thanksgiving – how many would attend?
Being the least-expensive detached-home in the whole zip code probably drove the activity, and we had parades of people both days. By Tuesday, I had received seven written offers!
Here are my notes:
As what usually happens, the first person who came to Saturday’s open house was probably the most-motivated – and made a great offer, though not right away. I didn’t get any offers until Sunday, which made me think that buyers were either being very diligent about price, and/or strategic about delaying their offer, knowing that we were doing open house on Sunday (it is better to wait until after Sunday’s open house and get a feel for the action).
Not only were the offers rolling in slowly, but they were also very orderly about price – nobody was going much over list, so it was a real horse race. The comps were a problem, for a number of reasons; a) All three Trilogy neighborhoods use the same street name, Carmel Creek (making them all sound the same), b) some of the comps backed to busy streets, c) there is a 1,409sf, and a 1,410sf model, but they aren’t that similar. To help buyers sort it out, I produced a simple map:
If I had a chance to do it over, for easier reading I would group 1,3,7,8,10 as the more-valid comps, and those with street noise (2,4,5,6,9) as the inferior group.
3. We issued requests to every buyer for their highest-and-best offer, which helps to make it a fair race – the early offerors may not have known how competitive it is, and they deserve a chance to re-bid. Another benefit of requesting highest-and-best offers is that it buys time for other buyers to get in the game. In this case, the winner saw the house on Monday, and made offer right away.
4. I was working the phones all weekend, so once we opened escrow on Tuesday, I thought the action might die down. But I got another handful of calls from people who saw a rental ad in Craigslist – and it’s not the first time it’s has happened. Somebody took my pro photos and remarks off my listing and created a Craigslist rental ad for $1,975 per month, which is well under market. It is a scam that has been running for years – the guy on the phone tries to convince people that the rent is so attractive that you won’t mind sending the first and last month’s rent to a faraway address and wait by your mailbox for the keys. But they never come.
I notified Craigslist immediately, and they are quick to take these scam ads down, but you feel sorry for anyone who gets duped.
According to this Ripoff Report, it looks like they were promising to set up the victims with new corporations, and get them credit in the corporate name too, for just an extra $20,000 – $30,000:
Jacob Orona, Aide Orona, John Contreras, Prakashumar (“Kash”) Bhakta, Marcus Robinson, and David Boyd were indicted by a grand jury on 135 felony charges for operating a mortgage fraud scheme throughout Southern California and the Inland Empire, preying on homeowners facing foreclosure. Charges include conspiracy, grand theft, filing false or forged documents, and identity theft.
The scam artists promised homeowners who were underwater on their mortgages that they could provide legal remedies to avoid foreclosure, convincing homeowners to stop making mortgage payments and instead pay them $3,500 to start with an “administrative process,” plus $1,000 every month and separate amounts to allegedly file legal documents. The defendants filed bogus petitions and court pleadings and recorded false deeds in county recorders’ offices, causing over $4 million in loses while failing to halt any foreclosures. The fraud stretched through San Diego, Riverside, San Bernardino, and Los Angeles counties of California.
The indictment was delivered following a two-week special statewide grand jury convened in San Diego County. If convicted, Jacob and Aide Orona face over 90 years in prison; Contreras and Prakashkumar face over 70 years in prison; Robinson faces over 28 years in prison, and Boyd faces over 18 years in prison.
The indictment was announced by Attorney General Kamala D. Harris. The arrests and arraignments are the culmination of a joint investigation by the Federal Housing Finance Agency Office of the Inspector General (FHFAOIG), the Attorney General’s Financial Fraud and Special Prosecutions Section (FFSPS), the California Department of Justice Bureau of Investigation, and the Stanislaus County District Attorney’s Office, Real Estate Fraud Unit.
How they compare to Angelo Mozilo, who never spent a day in jail:
Mister Mozilo, a mortgage industry maverick who co-founded Countrywide in 1969, and nearly 30 years later co-founded the dramatically collapsed IndyMac Bank (now OneWest Bank), is widely regarded as one of the more Machiavellian sub-mortgage-men who helped march the U.S. (and global) economy straight off the cliff in the mid-Noughts. While Mister Mozilo and his mortgage-making army pushed and pedaled sub-prime home loans, he talked up the then-flourishing company’s stock price, earned hundreds of millions in compensation, and cashed out more than $400,000,000 worth of Countrywide stock, a large portion of it during the last couple of years of his tattered tenure as the king of Countrywide.
Alas, the sub-primed fueled real estate bubble burst sometime around 2007 and Mister Mozilo left Countrywide in 2008 after the crippled company was sold for $4.1 billion to Bank of America. In June 2009 the Securities and Exchange Commission (SEC) charged Mister Mozilo with insider trading and securities fraud and in September 2010 Mister Mozilo settled with the SEC and agreed to pay $67,500,000 in fines, $45,000,000 of which was paid by Bank of America. Despite the sizable payout, settlement terms allow Mister Mozilo to circumvent acknowledgement of any misconduct. We can’t vouch for or confirm it but online idle chatter says he has a net worth well in excess of half a billion dollars.
The new guy named Jeremy wandered into the discussion about short-sale fraud the other day, and found that long-time readers here don’t take kindly to scams – and scammers. But we’ve seen how short-sale fraud has run unabated, and that it has practically become a badge of honor among realtors. Nobody in the industry is motivated to stop it either.
Here are a few examples:
At the top of the last article, Jeremy’s friends were filing notices that mortgages were paid off when they weren’t, which is outright fraud. But the second half of the article mentioned the typical example of short-sale fraud, where a straw buyer purchases the property at a below-market price, and then spoons it to a waiting buyer who pays retail. The banks who got shorted on the first sale might have caught the fraud with better appraisals, or if they just had a strict policy. I’ll never forget the one case where the perpetrator caught wind of his own story here on the blog and left a his comment. He said they included in their contract to flip the house immediately to the shorted bank. They then flipped their short-sale buy on the SAME DAY to a retail buyer for a $100,000+ profit. If the banks have knowledge and turn their head, then it’s on them.
A short-sale that’s fully furnished. The seller makes the furniture sale mandatory so he can squeeze some cash out of the deal – he sells the ‘furniture’ to the buyer for $50,000 to $100,000 outside of escrow, in exchange to agreeing to a low-ish sales price for the house. Usually these are cash sales only.
Listing agent twists seller’s arm to take his buyer, rather than one of the two higher cash offers. I turned this one into VP of Fraud at the Bank of America, who said that because the lower price was still within their acceptable range, he’d let it go.
There were the investors who approached naive listing agents and insisted on negotiating their own deal with the bank. If they could get the price approved low enough to flip immediately, they’d complete the purchase.
Both short sale and REO investors engage in ‘reverse staging’ to make a property appear in worse condition than it is, including the removal of kitchen-cabinet doors, garbage left lying around the home, and sometimes old fish hidden behind refrigerators to create pungent scents. Sometimes BPOs include false property stigmas such as high crime rates, or claim the home was a meth lab that would need to be entirely gutted.
Parents buying their child’s over-encumbered house as a short-sale. A favorite among realtors themselves.
Thankfully most of these are in the rear-view mirror!
Jim the Realtor is legit - I interviewed three brokers; he said list price should be $100,000 higher than the other two brokers; listed it with him and had all cash (no financing) offer in two days, five day contingency period, closing in two weeks - and it closed at his recommended list price. I could not recommend anyone more than I recommend Jim the Realtor.
When we moved to San Diego in 2005 we rented a big house on Mt. Soledad (La Jolla) with 180 degree ocean views for the same payment as a mortgage on a dump in Chula Vista. Clearly something was wrong. Yet, the media was full of the usual happy-talk nonsense, so I was glad to find Jim's blog. I've followed his honest assessments and data since.
We decided to sell and move to AZ at Thanksgiving. Dec. 1st we met with Jim to sell our home. We closed today (29 days later). Jim orchestrated a feeding frenzy -- we had 25 showings in 2-1/2 days, multiple offers, and sold for well over asking price. I'd say he earned his commission! We have owned and sold homes in 5 different States always using experienced, productive, full-time realtors. Jim outshines them all.
You don't decide to sell and close 29 days later over Christmas (with COVID lockdown) without some miracles. Donna was amazing at performing lots of those miracles and ensuring that everything was done right and on time. They are a terrific team with a very responsive and professional network.
Where do we begin..2020 has been a year for everyone. When COVID hit and shut down both my husband and my businesses, we were left with a mortgage and very little income coming in. We were stressed, scared and felt stuck. We made the hard decision to sell our home and move out of state. We contacted the Klinges' and spent a good hour going over what we hoped we could accomplish. Jim and Donna came over with comps in hand and suggestions on improvements to get our house ready for the market. It was overwhelming to think about, but Donna was there and one step ahead in every scenario. Basically we just approved what they suggested and Donna handled literally everything. We placed our house on the market and within the first day we had multiple offers well above asking price! We couldn't believe it. We were overjoyed! Jim countered the offers to weed through them, and everyone came back with way more. It was amazing, and we are ?? sure it was because of the staging and repairs the Klinges suggested we do.
Due to unforeseen dishonesty from the buyers lender, we hit a big hurdle when trying to close. We had already moved out of state and were shocked when three days before closing the lender dropped a bombshell on the buyers and us. However, Jim and Donna handled it like veterans, not afraid to play hard ball and represent their clients. After a few phone calls with us, and several between Donna and the lender, they had a plan B-Z to make sure we were taken care of. In the end we closed with even more money than we ever thought possible and with very little work from us. The Klinges handled this entire "2020" worthy event with the utmost professionalism and did everything in their power to not only make this as smooth as possible for us, but we also walked away with more money from the sale of the house than we ever hoped for. After working with Jim and Donna, you don't ever use anyone else. They are hands down the best team to represent you in any scenario.
Working with Klinge Realty Group was a great experience! They are very responsive, professional and knowledgable about the real estate market! I would definitely recommend Klinge Realty Group.
Jim and Donna Klinge made the sale of our condo extraordinarily easy. They know the market and gave us sound advice backed by details and very considerable experience, reflected both in the initial pricing and subsequent negotiations. They work together as a team and are always available to talk. We had a few challenges with our property and they were able to coordinate the resolution to everything, including items that I would not think would ordinarily be their responsibility to handle. They made the whole process effortless on our part. They are folks with high integrity and we cannot recommend them highly enough.
Review for Member: Donna Klinge
I cannot believe there are no reviews of Donna yet, ugh!! She is the secret sauce of the Jim Klinge/Donna Klinge combo! I will touch on Jim here, but Donna is why I'm so totally loyal to these two (no offense to Jim :)).
I consider myself a rather savvy buyer/seller. I've bought/sold 7 times in about 15 years. On the buy side, Jim is the PERFECT combo of: completely digitally savvy (he will pull data all day long until you feel comfortable with your chosen house, area, school district, anticipated appreciation rate...anything!), he's super well respected and known in the area by other agents, an amazingly cool but strategic negotiator, is totally devoid of desperation for a sale/commission, and more.
Then once you get into contract phase, Donna literally handles every last and final detail in a concierge-like manner -- totally shielding you from the daily back and forth, noodling and annoyances of the buyer's requests. She solves it ALL; it's miraculous what that woman accomplishes over and above what is even expected in a buy/sell transaction.
On the sell side, Jim and Donna do the same, but even moreso. Donna in particular truly takes everything off your plate: she'll manage getting the house painted, the carpets replaced, she'll go on site (as she Jim both did for me when selling our rental properties) to work with the renters and make sure the house is ready to show -- freeing me to have to take time off of work to do so. They work with A+ integrity, too, so you know you are serving all parties fairly and lawfully throughout.
A home purchase/sale is the most considered you'll ever make. HIRE A SAVVY AGENT, not a friend!, and get what you need out of the transaction. Jim and Donna are our agents for life.
Jim and Donna Klinge are by far the most professional, personable and responsive realtors I have ever worked with. They provide VIP concierge level service in every area of the process of selling your home. My home was marketed so successfully that we received an offer the day after our first and only open house. Thanks to Jim's pricing and negotiating, our house is now the highest sold in our community. Jim's vast experience means he has worked with several realtors and knows the market all over north county. Donna is AMAZING in processing everything in the transaction. She scheduled trades people to work on the house in preparation for the sale as well as the repairs needed before closing. She communicated clearly every step of the way about what would be happening. She took the weight off my shoulders for the whole process. I will always use Jim and Donna for my future real estate needs and I whole heartedly recommend them to anyone buying or selling a home.
Jim and the team at Klinge Reality are without a doubt the best in the business! Not only was Jim helpful and extremely knowledgeable, he was patient and determined to help me find my first home. Jim and his team have been in the business for many years, and it shows. Jim is a wealth of knowledge and was my biggest proponent despite the temperature of the competitive market. I ended up getting the perfect property in my dream neighborhood all thanks to Jim. From the day my offer was accepted, Donna was a real lifesaver. She was extremely helpful, responsive, and knowledgeable when it came to every minute detail, and held my hand through the process. As a first time home buyer I had no idea what the process would entail, but Donna curtailed every concern I came across and made the escrow process feel seamless. Jim and Donna provided me the best home buying experience, and I am very grateful for all they did for me. It was truly a pleasure to work with Jim and Donna and I am already looking forward to the next time we work together!
Review for Member: Richard Morgan
Richard is an amazing realtor! He has high integrity and genuinely cares about his clients and their needs. Richard paid close attention to what I was seeking in a home and was very patient in our search to find it. I would highly recommend Richard and will use him for future transactions. Truly a different kind of realtor experience!
Could not be happier with my experience with Jim and his team. He helped me sell a very unique and challenging property. Throughout the entire process he was always available, honest, transparent, trustworthy, and always put my interests as a seller first. A (rare) true professional! During close of escrow Jim went above and beyond to complete the deal. It would not have been possible without his experience, fantastic team, and pure dedication. Highly recommended!
Thanks Jim and Donna Klinge!