Homebuyers Beware: Don’t Pay Hackers for Your House

Homebuyers Beware: Don’t Pay Hackers for Your House

Posted on 09/04/2019 at 04:00 PM by John Lande

Cybersecurity incidents can have a dramatic impact on the lives of individuals. This blog has covered numerous cases of individuals and businesses trying to pick up the pieces after fraudsters are gone with their money. That was true for the King family when they realized they sent $90,000 to fraudsters instead of the bank to pay off a mortgage.

This blog has previously discussed the risks to homebuyers of fraudsters infiltrating the closing process and stealing closing funds. The Kings were trying to purchase a house, and needed to pay a portion of the sale price to the seller’s bank—Wells Fargo—so the bank would release its mortgage. Fraudsters sent a phony statement to the lawyer representing the Kings that appeared to come from Wells Fargo, the mortgage holder. The statement directed the lawyer to send the money to a Wells Fargo account so Wells Fargo could release its mortgage. However, the bank account that the statement directed payment to was not owned by Wells Fargo. Rather, the Wells Fargo account was owned by fraudsters.

After the Kings sent payment they demanded Wells Fargo release the mortgage. Wells Fargo refused, because it had not received the payoff.

The Kings sued Wells Fargo in King v. Wells Fargo Bank. The Kings claimed that the bank should have released the mortgage when the funds were received by the bank, even though the funds went to an account owned by fraudsters.

The court dismissed the lawsuit against Wells Fargo. Even though the funds were supposed to go to Wells Fargo and did end up in an account at Wells Fargo, Wells Fargo did not actually receive the funds because the funds went to a fraudster-owned account. The payment could only be deemed to have been made to Wells Fargo if the funds went to an account at Wells Fargo for the benefit of Wells Fargo.

The consequence to the Kings is that they bought a house that is now subject to two mortgages—one to Wells Fargo and one to their lender who financed their purchase. Since Wells Fargo did not receive payment, it still has a mortgage on the house for $90,000. In addition, the new bank has a mortgage for the amount of the purchase, including $90,000 that was supposed to be paid to Wells Fargo but went to fraudsters. The new bank’s mortgage is also junior to Wells Fargo’s mortgage, which is likely an event of default under the new bank’s mortgage. All of this puts the Kings in the position of having to pay off a new mortgage and the original Wells Fargo mortgage.


This case is an important lesson on why it is important to have robust cybersecurity surrounding real estate transactions. For many people, buying and selling a house is the largest financial transaction they will ever engage in. In this case, someone could have called Wells Fargo to verify the account number for the payoff. Everyone involved in a real estate transaction—agents, brokers, closing agents, and attorneys—need to make sure that when funds are transferred they are transferred to the correct account.

 

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