CT case stands out amid sharp rise in real estate scams
Congratulations, fellow denizens of post-pandemic America. We have a new narrative for the scary world of modern commerce: real estate scams.
More exactly, seller impersonation fraud — like what happened on Sky Top Terrace in Fairfield, where a $1.5 million house arose on a lot sold to a developer by an imposter.
It’s a rising problem. If you don’t already know someone who has a fraud story involving a land sale, with tens of thousands or even hundreds of thousands of dollars at stake for property owners like you and me, chances are pretty good that you will.
The stories take many turns; often they involve a swindler tricking lawyers or buyers into wiring huge payments to bank accounts that vanish after the money clears.
People in the industry — lawyers, real estate agents, bankers, town clerks, title insurers — are issuing urgent warnings with tools and guidelines for vigilance to beat back fraud. They’re tightening up the steps they take in a sale. Many say they have not seen anything like the scam attempts emerging over the last couple of years.
“I’ve been in this business approximately 40 years and I can never remember a time when there was this kind of rash of imposters actually selling property out from under people,” Jon Anderson, vice president and chief underwriting counsel for CATIC, the large title insurer, said on a warning video produced last month by the Connecticut Association of Realtors.
Amid all the stories, I haven’t turned up anything in any state like the case in Fairfield, in which a local developer bought a parcel, built a 4,000-square-foot house and had it on the market before the rightful owner of the land said he never sold his property. The owner, Dr. Daniel Kenigsberg, filed a federal lawsuit seeking as much as $2 million in damages and the return of the half-acre to its original state.
That’s an extraordinary example because vacant land was not just sold fraudulently in an elaborate scheme, but actually developed.
Still, white-knuckle horror stories involving sales of houses and land are cropping up at an alarming rate — 2.5 times more often in 2022 than 2021 with no slowdown in sight, according to one industry group. Just this past Tuesday a Willington man was sentenced for posing as the owner and selling a house on Lake Zoar in Western Connecticut.
19 hours of terror
One person I know from New Haven was buying a house a couple of years ago with his wife. They received instructions that appeared to be from their lawyer on where to send tens of thousands of dollars for the down payment from their bank to the seller’s bank.
Their bank pushed the send button. But the receiving bank account was owned by a scammer who, the victim told me, had hacked into the email of the lawyer who represented them. The bank offered no good news when the scam came to light.
“I remember leaving the bank when they told us it was unlikely we would ever see the money,” my friend told me. He had a big day of work ahead and was driving to his office, numb with the loss, when he received a call that the money was recovered — only because the nationwide bank receiving the wire transfer saw something amiss and halted the scam.
“There was a 19-hour period when it looked like we had lost our entire life’s savings and were up a creek without a paddle,” he told me. “Even right now it’s hard for me to talk about it.”
It’s a nightmare scenario for everyone involved in real estate. Technology, combined with the culture of remote transactions, makes “seller impersonation fraud” easier for scammers to pull off and harder to detect.
“The big wire fraud scam that has lawyers terrified is that you wire the money to the wrong place,” West Hartford lawyer John Heffernan said Tuesday.
A boost for scammers: AI
Heffernan has done real estate closings for 50 years and only over the last three has he seen attempted impersonation scams, with several of them crossing his path. “I haven’t seen this kind of fraud before the pandemic,” he told me Tuesday.
Real estate frauds and attempted frauds are still unusual. But they’re cropping up pretty much weekly in the New England region, said Holly Mendez, a security analyst at CATIC, the title insurer based in Rocky Hill with coverage in 19 states.
“Wire fraud is going to be one of those things where it becomes part of your daily life,” Mendez told me Tuesday. “It’s definitely going to intensify when you mix AI in now.”
Artificial intelligence systems can make identity fraud easier in several ways, not least, Mendez said, the rise of “deep fakes” — fake voice and even video of a person in real time, perpetrated by a fraudster. She cited a Forbes story about a Japanese executive who wired $35 million to a swindler whose modified voice was that of a colleague the executive knew.
Real estate scams require meticulous research and fabrication by the “threat actors,” as Mendez called them — all of it helped by AI. A key defense is to check identification carefully, but, as Heffernan put it, “One of the problems now is that faking ID’s is a cottage industry.”
‘It’s pretty scary’
All of this is part of a broader scourge of electronic scams that are already part of our daily lives. Lately, in one example, we’ve seen phishing text messages purported to be from the U.S. Postal Service about a shipment. (Don’t click on that attachment!)
“People are getting very creative and it’s pretty scary. Everyone has to be be on their guard,” said Kari Olson, chair of the municipal and land use practices at Murtha Cullina LLP.
Olson, like most of us, has fraud stories. “There’s one thing I’ve seen a lot of and that is people listing property for rent that they don’t own and scamming people out of security deposits,” she said — a hallmark of a tight market in which renters can’t always inspect a property with the landlord.
In a non-real estate story, scammers broke into a mailbox in the small town where Olson had dropped checks to pay bills. They “whitewashed” her checks, changed the payment amounts in some cases and ran them through an untraceable bank account.
“I no longer use outdoor mailboxes of any type,” Olson said.
Like others, Olson has not seen anything like the case on Sky Top Terrace in Fairfield.
The lawsuit by Kenigsburg, the land owner, charges the lawyer who accepted a power of attorney from an apparent scammer and the firm that bought the property with failing to do due diligence. It says there were opportunities to halt what it calls an obvious fraud.
The lawyer has not yet responded to the complaint. The developers who paid $350,000 for the land and built the house said they are victims too, and, in court documents, said they will quitclaim the property back to Kenigsberg and move to dismiss much of the case.
Among the red flags cited by Peter Nolin, Kenigsberg’s lawyer: The power of attorney was supposedly notarized at the U.S. consulate in Johannesburg.
That’s a common ploy in overseas seller impersonation frauds, said James Marx, a real estate lawyer in Miami who chairs the American Bar Association’s mortgage lending committee. Often the seal of the consulate is faked. “There’s a lot of fraud with purported embassy and consulate documents,” said Marx, an all-league wrestler for Greenwich High School in the ’70s.
Olson suggested other possible red flags in the apparent scam that she believes she would have caught. But she added, “It’s wrong to blame the people who got scammed.”
The good guys fight back
Prominent on the website of CATIC is a fraud alert loaded with information for professionals. “Wire Fraud Is Costing The Real Estate & Finance Sectors Billions Of Dollars,” the headline on the site reads, and it leads to a 12-page guide showing how threat actors operate and how people in the industry should respond.
Mendez, the CATIC analyst who wrote the guide, summed up the main theme: Never let your guard down. She quotes from Sun Tzu, the ancient Chinese general who wrote “The Art of War.”
“If ignorant both of your enemy and of yourself, you are certain in every battle to be in peril.”
Some of her advice: Ask for an in-person meeting with the seller or at least a live virtual meeting; make sure you select the person to notarize documents for the seller; check local tax records for the owner’s address and be wary if it’s different than the seller’s location.
The Connecticut Association of Realtors, too, plays fraud prevention prominently with a new video and informational flyer.
“Seller impersonation fraud most often happens with vacant land, a seller claiming to be presently out of the country, a below-market price, a request for a quick sale and the seller avoiding any in-person or phone conversations,” said Jim Heckman, the association’s general counsel, in an emailed statement.
Town clerks are doing their part with added vigilance including warnings on their web pages and, in some municipalities, a free service that alerts property owners anytime a filing is made on their real estate. That was and is available in Fairfield. Windham Town Clerk Patricia Spruance, president of the statewide town clerks association, also began offering it last year.
It’s a service that private companies offer property owners for a fee and we’re hearing more ads for it lately.
“I didn’t have as much of a response as I thought I would,” she told me, but she’s making a push for fraud security in an upcoming newsletter. “We really take pains to go the distance to make sure that individuals are who they claim to be.”
In the end, it’s a cat-and-mouse game that never ends. Marx, the lawyer in Miami, said the industry has made many changes over the years to fight fraud. That might need to accelerate.
“The fraudsters are using technology and they’re gaining steam,” he told me, “but technology and cooperation could be used to address this problem.”
