How a couple trying to buy SLO County home nearly lost $721,000 in a ‘huge scam’
Imagine sending a $721,000 home down payment to a bank specified by the escrow company — only to learn that the money went to cyber-savvy thieves attempting to commit wire fraud.
That happened to Sandra and Sam Michaels of San Jose, who were buying a Cambria home.
“We didn’t know who to trust and who not to trust,” she said.
At one point, the situation got so scary, Michaels said, that “when our very helpful bank called, I couldn’t trust that it really was them.”
The Michaelses got most of their money back, eventually. “We were very blessed and very lucky that it turned out the way it did,” Sandra Michaels said.
But that’s an extremely rare outcome, according to officials handling their case in January and February.
Now, Sandra Michaels said, “My life mission is trying to make sure this doesn’t happen to anybody else,” she said. “It’s a huge scam, very, very discouraging. This was the scariest thing to happen.”
Real estate scams on the rise
According to Forbes magazine, thousands of homebuyers become victims to real estate fraud every year.
“And as the industry gets more and more digitized, the number of victims (and their losses) only grows,” Forbes contributor Aly J. Yale wrote.
“According to the FBI, Americans lost nearly $150 million to real estate scams just last year,” Yale wrote. “Scams in the industry have jumped more than 1,000% since 2015, and real estate is now one of the top victims of malware attacks in the country.”
Anybody can fall prey to a scheme — even Barbara Corcoran, host of the TV hit “Shark Tank.”
The savvy real estate mogul lost $388,700 in an email “phishing” scam, People magazine reported. Her bookkeeper mistakenly wired the money, meant for real estate renovations, to a fake email account in Asia, Corcoran told People.
Cambria home sale target of swindle
The Michaelses’ brush with real estate fraud began when they sold their rental property in Sacramento, a deal that closed Jan. 6.
“We put in an offer on the Cambria home, and it was accepted,” said Sandra Michaels, who works in finance for a software company. Her husband is a firefighter.
“We’d fallen in love with the house” on Burton Drive, which had all the essential living quarters on one floor, Michaels said. That made it an ideal retirement home, she explained, and a perfect shared residence if her aging parents should need to move from their two-story home in Morro Bay, which has its living quarters upstairs.
“We made an initial deposit of $7,700 in late December to the title company’s bank,” she said, which went through without a hitch.
Then, starting Jan. 9, Michaels got other emails, supposedly from the title company, including a preliminary report and instructions to wire money. The directions looked authentic, and appeared to match other documents the couple had received from the escrow company, she said.
“Because it’s such a large amount,” Michaels said the fraudster told her, “we need you to send it to another bank.”
When Michaels questioned the change of bank, she said she received an email purportedly from Kim Maston, the Michaels’ real estate agent in Cambria, saying, “This is fine, we do this all the time.”
“There was an extra ‘r’ in the email address,” Michaels said of the money-wiring instructions they received, but she didn’t catch it.
She was in the middle of a complex transaction known as a “1031 tax deferred exchange,” in which capital gains taxes on the sale of one property are rolled over to a new property, deferring the tax payment until the sale of the second property.
It’s the kind of deal that has a time limit on it, Michaels explained. “I wanted to hurry up and get things done,” she said ruefully. “If I’d only slowed down and looked more carefully. ...”
Instead, Michaels wired $721,000 to Sun Trust Bank in Florida, the balance of the purchase price of their new Cambria home.
However, after a few days of getting confusing emails from the fraudster posing as Placer Title Co., Michaels tried to recall the wire and was told that couldn’t happen.
By then, Michaels knew she and her husband were victims of a giant scam. “We couldn’t believe our life savings were pretty much gone, and there was no hope of getting it back, she said.
But Sandra Michaels wasn’t going down without a fight. She enlisted help from local and Bay Area law enforcement agencies, including the FBI, the Secret Service office in San Jose and Cecilia Sanchez from Commonwealth Central Credit Union in San Jose.
Investigator Eric Vitale of the San Luis Obispo County District Attorney’s Office was “so awesome, so helpful, even though we were out of his jurisdiction,” Michaels said. “He was the first person who would actually listen to me.”
Michaels’ bank contacted Sun Trust, and the two banks made the rare agreement to freeze the account.
Working with a Secret Service agent, the couple eventually got back $720,585, losing only $415.
Michaels said the Secret Service agent told her that “you have no idea how lucky you are. People never get their money back.”
“I’m not blaming anybody but the person who tried to steal our down payment,” Michaels said. “I don’t know where the breach was.”
Michaels said the escrow on the Cambria house closed on Feb. 10.
“We camped out at ‘our house’ on Feb. 15 and 16, sleeping on an air mattress,” she recalled. “It was great.”
How to avoid real estate wire fraud
Maston said the Michaels’ home sale was the second of hers targeted by this particular swindle attempt.
Maston said she was horrified by both of those attacks on her customers. She worked hard with her broker, Joe Prian, to help get the clients’ money back, she said, and the buyers did.
“Apparently, hackers get into a customer’s email account, find out there’s an escrow due to close and monitor the account,” Maston said.
She said free email accounts are the most vulnerable. Her clients targeted by real estate scammers had used free accounts, she said, but she does not.
When the deal is ready to close, Maston said, the hacker often sends wire-payment instructions that are virtually identical to the ones that were given to the buyers at the start of the transaction, except a different bank is specified and the email address is slightly different.
Michaels said the Secret Service agent told her that when a bank receives a wire, it is not required to check the names. “They just look at the account number, the amount and routing number,” she said.
According to Maston, “Every buyer gets an escrow form about wire fraud. It goes with every offer.”
That advice includes the following tips:
• Don’t include personal financial information in personal emails or texts. If you can, provide that information in person to someone you know is involved in the transaction, such as your escrow officer.
• Orally confirm that the transfer instruction is legitimate, and confirm the bank routing number, account numbers and other codes before transferring the funds.
• Secure your email account by creating strong passwords, using secure wifi and avoiding free email services such as Gmail, Yahoo and AOL accounts.
Michaels also advises matching names, phone numbers, email addresses and other details at every step.
Every time you get a document, she said, you should make sure that information exactly matches what was on the paperwork you got when the deal began. One number or letter can make a world of difference.
“Don’t call the phone number you get partway through a transaction. Don’t use the latest email address,” she said. “Go back to the beginning, and use the ones you’ve been using all along. And never assume the email is authentic. Call to confirm it.”
