Mortgage Daily

Published On: August 20, 2018
A recent decision in a federal lawsuit has a real estate agent liable for negligently passing on fraudulent wiring instructions. The case has implications for mortgage lenders.

A buyer in a real estate transaction was tricked into wiring funds for a home purchase from an email message that came that from the seller’s real estate agent.

The email message was first received by the agent who then forwarded it on to the buyers without the agent having confirmed that she had legitimate wiring instructions.

If the agent had exercised due care in reviewing the message, which contained oddities in the instructions such as an incomplete bank address, then the fraud wouldn’t have occurred, according to Rachel Dollar, a partner at Smith Dollar PC and an expert on mortgage fraud.

The buyers, Jerry Bain and Jennifer Bain, were experienced real estate investors, CertifID, an identity management platform, reported. They filed a federal lawsuit in Kansas against the agent and her real estate broker without representation.

The jury determined that the real estate agent and her broker were jointly and severally liable for negligent misrepresentation — finding them liable for 85 percent of the losses, or $167,129.

Dollar explained that courts across the country have been struggling in applying existing law — much which has been on the books for centuries — to new issues that have arisen from new technology.

“This ruling also reaches the same results I have observed in other wire fraud decisions where the court applies the maxim of jurisprudence — that, as between two innocent parties, the one in the best position to stop the fraud is the party that will be held responsible for the loss,” Dollar explained. “All participants in real estate and other transactions involving wires need to adopt and strictly observe requirements for the handling and transmission of wire instructions.

“Emerging case law is clear that failure to observe the utmost care in wire related transactions can result in significant loss and exposure.”

CertifID said one of two ways the case appears to expand the duty of care include holding participants jointly and severally liable for cybercrime losses if their email, systems or information are compromised. The second way is an expansion to all parties in a transaction regardless of a direct contract or fiduciary relationships between them. The case heightened the standard of care owed by transaction participants to prevent wire fraud losses. According to the ruling, anyone — including home lenders and title insurance companies — involved in a real estate transaction can be held liable when fraud occurs regardless of the relationship between the parties.

CertifID Chief Executive Officer and Co-Founder Thomas Cronkright II said loan officers, attorneys and financial institutions all have a duty to take reasonable steps against cyber fraud.

(The following paragraph was incorrectly originally attributed to Zach Prieston)

Arthur Prieston of Prieston & Associates noted in a written statement, “This particular case simply reiterates the scope and breath of how anyone can face liability in the mortgage banking origination chain.”

 

Bain v. Platinum Realty LLC et al.
Case No. 16-CV-02326-JWL; April 24, 2018 (U.S. District Court for the District of Kansas)

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