Bradley attorney Steve Snyder was quoted in HousingWire on who’s liable when money disappears due to wire fraud. While mortgage companies are at risk due to vulnerabilities surrounding the closing table, borrowers are vulnerable to email scams that could have them directing their banks to wire money to the wrong place. It’s still unclear in the legal system who has more liability in such cases.
One of the obstacles to establishing more precedent in determining liability is that these claims are going to be determined in state-level courts, according to Snyder. “Even if it was in federal court, they would be applying state law, so you’re not going to really have a broad precedent.”
The number of parties involved and the way fraudsters insert themselves into the process make it difficult to assess liability,” Snyder said.
“There’s real ambiguity as to how did this third party find out about the transaction. Where did they get information? It’s not clear,” he said. “They’ve hacked into one or the other’s email accounts and so all those different factual issues make it really difficult to understand exactly who’s at fault. Even if it’s clearly coming from one party, there’s still a potential argument that there’s contributory liability on the other party, typically as well.”
“It’s such an intensive factual question as to if there was negligence and who it was – that costs a lot of money to even figure out that question, and there’s a lot of uncertainty as to how it will be resolved,” Snyder said. “So whenever you have expensive litigation that is really difficult to predict, you get a lot less of it because it’s more cost-effective for the entities involved to settle,” Snyder said.
Cases of real estate wire fraud will require technical analysis from experts to understand what took place, and even that analysis is not always exact or certain, Snyder said. To have that analysis done and present expert testimony in court would be expensive.
“If there’s an insurance aspect to the type of business email compromise, that’s more likely to be litigated just because you might have an insurance company with more resources and more incentive, but when you’re talking about private parties, the likelihood of litigating is really low,” Snyder said. “It almost takes somebody behaving irrationally, because they’re going to spend more money than they’re going to get back, probably.”
“If you find an entity with really solid procedures, wire fraud really shouldn’t happen. I work with private equity funds that have to move millions of dollars within 24 hours, and so they’ve figured out ways to make sure that they’re not having somebody interject fraudulent instructions. It always involves voice communication and confirming orally – not relying on anything that is received electronically, particularly when it comes to changing information that you have used before to something new.”
The original article, “Who's on the Hook When Money Disappears Due to Wire Fraud?, ” appeared in HousingWire on May 18, 2020 (login required).