www.loubar.org 6 Louisville Bar Briefs Guarding the Deal: Exposure to Real Estate Fraud in 2025 Abbey Fargen Riley Part of the job of an attorney has always been helping clients mitigate risk. For many years now, the risks within real estate transactions have gone beyond the contractual arrangement itself and included the risks of moving money and conveying property interests in a digital world. We have included warnings in bold red letters in our email signatures reminding clients of the dangers of wire fraud and other common threats. But as technology has continued to evolve, so too have the tools of bad actors and the exposure we face in our transactional practices. Real estate fraud in 2025 is diversifying and accelerating, fueled by AI, cybercrime and gaps in identity and process safeguards. While residential fraud has dominated headlines and taken place in high volume, bad actors are also active in the high-value, lower-volume world of commercial real estate. From wire fraud schemes targeting escrow funds to AI-enhanced document forgery and fraudulent syndications, the tools of deception are more advanced than ever before, requiring more vigilance than ever. Wire Fraud and Attacks Targeting Escrows Every real estate transaction includes various email threads between various parties (clients and attorneys, title companies and lenders) to communicate details of the transac- tion, including, in many cases, wire instructions. Fraudsters can hack into transaction email threads to inject fraudulent wire or payoff instructions to scam accounts prior to closing. Email accounts can be hacked and accessed, or fake email accounts can be created using cloned or spoofed email domains. Data released by the Federal Trade Commission in March 2025 based on reporting to Consumer Sentinel showed that consumers reported losing more than $12.5 billion to fraud in 2024, an increase of 25% over 2023. While the data showed that the number of instances of fraud being reported remained stable compared to 2023, the success rate improved dramatically year over year, with 38% of people reporting fraud in 2024 los- ing money, compared to only 27% of reporters in 2023. In other words, the bad actors are getting better at fraud. Business email compromise schemes have been around for many years and are one of the most common forms of real estate transaction fraud in both residential and com- mercial transactions. In its 2024 State of Wire Fraud Report, CertifID, a wire fraud protection company, reported that first time homebuyers are three times more likely to fall prey to wire fraud than repeat buyers, with median losses ranging from $72,000 for buyers to $70,000 for sellers, and $257,000 for mortgage payoff scams. Despite this, many consumers have little or no knowledge of the risks of wire fraud before closing, with the same CertifID report indicating that 51% of all consumers were “somewhat” or “not aware” of wire fraud risks. And beyond the threat to consumers, increasingly these attacks are targeting law firms, title companies and escrow agents involved in multimillion dollar deals, where bad ac- tors may monitor deal communications for weeks waiting for the right moment to act. Although the bad actors have been increasingly successful in recent years, there are targeted ways attorneys can remain vigilant. Other important tools in avoiding wire fraud include: • using secured email portals for transfer of financial information, • explicitly notifying clients in engagement letters and verbally that wire instructions will never be updated via email alone, • requiring dual verification for all incoming and outgoing wire instructions, and • training staff to identify red flags. AI-Generated Forgeries AI, machine learning and even PDF software is enabling the creation of convincingly forged authority and transaction documents including LLC operating agreements and corporate bylaws, tenant estoppels, certificates of good standing, letters of credit, titles, appraisals, notarial certificates and pro formas. Although it has always been possible to falsify documents, current technology enables fake buyers and sellers, as well as fraudu- PROFESSIONAL EXCELLENCE GOOD TO MEET YOU! Student- Firm Networking Event October 7 | 5:30-7:30PM The Bar Center 600 W. Main St. #110 (Continued on next page)
