Wire Fraud Liability – Real Estate Tales From the Courtroom

 

In a recent Arizona Court of Appeals case a buyer sued the escrow company for wiring the buyer’s $79,000 in closing funds to a wire fraud imposter.  The transaction failed to closed escrow and the buyer’s funds were never recovered. 

The Facts Alleged in the Case

The buyer contracted with the sellers to purchase a Subway restaurant franchise. The purchase contract set forth escrow instructions and included both buyer’s and seller’s contact information. The buyer deposited a portion of the purchase price with the escrow company. 

After escrow was opened, an imposter hacked the buyer’s email account. After the hack, the imposter created an email address that matched the seller’s email address except for an inconspicuous “rn” where the seller’s correct email address had an “m.”

The night before close of escrow, the imposter and the buyer emailed each other, discussing the purchase without including the escrow company in the email chain.  The next morning, the imposter emailed wiring instructions to the escrow company, copying the buyer on the email. Neither the buyer nor the escrow company noticed the slightly different email address used by the imposter. In response, the buyer emailed the escrow company instructing them to wire $79,000 from the escrow account.

Noting that the name on the bank account provided in the email was different than the seller’s name, the escrow company responded to the buyer and the imposter questioning the wiring instructions. The imposter replied to both and stated: “yes, that is the name on the account I want the money to be wired. Its [sic] our company account and you can send in the wire there.”

The escrow company emailed the buyer for clarification on the amount to be wired and the buyer again confirmed.

Without phoning the sellers to verify the wiring instructions, the escrow company wired the funds and emailed confirmation of the wire transfer to the buyer and the imposter.  The sellers never received the funds, the sale did not go through, and the funds were never recovered.

Apportionment of Fault

At the trial, the court instructed the jury on apportionment of fault and directed the jury to determine “the relative degrees of fault” as percentages for the buyer, the escrow company, and the imposter.  Arizona law requires juries to “consider the fault of all persons who contributed to [an] alleged injury . . . regardless of whether the person was, or could have been, named as a party to the suit.” A.R.S. § 12-2506(B).  This statute requires only that a jury consider fault; it does not obligate a jury to assign a percentage of fault to every person it considers.

The Court’s Decision

The jury apportioned one hundred percent of the fault to the escrow company and the superior court awarded the buyer in damages in the amount lost in the wire fraud of $79,000, plus interest and attorney’s fees. The Arizona Court of Appeals affirmed the superior court’s rulings with the  exception of the amount of attorney’s fees awarded to buyer, which were slightly reduced. 

Case Lessons:

·        Use the Buyer Attachment of the Arizona REALTORS® Residential Resale Real Estate Purchase Contract to warn buyers about wire transfer fraud and advise them to always confirm wiring instructions independently prior to wiring any money. 

 ·         Advise the buyer that if they receive a request for contact information or other emails during the transaction to make sure that the emails are from the escrow agent, seller, or agent, as applicable - not a third party attempting to perpetrate wire fraud.

 ·         Consider providing the buyers with the Wire Transfer Fraud Advisory.

 ·         Consider adding a warning under your signature line such as:  “IMPORTANT NOTICE: Never trust wiring instructions sent via email. Always independently confirm wiring instructions in person or via a telephone call to a trusted and verified phone number. Never wire money without double-checking that the wiring instructions are correct.”

 Mago v. Arizona Escrow & Financial Corporation

No. 1 CA-CV 22-0270

Filed 3-30-2023

NOTICE: NOT FOR OFFICIAL PUBLICATION

UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE

 K. Michelle Lind, Esq. is an attorney who currently serves Of Counsel to the Arizona REALTORS®.  She is also the author of the book - Arizona Real Estate: A Professional's Guide to Law and Practice (3rd Ed.) . 

For more real estate related articles, visit Michelle’s Blog at Arizona Real Estate – A Professional’s Guide to Law & Practice. (arizonarealestateprofessionalguide.blogspot.com)

This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.  4/7/23