Annie T. Fitzsimmons posted my experience in a Q & A form on the WA Realtors legal hotline to help spread the word.
********************************* QUESTION ********************************
It appears there is a new scam designed to defraud hundreds of thousands of dollars from a firm''s or an escrow company''s trust account. Is that true? How does it work?
********************************** ANSWER *********************************
It is true. The scam has already succeeded in robbing large sums of money from law firm trust accounts. Now the scam is spreading to broker and escrow company trust accounts. Even if the scam artist does not succeed in stealing money from a real estate firm, any broker trapped in this scam will lose untold hours of time and effort.
Here is the basic approach: Out of area, and often international, buyer contacts broker through website or some other marketing. Buyer is looking for an expensive home, often sight unseen. Buyer wants to put a large sum of cash down and can provide a bank statement verifying funds. Buyer may want to close through a lawyer or deposit funds in a lawyer''s trust account and may ask broker for a referral to a lawyer. Buyer considers a variety of homes suggested by broker and makes a good offer on the home selected.
Buyer''s offer includes a very significant cash payment. Upon seller acceptance, buyer immediately forwards a cashier''s check for the required cash amount made out to the trust account where the funds will be held (either law firm, real estate firm or escrow company). A week or so later, buyer has a personal crisis and must recover the funds held in escrow.
Buyer terminates the purchase agreement and demands the escrowed funds be returned to buyer.
The problem, of course, is that buyer''s cashier''s check was not good and buyer never really deposited any funds into the trust account. However, it can take up to 30 days for a cashier''s check to bounce. Because it is a cashier''s check, most people assume the funds are reliable and that no waiting period is required. That is the misunderstanding that allows the scam artists to steal hundreds of thousands of dollars.
As stated previously, this scam has already operated successfully against law firms who believed they were representing a legitimate buyer and believed they had a duty to their client to return the client''s funds on demand by the client. In each scenario, the scam cost the law firm a lot of money. Perhaps even more significantly, because the funds were held in a trust account, the law firm had to account to the Bar Association for the impact caused to other clients by the raiding of the firm''s trust account.
It is not difficult to imagine the same scenario playing itself out against a real estate firm''s trust account or an escrow company''s trust account.
If broker is asked to represent a buyer in a scenario that sounds something like this, broker should beware of not only the potential exposure in dollars, but also in time lost.
If buyer representation facts begin to unfold in this way, broker should contact legal counsel. There are probably a variety of ways to preempt this situation and test a buyer''s integrity. Broker and legal counsel should work together to determine the best strategy in the given scenario. It may be appropriate for broker''s counsel to prepare an agreement for buyer to sign, early in the representation, through which buyer agrees that buyer will be unable to recover funds deposited by buyer into any trust account for at least thirty days following deposit regardless of any "crisis" that may develop. Broker and counsel may develop a better or different approach to resolution.
The essential element for broker is to beware of the situation and its risks. As the old adage goes, if it seems too good to be true . . . .
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