I like to think that I am technologically competent. My kids might say otherwise, but in the office, I am pretty 21st century. I have adapted to and adopted the rapidly evolving office and CRE tech. In fact, because I started practicing law in the late 80’s, I actually “grew up” with the technology. I went to college with a typewriter, law school with an Apple IIC and started practice without a computer on my desk. I learned how to use all things tech for the office as it was introduced to the working world – word processing, fax, e-mail and the internet, to name a few. In real estate, I learned how to do closing statements by hand long before there was closing software. We reviewed abstracts before search engines were available.

I could go on, but even I feel like I am old. But I want to make the point that technology has evolved so quickly, that what was new and a time saver one minute, became old and a burden the next minute. Specifically, I reference fax. When fax machines first came to our offices in the early 90’s we thought it was the greatest invention ever. It was so time saving that we instantly hated it. Why? Because where we once had several days to receive and review documents sent to us and received by mail, suddenly, opposing attorneys were calling us within an hour after sending a document by fax to confirm receipt and ask for comments. Somehow, we were supposed to review those shiny, slick pieces of paper instantly, no matter what else we were working on.

As fast as fax machines came about, they also have disappeared, thanks to e-mail, scanning and pdf. Fax has become so uncommon that I don’t even know my fax number anymore. Our fax machine rarely “rings”. While the quality of fax documents is as good as any pdf or e-mail, there is no need for it because of the ability to e-mail right from your desk and have the document arrive on someone else’s desk or phone instantly.

So why is it that some large financial institutions require that we send completed loan packages back to loan administration BY FAX for funding authorization? Or, that we send applications for mortgage modifications or short sale for approval BY FAX? In the last 10 days, we have sent 3 such packages, all more than 100 pages (some close to 200 pages) to large banks by fax. Could there be any more inefficient use of time or inefficient way to transmit documents? Fax just doesn’t work in today’s fast paced business environment. First of all, you still get busy signals from fax machines. When else today can you get a busy signal? We scan the fax in, walk away and come back to check 30-60 minutes later only to find out that large financial institution didn’t receive the fax because the line was busy. The process begins again. Hopefully, by the end of the day, the package will get through.

Remember how often the fax line would either cut off or there would be some kind of blip so that the entire fax wouldn’t go through and then you had to figure out what pages the recipient didn’t get?   Even with digital lines and high quality scanners, this still happens. And, because these faxes go to some general mailbox, there is no one to talk with to determine which pages are missing. Therefore, most of the time, the entire fax has to be resent in which case you run the risk of busy signal or partial fax again. This is a double or triple waste of time and effort.

On that same theme, fax machines used to be monitored full time, at least in big companies and firms. As technology improved, e-fax came about and, in theory, faxes were delivered, like e-mail, directly to the intended recipient. One would think this to be the case with these banks. However, the closers, administrators, underwriters and others, all monitor all files, in theory. They are supposed to pull the files out of the fax box as they come in. Anyone should be able to look at a file and answer a question or authorize funding. In practice, this does not occur. Your closer is your closer. You loan administrator or short sale processor is who you are supposed to deal with. When you send a loan package in for funding, if you can’t e-mail directly and are required to fax to the general number, you have to wait for him/her to find it. Another delay occurs.

Technology is ever advancing. Big companies, like banks and financial institutions, should be at the forefront of the revolution. Fax was a great advancement 25 years ago. But its time has come and gone. So, you know who you are big banks. Get with the times and dump your fax machines!

The scammers and fraudsters are alive and active. The Boards of Realtors, Title Companies, Bar Associations and local and national news media have all written warnings.  Frequently.  I have even written about it (see my blog HERE). Yet, some people miss the warning signs and get caught.

Unfortunately, I am in the middle of one such situation – the other side. I represent the seller of the assets of a small business.  We closed 2 months ago.  As per the contract, $50,000 of the seller’s proceeds were held in escrow at closing by the buyer’s attorney to give the buyer time to determine whether any undisclosed liabilities pertaining the assets popped up.  The escrow was to last for 60 days.  10 days ago, on the 61st day, on behalf of my client, the seller, I e-mailed the escrow agent and requested that the escrow agent, buyer’s attorney, release the money to the seller.  I directed the escrow agent to wire the funds to the same account as used for closing pursuant to the same wire instructions.  The escrow agent responded shortly thereafter via e-mail that she would do so but that she would need both the buyer and seller to execute a release and that she would prepare and send one to me that afternoon.  The next day, Friday, the release was signed by both the buyer and seller.  The escrow agent indicated that she would process the wire.

However, I learned 5 days later that my client never received the wire. When the broker and I inquired, the escrow agent advised that the seller had sent a confirming e-mail to the escrow agent acknowledging receipt of the wire on the Monday following.  The client denied sending the e-mail.  The escrow agent produced the e-mail and it was clear that the e-mail had not come from my client.  The e-mail account had been spoofed.  We then asked the escrow agent where she had sent the wire.  It turned out that 90 minutes after my initial e-mail to the escrow agent, the escrow agent had received a second e-mail purporting to come from me, forwarding an e-mail from my client which attached new wire instructions.  These wire instructions were to a 3rd party bank account in New Jersey.  The e-mail address from me was not my address, though it looked similar to mine (used my domain name in the sender field but had a mail.com domain name).  The client’s e-mail address was similarly spoofed.  The grammar and spelling in my e-mail and the client’s e-mail was poor and inconsistent with all prior correspondence with the escrow agent.  And, the client’s purported e-mail instructions to me were time stamped 2 hours prior to my initial e-mail to the escrow agent.

The timing of the contradictory wire instructions should have been a big enough red flag to the escrow agent for her to call me to confirm whether I had in fact sent those instructions. But, the e-mail addresses, the grammar and spelling, the time stamps on the e-mails, the 3rd party to receive the wire all should have given pause to the escrow agent.  Nevertheless, she wired the money to the wrong account.  She is a victim of the scam and is now responsible for making my client, the seller, whole.

This is a classic example of a common e-mail/wire scam. It could have been easily avoided with simple attention to detail and one phone call to verify the new wire instructions.  Best practice requires those who are responsible for wiring money to verify ALL wire instructions by telephone follow up, not just revised wire instructions.

At this point, the escrow agent, an attorney, will be responsible for making her trust account whole. While her malpractice policy may cover the shortfall, settlement might take some time.  Though this is clearly a theft of funds, it remains to be seen whether law enforcement will be able to track the perpetrator or whether law enforcement has an interest in the case.  Though $50,000 is a lot of money to the victim, wire fraud cases don’t generally get the attention of federal law enforcement until there are a lot more zeros involved.

Hopefully, a lesson has been learned. Verify all wire instructions by confirming on that antiquated device – the telephone!

Over the last year or more, we have been bombarded with news about Hillary Clinton’s use of an unsecured e-mail server, Russian hacking of the DNC and other servers, and Wikileaks and its release of confidential, perhaps classified, documents. We don’t have to get into a political debate to discuss what is a really scary issue for everybody; if computers can be breached at the highest levels of government, how secure are we ordinary folks?  The bad news keeps coming in with data breaches at financial institutions, retailers, hospitals and airlines.  The list goes on.

Those of us in the real estate industry are all too familiar with the potential for fraud and computer breaches. There have been many scams involving real estate closings over the last few years.  Many have involved attempts, countless successful, to misdirect wire transfers of loan or closing proceeds.  This scam, unfortunately, is too easy to perpetrate.  Sometime just prior to closing, usually at the last minute, the closing agent receives an e-mail changing the wire instructions for disbursement of the seller proceeds.  The e-mail appears to come from someone the closing agent has been dealing with, like the broker.  The wire is sent, the seller never gets its wire and the closing agent has been scammed.  But, so has the broker.  Somewhere along the line, the broker’s computer system has been hacked allowing the thieves to know that a closing is about to occur, who the parties are, who the closing agent is and enabling the thief to spoof the broker’s account.  The closing agent thinks he/she is doing the right thing having dealt with the broker throughout the process.  Was the closing agent wrong to trust the e-mail?  She thought the e-mail was from the broker.

The roots of scams like this go back to the e-mails we used to get (and sometimes still get) from Nigerian Princes needing help moving large sums of money to the United States or from attorneys for long lost deceased relatives who have left us large inheritances. Attorneys have been targets of “new client” scams.  A lawyer I know accepted a closing from a broker he regular worked with to handle a large residential closing.  The client was located in Great Britain and sent a cashier’s check drawn on a Canadian bank to cover both the initial deposit and the additional deposit, about $150,000 in total.  The lawyer deposited the check in his trust account.  Two days later the client called and asked that $60,000 be wired to Japan to cover another deal.  Since the remaining funds still covered the initial deposit and the additional deposit wasn’t due for a few weeks and the money was the client’s, the lawyer felt that he was obligated to do as instructed.  He checked with his bank to make sure that the check had cleared.  The bank said that it had and the lawyer wired the funds.  The next day, the bank called to say that the cashier’s check was a forgery and the funds were not in the account.  Was the lawyer wrong to trust the client and follow his instructions?

My kids use Venmo all the time to transfer money among their friends. When I send them money from time to time, I write checks.  They tease me telling me how old fashioned I am and how much easier it would be if I just got Venmo.  But I see fraud and fraud attempts all the time.  Should I trust a new technology for small transfers or will I be giving access to my bank account to countless unknown persons?

In today’s day and age, trust does not go both ways. Those who want to defraud you are extremely sophisticated and have the means to do so if you aren’t extra diligent.  When we wire proceeds at closing, wire instructions must be verified over the phone by a phone call that we place to the person providing us with the instructions.  If the instructions change, we require double verification.  We rarely accept funds for closing any more by any means other than wire.  If we don’t know you, there is no exception to the rule.

It is not a matter of trust anymore. The world is too big, technology is evolving too quickly.  In our business, we have to be diligent to protect ourselves and our clients.  And, if you think this way in your professional life, why would you think this way in your personal life as well?

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        Negotiation of complex real estate documents is, by its nature, adversarial. Each side has to stake out its position and fight for the points that are important to them. Attorneys and brokers, as advocates for their clients, understand this. Each will be zealous in making their arguments. While the substance of negotiation is adversarial, the process of preparing the documents, generally speaking, is not. One side prepares a draft, the other side reviews the draft and provides comments. Revisions are made. The process continues until a final draft is agreed upon.

            As technology has made life simpler, this process has evolved. The person reviewing the document now makes comments and revisions directly on the draft provided using the Track Changes feature in Microsoft Word, or some other compare write or redlining program. When the draft is returned, the preparer can accept or reject the revisions and make additional or new changes. A new Track Change or redline is generated and returned. This process makes it easy for buyers and sellers, borrowers and lenders or landlords and tenants to easily see and discuss specific revisions. Negotiations can still be heated, but the parties can trust the process and that agreed changes at each stage are being made. Technology has made it possible to negotiate documents with little to no personal contact.

             Even before we had this “fancy” computer technology, attorneys usually endeavored to assist opposing counsel in reviewing document revisions from draft to draft. When I started practicing in the 1980’s, we hand marked or redlined our documents at every draft to show clients and opposing counsel everything we changed. And our opponents did the same. We underlined every word, sentence, clause and paragraph we inserted with a red pen (thus, redlining). We put a carrot or asterisk everywhere we deleted language so that the reader could compare the new document to the prior draft. We cautioned that the redline might not be accurate so the reader should carefully review the entire document in case a change was missed. In other words, though we were adversaries, we acted as colleagues, friends, gentlemen (and women). We treated each other with respect.

             So with this background in mind and given that technology makes it easy for everyone today to “help a fella out”, why would anyone in the real estate business today go out of their way to make it difficult to review a document? My latest story involves a client with A++ credit seeking to lease about 65% of a landlord’s class B office building as well as 100% of his vacant lot, adjacent to the building. Client will be doing all of the TI at client’s cost (about $350,000) and the lease is 10 years with 2 five year renewals. The landlord’s representative is his son-in-law. The landlord sent the lease draft in .pdf format. This is not unusual and I requested a copy in Word. We got no response back for over a week until the representative called and demanded our comments. When we again requested a copy in Word, the representative, and then the Landlord told us no such copy existed. We ran the .pdf through a .pdf converter program and I provided my revisions and comments using Track Changes. I will admit, my revisions and comments were substantial. This particular client is in high demand and is used to getting its way.

             We heard nothing for 2 weeks. When we did, the landlord’s representative sent us what we presumed to be a revised lease. Again, it was in .pdf format. There was no redlining or Track Changes.   We were told that this would be the last draft and any remaining changes had to be by addendum. When I asked for a redline or at least a Word version so that I could compare the lease to my draft I was flat out told no.   Why would the landlord do this? What is his purpose other than to be nasty? We can certainly battle it out over the terms that we don’t agree on but why make it difficult (and therefore expensive) for us to review the lease? I am now reviewing the lease line by line and finding that the landlord has made changes to provisions that I did not even comment on. Is the landlord doing this because he is angry that I marked up his original lease?

             I think what this landlord is really telling my client and me is that IF we ultimately sign this lease, we are going to have a very difficult relationship. Everything is going to be a battle. When you’re in a battle over the process of negotiating a document rather than the terms of the document and when you can’t trust the other side to be honorable in the drafting of the document, you probably can’t trust them to honorable in any dealings in the relationship.

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