A Return to the Classics: Fake-Check Scams and How they Can Affect Real Estate Transactions

Over the last few years, there have been a lot of warnings related to wire fraud. Although wire fraud continues to be a growing threat in real estate transactions, it appears fraudsters are returning to a classic scheme: Fake Checks. Know what to look for, and share this information with clients.

The most common fake bank check scenario involves the fraudster sending the victim a fake check, intending for the victim to deposit it. The fraudster then quickly requests a return of part of the funds. The victim, thinking the check has cleared the fraudster’s account, returns a portion of the “deposited funds.” Only after the return of funds has been completed does the victim learn that the fraudster’s check was invalid.  

Common Fake-Check Scams 

The FDIC lists these as the three most common types of fake-check scams:  

  • Lotteries and Sudden Riches Scams;  
  • Online Auctions, Classified Listing Sites, and Overpayment Scams; and  
  • Secret or Mystery Shopper Employment Scams.  

Find more information here: FDIC Consumer News: Beware of Fake Checks.

Fake-Check Scams in Real Estate Transactions: Earnest Money Cashier’s Check Fraud 

ATG agents and others involved in real estate should be aware of another type of fraudulent check scam related to real estate transactions, Earnest Money Cashier’s Check Fraud. In this fraud scenario, a foreign buyer sends an abnormally large amount of money as an Earnest Money check to be held in escrow. Shortly after the check has been deposited into the escrow bank account, the foreign buyer will cancel the contract and demand return of the Earnest Money funds. If the person/entity holding the Earnest Money is too quick to oblige the foreign purchaser, the money is returned prior to the discovery that the check was fake. 

How to Spot a Fake Check 

The FDIC Consumer News article Beware of Fake Checks offers specific tips for how to spot a fake check. Here is a summary:

  • Check the FDIC's BankFind website to make sure the check was issued by a legitimate bank.
  • Look up the phone number on the bank’s official website and don’t use the phone number printed on the check. Call the official number and ask them to verify the check. 
  • Consider how and why you received the check. Scammers often communicate with their victims via e-mail or text message containing grammar and spelling errors.
  • Look where the check was mailed from—if the postmark does not match that of the issuing bank, it might be an indication the check is fake. 
  • Determine if the amount of the check is correct and as expected. Fake checks are often made out for more than the agreed upon amount. This is intended to coax the person receiving the check into wiring the overpayment back to the scammer.
  • Official checks typically contain security features such as watermarks and security threads. Scammers are able to copy some these security features, but the quality is often poorly executed. 

How to Review Earnest Money Checks 

Here are a few tips for reviewing Earnest Money checks: 

  • Make sure the check has a watermark, security thread, or other security feature.  
  • Check the name of the bank on the check on the FDIC’s BankFind website. 
  • Confirm the amount of the check matches the agreed Earnest Money amount on the contract. 

It is important not to rush or be hurried in returning funds. It can take several weeks for a foreign check to clear. Remember, there is no guarantee that just because your bank account allows you to withdraw the amount deposited that the check is not fake.  

How to Prevent Loss 

If asked to return funds for a cancelled transaction, be methodical in your response. Before returning the funds, the escrowee should contact the bank and ask the bank to verify the check and wait for confirmation that the funds have cleared the account. Questions? Contact Us

Posted on: Thu, 10/27/2022 - 3:58pm