In the latest episode of True Crime in Real Estate, Troy Palmquist and Summer Goralik examine a case where fiduciary duty starts close to home.
On today’s episode of the podcast “True Crime in Real Estate,” we shared the story of an established broker who is committing massive fraud worth millions of dollars in an investment-based Ponzi scheme.
This broker doesn’t raise any red flags to begin with. He had been licensed years before any illegal activity occurred and had a reputation as legitimate, experienced, and successful. Customers had good reason to believe in the promise of his professional reputation when working with his broker.
As an agent, your role with your clients goes beyond just taking orders. It is an interpreter, an educator, and sometimes a fact-checker. Fiduciary duty is intended to protect clients from harm that can occur if they trust too easily, move too quickly, or fail to fact-check the most risky part of a real estate transaction: the movement of money.
Trust but verify
In the case of the off-the-books broker we described, the fraud worked because customers followed instructions without question. This broker had fake escrow accounts, fake emails, and fake contracts designed to make everything look normal on the surface.
It was all supported by a system of lies. None of it was real.
To protect your clients from phishing attempts, both within the brokerage firm and externally, pay attention to the moments when money is exchanged during a transaction, such as depositing earnest money, paying for inspections and repairs, and transferring funds for closing.
According to the National Association of Realtors, wiring instructions are the highest-risk touchpoint in modern real estate, causing hundreds of millions of dollars in losses each year. This means it is important to implement validation protocols to protect clients when transferring money during transactions.
It’s the service that slows you down
“Speed to Lead” is a watchword for real estate agents, where quick response times, offers, and other factors are key to satisfying customers. But once you enter a trade, your fiduciary duty requires you to slow down, especially during high-risk moments when money is at stake.
Validation doesn’t mean being paranoid. It’s part of your fiduciary responsibility. We teach our clients how to protect themselves by educating them on how escrow actually works.
This includes:
Learn about the escrow process and the prevalence of wire fraud in real estate. (Use NAR’s Consumer Guide, available in both English and Spanish, as a starting point.) Show clients how to review instructions from escrow and/or title companies or closing attorneys. Normalize everything, especially double-check wiring instructions. Please be careful not to deposit or transfer funds based on email requests. This is because it is one of the most common and effective methods scammers use to defraud consumers.
Be the advocate your clients need and help them understand the importance of constant vigilance all the way to the closing table.
How smart agents extend protection beyond transactions
If you’re always looking for new ways to provide services beyond sales, and if you keep reviews, referrals, and repeat business in mind, you can turn your educational content into relationship marketing.
Here’s how:
Regular title check
Most homeowners never think twice about their title after closing, but their title records are made public at the county level. This means liens, judgments, fraudulent applications, and fraudulent conveyances can be recorded without the owner’s knowledge.
You can perform title checks periodically by obtaining a new title report through your title company or attorney, or by manually reviewing county records. This is a value-added service that protects your customers and can add value years after the sale.
Property/Title Monitoring Services
Similar to credit monitoring, asset or title monitoring provides ongoing protection for clients. These services can be found in several locations:
Some counties offer a free service to register your property and be automatically notified when a document is recorded under it. To take advantage of this simple but surprisingly underutilized service, look for names like “property fraud alert” or “recorded notification service.” Otherwise, contact a private paid service that monitors public records and alerts owners of new applications. These may be bundled with identity theft protection features. Private companies vary in quality, so do some research here.
The amount of money you typically spend on annual customer appreciation events and gifts can provide real peace of mind to your customers each year. Instead of sending out tons of generic content, you can position yourself as an ongoing resource and valuable professional relationship.
A good agent will see the deal through to the end. A good agent will ensure that their clients arrive without sacrificing their money and trust. Protecting your clients is about more than just doing things the right way. That means protecting them and monitoring their blind spots during the transaction and for years to come.
Disclaimer: The information provided in this article is for general informational and educational purposes only and does not constitute legal advice. This discussion is primarily based on applicable laws, regulations and regulatory guidelines in the State of California, including those enforced by the California Department of Real Estate. Interpretations of laws and regulations vary by jurisdiction, so readers should consult a qualified attorney or their broker regarding how these issues apply to their particular situation or other states.
Troy Palmquist is the founder and president of HomeCode Advisors. Connect with him on LinkedIn.
Summer Goralik is a real estate compliance consultant and former CA DRE investigator in Huntington Beach, California. Connect with her on LinkedIn.
