In Wheeler v. Clear Title Co. 2023 Nev. App. Unpub. LEXIS 115 the Nevada Appeals Court comprehensively analyzed and refused a real property buyers claim against a title agent for fraudulent wiring instructions. While specifically dealing with Nevada law, the legal principles explored are likely applicable in many jurisdictions.
Two days before the closing, the plaintiff buyer Wheeler received an email from an unfamiliar email address informing her that the closing funds should be wired that day to avoid a closing delay. The email stated it was from Rose of the defendant title agent Clear Title, but the email was not from Rose’s email address, the wiring instructions were not on Clear Title letterhead, and one of the names on the account was not affiliated with Clear Title. Wheeler wired the funds to the requested account without confirming the wiring instructions with Clear Title.
After Wheeler sent the wire, she signed Clear Title’s escrow instructions form outlining Clear Title’s contractual responsibilities as well as loan and other closing documents and took title to the property. Ultimately it was discovered the wiring instructions to which Wheeler had sent the purchase funds were fraudulent and Clear Title never received them.
When Wheeler sued Clear Title, the Nevada Appeals Court found for Clear Title on the substance of Wheeler’s claims.
The court first noted that Wheeler failed to articulate what industry standards and company policies Clear Title violated and failed to articulate how following these standards and policies would have prevented the fraudulent transfer. The court also noted Wheeler’s failure to provide any authority that industry standards create an additional duty for escrow companies in receiving purchase funds. The court cited Nevada statutes requiring an escrow agent to deliver a copy of the escrow instructions at the time of the buyer’s execution, which Clear Title did, but the court held the statutes do not specify when the wire instructions should be delivered. Before she wired the funds to the fraudster, Wheeler had already received Clear Title’s written direction to contact it for wiring instructions. Further, Clear Title’s escrow instructions did not include a duty to receive the funds.
The Nevada court also rejected Wheeler’s claim that Clear Title allowed the fraud to occur because it took no affirmative steps to avoid the fraud until it was too late. The court said the law in Nevada was that escrow agents must disclose fraud, but have no duty to investigate or to discover fraud.
The court was not persuaded by Wheeler’s argument that Clear Title had a duty to advise her that the wiring instructions had not been sent to her yet, look at the wire documents she offered to Rose to determine the instructions were fraudulent, and to have warned Wheeler about the dangers of wire fraud. It said the duties that Wheeler imputed to Clear Title are not found within the contract between the parties, the escrow instructions, and Wheeler provided no other authority that imposed these duties on Clear Title. Significantly, Wheeler signed the escrow instructions giving rise to any duty in Clear Title after she wired the proceeds, so that Clear Title’s obligations did not begin at the time of the fraudulent wire.
While the parties agreed Clear Title had a fiduciary duty, the court found this did not include a duty to receive the purchase funds. Instead, Clear Title was required to safekeep the money that it received and was only empowered to perform the acts in the residential purchase agreement to the extent that the terms and conditions were within its control. As demonstrated by the facts in this case, Clear Title had no control over receiving funds.
I wanted to see if there were cases in Massachusetts that addressed similar situations. Obviously Massachusetts is different than Nevada in that attorneys, not escrow agents, perform real estate closings and the attorney’s liability, if any, is largely set by attorney’s common law professional duties rather than statutes and written contracts. If Wheeler had sought recovery from a closing attorney ostensibly representing the buyer’s lender and not Wheeler, it seemed to me a the question would be whether the attorney owed a professional duty or other duty to Wheeler with reference to the fraud. Or, a Massachusetts attorney might defend a suit like Wheeler’s by arguing, as Clear Title did, that the attorney’s breach of duty (if any) was not the operating efficient cause of the loss.
I found one Massachusetts case that appeared similar to me, but perhaps only in the fact pattern of the fraud. In Christopher G. Fallon, P.C. v. Hanover Ins. Co. 2018 Mass. Super. LEXIS 268 * a closing had been completed, the deed recorded, and an attorney’s IOLTA proceeds check delivered to the seller. On the morning following the closing, the closing attorney’s office received an email from an email address similar to the seller’s name claiming she had been informed by her bank that she would receive the proceeds more quickly if they were wired, and that she had already discarded the proceeds check for that reason. The sender requested payment on the check be stopped and the proceeds wired. When requested to provide evidence that the check had been destroyed, the sender replied “My trash can has been empty, please stop payment on the check and deduct $20 wire fee . . . Please email wire confirmation upon receipt.”
Based on this email exchange, the closing attorney’s office stopped payment on the proceeds check and wired the funds as requested. Subsequently, the seller learned she was no longer in possession of the proceeds and ultimately filed suit against the closing attorney and the seller. The reported case cited above was the closing attorney’s attempt to have its professional liability insurer defend it in the suit. The court ruled that under the circumstances and the terms of the purchase and sale agreement the closing attorney’s office could be found to have a duty to the seller to properly disburse the sale proceeds and denied the closing attorney’s motion to dismiss.
The Massachusetts case is distinguishable on its facts in that the fraud was practiced on the buyer individually in the Nevada case and on the closing attorney itself in the Massachusetts case. As indicated above, the duties and responsibilities of escrow agents differ from those applying to closing attorneys in Massachusetts. Nevertheless the two cases are similar in the egregiousness of the fraud and its preventability.
Christopher S. Tolley, Esq. 