If you are handling a transaction in which a Florida corporation, limited liability company, limited partnership, or other entity that is not a natural person, is one of the parties (either the buyer or the seller), extra care and precaution need to be taken when reviewing online business records. The Florida Department of State, Division of Corporations, permits access to and online filing of business records through its website http://dos.myflorida.com/sunbiz/. While a tremendous convenience and time saver, any business conducted via the internet is highly susceptible to email fraud, account hacking, and technology alterations. Such activity is not limited to personal accounts.
There appears to be a new twist on separating buyers and sellers from their money prior to closing and disbursement. There are increasing reports of hackers accessing and altering corporate entity filings. This corporate entity hacking is not limited to Florida’s online database, but is occurring country-wide and is most prevalent in those states with online filing systems.
Essentially, the fraudster hacks into the online systems of the respective state database and alters the online records, particularly the names of those persons who are authorized to act on behalf of the business entity. Many times, fraudulent documentation (such as amendments to articles of organization, resignations of officers or managers, appointments of successor officers or managers, statements of authority [to act on behalf of a limited liability company], and the like, are uploaded to the website in substitution for the actual corporate records giving “apparent authority” to act on behalf of a business entity. The freshly appointed “officers”, “members” or “managers” then assume the position of the actual officer, member, or manager, in order to execute deeds, other closing documentation, AND wiring instructions for the proceeds! The result is a fraudulent conveyance of the company’s real estate to unsuspecting third parties and diversion of sale proceeds. This scheme is also utilized in refinance transactions to fraudulently encumber company-owned property, and divert the proceeds from the fraudulent transaction to the fraudster’s account (usually offshore accounts that are quickly liquidated or otherwise difficult to trace). To further conceal the fraud once the hack is complete, the hacker may then cunningly change the fraudulent filing back to its original form. By the time the actual members or officers of the hacked entity become aware of the fraudulent conveyance, the crime is long since complete.
Usually prudent agents and closers routinely go online to confirm an entity’s existence, good standing, and to determine authorized signatories. Since there is no real reason to suspect that the online records are other than authentic, they are accepted as genuine; supporting documentation in the form of operating agreements, articles of incorporation/organization, amendments, or resolutions are not ordinarily requested. In fact, title standards do not require further inquiry. Nevertheless, cautious and attentive practitioners will often request independent verification of the authenticity of online corporate records. Most online filing systems, including Florida’s, provide a history of filings for an entity. A review of an entity’s history can expose whether changes have been recently made to corporate records and particularly the identity of person(s) authorized to act on behalf of an entity. If a change to an authorized signatory or an amendment to an entity’s records pop up in close proximity to an upcoming closing, further scrutiny may well be in order. While production of confirmatory documentation may be inconvenient at the time requested, the discomfort will pale in comparison to the suffering to be experienced if due care is not taken to protect yourselves and your clients.
The attorneys at Berlin Patten Ebling are keeping abreast of cybersecurity related issues. As always, should you have any questions or concerns regarding the authenticity of online business records and related issues, we urge you to contact us or consult with your local real estate attorney.
Sincerely,
Berlin Patten Ebling, PLLC
Article Authored by Mark Hanewich, Esq. mhanewich@berlinpatten.com
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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