Falsified Payoff Statements on the Rise

By Lisa A. Tyler
National Escrow Administrator

Fraud awareness and prevention are a top priority for the Company. In this month’s issue of Fraud Insights, we relay several tales of how our employees reduced risk and saved the Company from potential losses by following best practices.

Falsified payoff statements are on the rise. One of our Capitol City closers refused to close on a loan without obtaining a statement directly from the payoff lender addressed to our Company. In the end he saved us from a $50,000 loss! Read all about it in “Capitol City Crime.”

Some transactions have too many red flags to ignore. In “Sweet Deal,” read about how one simple refinance became a twisted, complex and fraudulent transaction.

“International Conspiracy” is an interesting story about one of our title agents who received a request to release funds prior to closing. Be wary of unusual transactions from foreign investors. These fraudsters may be coming to your area next, so read the article and jot down the names of those involved.

Ever have a principal make a direct deposit to your trust account for closing costs and then fax you a copy of the deposit slip and cashier’s check? Believe it or not, this happens a lot! You won’t want to miss “The Ole Bait and Switch,” which tells of a new risk associated with direct deposits.

Don’t have time to train new employees? Are you looking for some training? Look to the Web-based training modules available at home.fnf.com. The training modules contain fun quizzes at the end of each lesson to test comprehension and retention. Because the score sheets are printable, they can be shared with your boss to prove how knowledgeable you’ve become! These training modules are also available on CD-ROM for our agency customers.

Got questions? We’ve got answers! Contact your escrow administrators at 888.934.3354 or by e-mail at settlement@fnf.com. We are standing by!


Capitol City Crime

A borrower presented a falsified payoff statement and then refused to allow the closer to talk to the payoff lender. Jay Hough, a senior closer, was not swayed by the borrower’s fast talk.

Jay Hough, a senior closer for Chicago Title Company in Washington, D.C., received an order from a mortgage broker in Indianapolis, Indiana for a refinance of a property in D.C. The title search revealed two prior deeds of trust. One of the deeds of trust had been released and then later confirmed to still be in effect by a lender declaration recorded in the land records.

Since the title already had a sketchy past, Jay wanted to pay extra special attention to any loan payoffs or releases received from the broker, borrower or lender. The current lender provided Jay with a payoff letter addressed to the borrower, which indicated a principal balance of $30,000 less than the initial loan amount. It appeared as though some of the information had been “whited out.” Since the loan had an 11 percent interest rate and was just taken out last year, Jay knew that it was highly unlikely that the borrower could have already paid down the loan by $30,000.

Jay contacted the mortgage broker and demanded the contact information for the current lender, who confirmed Jay's suspicion that the payoff letter was fraudulent. The borrower had falsified the payoff statement so it reflected a payoff amount of $50,000 less than the actual amount.

Jay stopped the transaction from moving forward and the mortgage broker cancelled funding with the new lender.

Moral of the Story
Payoffs ordered and provided by mortgage brokers, real estate agents or borrowers are not acceptable. If they provide you with a payoff, accept it and then use the valuable information to obtain a statement addressed to our Company.

Do not rely on a verbal verification of a payoff provided by a third party nor close a file based on a verbal payoff! Many lenders do not calculate prepayment penalties when providing verbal verification. However, a verbal update of a previously issued payoff statement is acceptable as long as it was addressed to our Company.

It is important that we have a payoff statement addressed to our Company in case of a shortage, misappropriation or claim. It is a binding agreement if we follow all the instructions set forth in the statement. If we have a problem, our claims attorneys will rely on the statement to defend the Company. If the payoff was addressed to someone else, we do not have that defense.

Jay received a $500 reward for his efforts to save the Company from losses and for following Company policies and procedures.


Sweet Deal

An escrow officer in California requested payoff statements in the name of the Company, only to discover that the statements previously provided by the mortgage broker were short by $7,000!

An escrow officer at Fidelity National Title’s Walnut Creek, California office was preparing the documents to close a refinance transaction. The statements in the file were not addressed to Fidelity National Title so she ordered updated payoff statements.

The new payoff statements were received the same day. However, the statement for the first loan was $7,000 more than the statement provided by the mortgage broker. The payoff demand from the mortgage broker showed the next payment due on December 1. The payoff statement issued to Fidelity National Title showed the next payment due on September 1, with an interest amount of more than $7,000.

The escrow officer called the existing lender to ask about the increase and discrepancies between the two statements, since the issue dates for each statement were within close proximity of one another. The lender’s customer service representative asked for the borrower’s social security number, which was necessary to provide information. The escrow officer read off the social security number shown on the loan application and the borrower’s statement of identity. The customer service representative said the social security number did not match the lender’s records, and therefore the lender could not provide the escrow officer with further information.

The escrow officer called the mortgage broker and said she wanted the borrower to sign a new estimated closing statement and a new and “improved” payoff statement, since the amounts had changed so drastically. The mortgage broker said this would not be a problem because the borrower lived near the broker’s office and could come in to sign immediately. Shortly after that conversation, the escrow officer called the mortgage broker’s office and asked to speak to the borrower, who should have been sitting with the mortgage broker by that time.

The mortgage broker told her that she could not speak to the borrower because he only spoke Spanish. The escrow officer had her co-worker, who speaks Spanish fluently, call the borrower and discuss the payoff statement differences. During the conversation the borrower became nervous and eventually hung up. The mortgage broker called the escrow officer back immediately and said the borrower had just confessed that he had used a phony social security number when he originally took out the loan to be paid off in escrow, but the social security number he was providing now was valid.

This deal made the escrow officer nervous from the beginning due to the $300,000 the borrower was to receive in cash back on a loan amount of $528,500.

Since Fidelity National Title insured the previous purchase transaction with the phony social security number, the escrow officer thought she shouldn’t resign from the transaction without further investigation. She asked the mortgage broker for a copy of the appraisal so she could check the current market value of the property. The purchase price in 2003 was only $221,750. The loan application showed property valued at $750,000. The appraisal valued the property at $750,000 (not a big surprise), but the photos attached to the appraisal showed a brand new house with a temporary electrical box out front.

The escrow officer knew she had to obtain an indemnity package from the borrower against any possible mechanic’s liens. She was sure the Company’s underwriter would deny the borrower’s indemnity package because of the following red flags: the owner was also the general contractor; the owner had not made a mortgage payment in four months; and the property taxes were delinquent. The escrow officer requested the borrower’s financials and indemnity so the title underwriter could review them. The title underwriter declined to insure the transaction and it was subsequently cancelled.

Moral of the Story
It is the nature of an escrow officer to persevere through a complex transaction if only for that brief endorphin “high” that results from accomplishing the impossible. When the terms of the transaction are unusual and the parties can’t or don’t want to do things in the normal and customary manner, contact an escrow administrator or title underwriter for help and guidance.


International Conspiracy

An international conspiracy of fools thought our closers would disburse funds on an uncollected check!

One of our agency escrow managers from Salt Lake City, Utah reported a recent new order for title and escrow services. The purchaser, Ben Martins, lived in China and was being represented by Miguel Valdez from London, England. The manager was told that as soon as the offer was accepted she would receive $450,000. The money was coming from the purchaser and would consist of $200,000 for the earnest money and $250,000 for Miguel Valdez’s commission. The opening instruction stated that the commission to Miguel Valdez was to be released to him immediately.

The manager assumed the funds would be coming through an international wire and was surprised to receive a check by FedEx for the amount of $450,000. The check was written from a company called Oggetti out of Miami, Florida. The manager called the company to verify that Oggetti had issued the check and it was to be used in our transaction.

A controller at Oggetti said the company did not issue the check and the check number was invalid. The manager has since resigned as escrow agent, cancelled her file and placed a call to the FBI.

Moral of the Story
Be wary of unusual transactions from foreign investors whom you have not worked with in the past. Remember: disbursing on uncollected funds is never a good practice. It is against Company policy due to the risk of loss and due to many states’ laws prohibiting disbursement prior to collection of funds.


The Ole Bait and Switch

This story involves a forged bank check for closing costs that recently caused our Company a great deal of grief.

One of our offices had a transaction in which the seller was required to bring in more than $48,000 to close. The seller faxed a copy of an official bank check, which he indicated he deposited in the escrow account through an out-of-town branch. The closer confirmed the deposit with the bank and funded the file.

Several days later, the bank notified our offices that the funds did not clear. In fact, the seller had deposited a personal check that bounced. The official check copy was a forgery. The office ordered stop payment on the checks, but the seller’s real estate broker’s check had already cleared. The transaction will be unwound, but we might lose the amount of the cleared check unless we can recover the funds from the payee.

Moral of the Story
It is common to verify direct deposits with a bank representative, but as a result of this new incident, be sure to also verify the check that was deposited to be certain it matches the copy you received.