Numerous Claims Surface Due to Lack of Recordation

By Lisa A. Tyler
National Escrow Administrator

Don't spoil your summer by failing to properly record the documents in a transaction. Receiving an unwelcome call from a lender who is trying to foreclose on a recent loan – only to discover their loan was unsecured – is a definite summer-spoiler. The claims department has certainly seen a number of preventable claims, lack of recordation being one of them. Get the details on how it happens and what you can do to prevent it in "Recording Confirmation is Essential."

What are the real estate commission percentages in your area? They are probably six to seven percent. An escrow officer in Maricopa County, Arizona recently received a broker demand for a 20 percent commission. The escrow officer saw the extraordinary percentage as a red flag. Her instincts were right when she uncovered mortgage fraud. Find out what happened next in "A 20 Percent Commission!"

FNF's escrow administrators conduct escrow training seminars nationwide for our agency and direct operations. We include sessions for you on how to recognize and prevent fraud from occurring in your own transactions. Find out when we are coming to your area next, by logging on to Under "Business Tools," select "Trainings" and click on "Training Events and Escrow Training Calendar" to view the FNF training events schedule.

Together, direct and agency operations are changing the real estate industry. "Sweet Harmony" provides details of how one of our title agents protected the Company from future claims by refusing to close on two recent real estate transactions involving fraud.

Our heroic employees feel proud when they are able to protect the Company and the public we serve from suffering the results of a bad real estate transaction. Along with this proud feeling, the Company wants to give you a cool grand for your efforts. Share your heroic stories of how your coworkers or you were able to detect and prevent fraud, and the Company will reward you with $1,000! Contact the escrow administrators by telephone at 888.934.3354 or by e-mail at



Recording Confirmation is Essential

Unscrupulous property owners have taken advantage of our failure to record lien instruments in a timely manner by selling or further encumbering the property.

The Company has suffered numerous losses as a result of our failure to record lien instruments, the latest of which may cost the Company more than $1.2 million. In this example escrow closed in July 2007 on a refinance of property located outside of the escrow officer's home county. Two new concurrent loans were placed on the property, totaling $1.2 million.

The escrow officer sent the documents to be recorded and proceeded to disburse her file. The process in her state is to record first and disburse later. The title officer could not comply with the recording and policy instructions prepared by the escrow officer and set the file aside without notifying escrow.

The new lender did not receive any payments on the new loans. The lender attempted to start a foreclosure action, only to find their first and second loans were not secured, and the property was no longer held by their borrower. The lender contacted our Company and placed a claim under the terms of their title insurance policies.

The deeds of trust were never recorded and the unscrupulous property owner sold the property in the meantime as if it were free and clear from encumbrances.

We protected the lender's interest under the terms of their insurance policy by paying the penalty and interest due them. Now we are pursuing legal action against the borrower to recoup our losses.

This is one of many stories. Other such claims stem from recording the lien instruments in the wrong county, finding the original lien instruments in the escrow file, or loss of the lien instruments between title and escrow. In all cases the losses were completely preventable, and more important than the loss of dollars, is the degradation of the relationships with our clients.

Moral of the Story
Our escrow settlement employees have processes in place to obtain recording confirmation when the closing occurs on property in their own county. However, our nationwide lenders and real estate professionals are asking our escrow officers and closers to service their real estate needs in a broader area, to step outside of county lines and even state lines to close transactions on their behalf. Closers do not have fail-proof processes for closing properties outside their area of expertise. Each officer needs to ensure that no file is considered completely closed until the recording confirmation has been received. Further, a designated employee needs to be charged with follow-up on a regular basis to ensure that documents are recorded and the instrument numbers are obtained.


A 20 Percent Commission!

Real estate commissions in most areas are six percent of the gross sale price; higher percentages are an indicator of possible fraud.

Jennifer Langford from Fidelity's Maricopa operation is one smart cookie. She closes many transactions for reputable builders and has built up a great business.

Recently she was closing on two RUSH files. The loan packages had come in and she was preparing the settlement statements. Part of her instructions from the real estate broker was to pay a 20 percent commission to the buyer's broker. She thought this was a little odd, since the total commission in her area is typically six percent. Jennifer contacted the funding lender for each file and requested they review the settlement statements with particular emphasis on the buyer's broker commission.

The lenders on each file temporarily withdrew their loans, pending further investigation.

The red flag warnings Jennifer recognized were:

  1. Extraordinarily high commission of 20 percent, approximately $80,000.
  2. Sale price exceeded the prices of similar models in the subdivision by approximately $80,000.
  3. The real estate broker is … We'll call them "Slick Sam's Real Estate Company."
  4. The mortgage broker is "Slick Sam's Mortgage Company."
  5. The appraisal company is "Slick Sam's Appraisal Company."

The funding lenders (not the mortgage broker) agreed to fund the transactions if the buyer's broker would waive ALL of their commission, which he did! This was not enough for Jennifer, who still felt uneasy about these two transactions. Her concern was that the seller would simply write the check once the escrow closed and there was still the issue of the inflated appraisal.

Jennifer called the seller (a reputable homebuilder). The seller stated that they were fully aware of the loan fraud, but in their opinion it was the buyer that was committing the fraud, and since there was full disclosure to the buyer, they expected to have no liability in consummating the deal. Guess again! Without the seller's cooperation and complicity, the fraud could not happen.

After speaking with her management team, Jennifer resigned as escrow holder. For her keen sense of awareness and high degree of integrity, Jennifer was rewarded $1,000 and a letter of recognition from the Company.

Moral of the Story
Other less-informed escrow officers who have not been paying attention to headline news, or who have decided not to attend our Fraud Seminars, would probably not have picked up on the red flags recognized by Jennifer. In order to protect the Company and the public we serve, it is essential that our escrow professionals stay abreast of current trends by attending seminar events and taking advantage of the Company's many forms of training and communication.


Sweet Harmony

Spreading the word about mortgage fraud is not only affecting direct operations, it is changing the entire real estate industry. FNF's agency network is combating crime and saving Our Company from future claims and losses.

Harmony Title, one of our Florida title agents, uncovered fraud in two recent real estate transactions and saved his company, as well as ours, from closing bad deals. The lenders in both transactions appreciated our efforts to save them from making bad loans that would have eventually faced foreclosure.

How Bold!
A residential sales contract was submitted to Harmony Title by the seller with a sale price of $240,000. During the processing of the transaction, the mortgage broker informed Harmony Title of a "marketing consultant fee" of $65,000 to be paid to D & W Home Corporation at closing. The $65,000 was to be deducted from the seller's proceeds for home improvements and upgrades to be completed post-closing by D & W Home Corporation.

The transaction seemed suspicious, and in bold fashion the mortgage broker requested two separate settlement statements at closing – one for the principals reflecting the marketing consultant fee, and another for the funding lender omitting the marketing consultant fee. The mortgage broker went even further in his bold request by providing samples of what the settlement statements should look like at closing.

In a professional manner, Harmony Title suggested the buyer secure a rehab loan for the improvements and generate one settlement statement for all parties. The mortgage broker was adamantly opposed to the suggestion. Harmony Title then contacted their underwriting counsel at Chicago Title Company. In another bold move, the underwriter contacted the seller directly and provided the details as to how a fraud was about to occur. The transaction subsequently cancelled at the insistence of the seller. In addition to the seller, the new lender was thankful that Harmony Title employees recognized the red flag warnings and refused to close.

Harmony Protects NovaStar from a Bad Loan
A residential sales contract was submitted with a buyer's deposit of $2,000, which was eventually returned by the bank for insufficient funds. When contacted by Harmony Title employees, the buyer began a pattern of misrepresentation that continued until Harmony Title reported its findings to the funding lender, NovaStar, which was being defrauded by not only the buyer, but the mortgage broker as well.

The mortgage broker was extremely anxious to close this transaction, but was not forthcoming with the details Harmony Title needed to successfully close. Harmony Title contacted the buyer directly, who submitted a New York address, New York employer and New York cell and home telephone numbers.

The mortgage broker scheduled the sign-up well in advance of the title agent's receipt of the loan closing package. He said the buyer would be flying to Florida for the closing. The deal began to unravel when Harmony Title received the loan package. The loan package contained a false Florida address for the buyer, false employment records for a Florida employer and false rent verifications. The buyer and mortgage broker were attempting to obtain financing for this buyer's primary residence. However, the buyer appeared to have no intention of moving to Florida.

Harmony Title contacted NovaStar and requested they review the package. Harmony Title employees emphasized their suspicions of falsified supporting documentation. Upon review, NovaStar discovered the buyer was using a false Florida address belonging to his former brother-in-law, false employment verification and false rent verification. NovaStar revoked its loan and expressed gratitude to Harmony Title for preventing this transaction from closing.

Harmony Title has been presented with a $2,000 reward for their actions in detecting and preventing fraud.

Moral of the Story
Harmony Title's efforts sent a message to criminals of a changing industry. Our closers, and those of our agents', are more savvy and willing to go the extra mile to protect lenders and consumers from future losses.