Don't Use the "F" Word

No, not that one, I mean FRAUD! Our business is getting tougher. Deals have become more and more complex. Sometimes it can be hard to tell which transactions are good and which are bad. Regardless, it is never appropriate to accuse someone of fraud.

Detecting a fraud or a forgery in a real estate transaction is exhilarating and disappointing all at the same time. Typically, the settlement agent is well into the transaction, having spent lots of time and effort, only to discover the transaction will ultimately not close. In most cases we will resign as settlement agent with the escrow officer receiving nothing for the work performed.

Detecting the fraud or forgery is step one. What we do next is even more important. We must be careful not to share our personal opinion, gossip or hearsay. Rather, stick to the facts and nothing but the facts. A win-win situation occurs when those who have the most to lose are given all the facts and make their own decision on how to proceed with the transaction, if at all.

The second step after detecting a fraud or forgery is to get your manager involved. Together you can analyze the situation, assess the risk and decide who else should be notified. It is easier to identify the true risks if you have an unbiased person to review your findings.

The third step is to notify the real estate professionals in the transaction, unless they are the individuals perpetrating the crime. In all cases the settlement agent needs to call (not e-mail) the funding lender to relay their findings and fax any documents the lender might not have. Examples of those types of documents would include a third party deposit, evidence of more than one owner-occupied property, discrepancies with identification presented at the closing table or discrepancies between signatures on documents purportedly signed by the same party.

If the lender decides to pull the loan, we do not look like the whistleblower and if the lender decides to re-submit the loan with new facts, we have an opportunity to close the deal. All of this is accomplished without using the "F" word. The truth is very powerful and can stand on its own.

Since the inception of Fraud Insights we have given out $21,000 in rewards to our heroic employees who have stopped fraudulent transactions from closing. Keep up the good work!

Stranger Than Fiction

A Northern California escrow branch manager saves the Company from a multi-million dollar loss on a FSBO transaction involving counterfeit checks.

Barbara Shelton from Fidelity's Orinda, Calif., branch "inherited" a transaction from an escrow officer who was no longer with the Company. The transaction was a For Sale by Owner (FSB0) with a $3.5 million purchase price.

Barbara became suspicious about the transaction when she received the loan documents and discovered the loan amount exceeded the sale price by $1.5 million. The buyer was walking away with loads of cash on a $3.5 million purchase!

The lender in the transaction was a private party closing under the corporate name of CityFed Capital. The lender hand-delivered the checks to the Orinda office and stayed there the majority of the day. He clearly had boundary issues, because he occupied an empty escrow office as if it were his own. He repeatedly asked the escrow officer not to deposit the loan funds for two days. The escrow officer explained the funds would need to be deposited the same day.

The funding checks delivered to the Orinda office were two cashier's checks drawn from Sonoma National Bank, one in the amount of $500,000 and the other in the amount of $1,500,000. Neither check looked legitimate to Barbara.

She contacted the bank to verify the issuance of the checks. A representative of Sonoma National Bank told Barbara the checks she held were counterfeit. As a result, Barbara sent the counterfeit items to the bank, returned the lender's original executed documents and resigned as escrow holder immediately.

Thanks to Barbara for recognizing counterfeit checks and for saving the Company from a multi-million dollar loss! As a small token of the Company's appreciation, Barbara has received a $1,000 reward and a letter of recognition.

Desperate Attempts

Wendy Perry from Fidelity's Stockton, Calif., operation recently forwarded a file to escrow administration for review and follow-up on a potential claim. A mortgage broker's attorney was making a claim for reimbursement of $18,000 in lost revenue on a deal that failed to close on time.

Wendy was working diligently on a difficult refinance transaction when she became acutely aware of the need to overcome the mortgage broker's misdeeds. These are the circumstances under which she was closing:

1. Refinance was opened as if the property owner was "Roxana."
2. Preliminary report revealed Roxana owned the property together with her brother "Roberto."
3. Roberto is in jail and it will take some time for him to deed the property to his sister.
4. Transaction was contingent upon escrow's receipt of a short pay letter from Ocwen Financial. Who ever heard of a refinance with a short pay?
5. The property was in foreclosure with Ocwen.
6. To stop the foreclosure the borrower filed bankruptcy two days prior to the trustee's sale date.

And these are the desperate attempts by the mortgage broker to close the transaction before the new loan's lock expired:

Desperate Attempt #1
The mortgage broker submitted a deed into escrow signed by Roxana as attorney-in-fact for Roberto, giving full ownership to Roxana. For obvious reasons we would not accept the self-serving deed and thankfully, neither would the funding lender.

Desperate Attempt #2
Federal Express® arrived at Wendy's office with yet another deed. This deed was supposedly signed by Roberto and sent from the subject property in Manteca, Calif. Wendy was told Roberto was in jail in San Jose. The deed was not acknowledged by a Company-approved notary. She matched the signature against the deed of trust of record and Roberto's signature did NOT match at all. It was an obvious forgery. Wendy contacted the borrower who stated the notary was a cousin. Wendy let the mortgage broker know by e-mail that we would not be able to accept the second deed. The mortgage broker blatantly admitted that he was aware of the forgery.

Desperate Attempt #3
Wendy took matters into her own hands and decided to have the deed delivered to the jail, only to find out the jail that housed Roberto did not have a notary on staff. Wendy had messages out to the mortgage broker to obtain Roberto's prisoner number and jailhouse address, as she was attempting to schedule a signing at the jail with an approved notary. Ten days after her requests for the prisoner number, the mortgage broker sent the information she needed. In the meantime the lock had expired on the documents.

Desperate Attempt #4
Since the loan was unable to close in a timely manner, the legal counsel for the mortgage broker sent the following message to Wendy … "Your failure to handle the jail signing in a timely and competent manner has cost this office over $18,000 and the client now has to stay in bankruptcy for the immediate future. Had you handled this transaction in a timely and competent way, the original loan documents would not have expired and the transaction would now be closed. We need to discuss how your Company is going to compensate Main Street Lending for its loss."

At her wits end and facing a potential claim, Wendy contacted her national escrow administrator. Wendy was told to send the file to Lisa Tyler for review. Upon review, Lisa contacted the legal counsel for Main Street Lending to discuss his claim.

Thinking the attorney would be shocked at his employee's wrong doing, Lisa told the attorney that Main Street's employee and loan officer had submitted at least one forged deed into escrow and admitted he was aware of another. The attorney lashed out with an unexpected response. He stated that it was the title company's job to investigate the validity of documents submitted into escrow and since we discovered the two incidents and no harm came to anyone we should have proceeded to get a valid deed and not held up the closing.

Lisa then informed the attorney of the escrow officer's attempts to obtain the prisoner information in order to send a deed to the prison for signature. The attorney was shocked their employee had not responded in more than ten days. Only then did the attorney retract his claim for $18,000 and agree to our resignation as escrow holder. Unbelievable!

Wendy's diligence is to be commended. Not only did she enforce the Company's document execution guidelines, but she was able to detect a forged document. In recognition of her efforts, the Company has awarded Wendy a cool grand and a letter of recognition!

Moral of the Story
As unfounded as a potential claim might be to you, do not ignore it in hopes it will go away. You should always request the claim be submitted in writing and then forward the claim to your manager, national escrow administration or directly to the claims department for follow-up.