Don't Get Spooked by the Market
By Lisa A. Tyler
National Escrow Administrator
Short sales, auctions and REO sales are all high-anxiety transactions. As a result, our settlement employees have reported an increase in threats and unusually aggressive behavior displayed by buyers, sellers and real estate professionals. Don't get spooked! Instead find out what you can do to play it safe in this market by reading "DFT's Cause Uproar."
When good employees go bad the Company shows little sympathy. Find out how a bad employee is prosecuted to the full extent of the law in "Crime Doesn't Pay, But Criminals Do."
This edition of Fraud Insights contains another story about how mortgage fraud is most commonly perpetrated on the seller's side of the settlement statement. The story involves money being deposited into escrow from a third party and being paid out to another branch in an assignment of proceeds. Read all about it in "Homebuilder Concessions."
There are only two remaining Webcast training events this year. Do not miss your chance to learn more about the following topics:
- What's Wrong with Your HUD? - A review of the most common audit exceptions.
- E-Sign, e-Mortgage, e-Closing - Can we participate in electronic closings?
- Amazing Scams - Embezzlements, fraudulent checks and more!
- Creative Financing - How to close and insure these types of transactions.
- Hot Topics! - Good funds vs. collected funds, recording confirmation, preventing escrow losses and where to find additional resources.
- Marketing From Behind Your Desk - Identify what tools you have and how to prepare and execute a plan.
Register to attend any of these Webcasts by visiting home.fnf.com. Under "Escrow Administration" select "Live Web Casts." You can attend right from your workstation – no travel, no expense, no hassle! The events span two work days and last three hours each day.
DFT's Cause Uproar
The downturn in the real estate market has fueled the flames of irrational behavior. Our operations have reported unheard-of scenes of insane conduct from disgruntled sellers, real estate brokers and mortgage brokers. What should settlement agents do to protect themselves and their co-workers?
Someone is always harmed when a DFT (deal-fell-through) occurs: The seller doesn't receive proceeds; the buyer doesn't get the property; the listing broker has to re-list the property; the selling broker has to start the search for new property; the title company doesn't receive payment for its title product. The list goes on and on. Settlement employees are used to hearing the complaints of principals and parties to transactions that never close. However, lately those complaints have turned into mad ranting and raving. This story is one of many illustrating the strange behaviors of a principal.
The settlement agent had an escrow stew – bankruptcy, foreclosure, personal judgments and unpaid taxes on a property where the well was contaminated and the septic failed. The seller had no current identification, only an expired passport. His wife would vouch for him, except her name was on personal judgments attached to the property. No credible witness was available. The seller called the settlement agent to argue the validity of the judgments, by quoting law passages and making threats of a lawsuit against the settlement agent and title insurer. The seller called repeatedly and yelled at anyone who answered the phone.
Meanwhile, with all of the issues at hand, the buyer could not gain clear title to the property and requested the escrow be canceled. As a last ditch effort the seller decided to drop in and sign his closing papers, claiming his attorney told him to "perform." The seller called from his car (about five minutes away from the settlement agent's office) and argued his points repeatedly. The settlement agent called her chief title officer for advice and he suggested she call the police. The settlement agent's gut also told her to lock the doors! She locked the front and back doors and then called the police. Meanwhile, the seller arrived and was knocking on the front door, banging louder and louder, and calling from his cell phone demanding to come in and sign the papers. The police arrived and asked the seller for his identification (an expired passport). Then they handcuffed him on the spot for an outstanding warrant.
Can you imagine being in a situation like this? Our settlement employees are trained to follow the written, mutual instructions of the principals. They are not trained in self defense. But in this market, it appears they should be. The settlement agent in the above story took the necessary steps to protect her co-workers and herself from danger.
In addition to the protective steps she took, the settlement agent also took the appropriate steps throughout the entire process to ensure her file was properly documented:
- She provided the seller and his real estate agent with information regarding the required identification she would need in order to notarize his signature. Her proactive measures put the seller on notice ahead of time, preventing any last minute surprises.
- When the buyers indicated their desire to cancel the transaction, the settlement agent immediately asked them to put their request in writing.
- When the going got rough, the settlement agent called for assistance. No one likes to be threatened, especially with a lawsuit. Don't ever hesitate to call someone for assistance. The advice she received proved to be appropriate.
Moral of the Story
The increase in disappointed customers has incrementally increased the Company's exposure to lawsuits. It is more important than ever to make sure our files are well-documented with facts and a complete timeline of events. Don't get caught up in the drama. The Company's best defense in a lawsuit can be a well-documented file that contains all the happenings of a real estate transaction.
Crime Doesn't Pay, But Criminals Do
Imagine having to ask your parents for $74,500 in order to repay an embezzlement crime you committed! Don't laugh, one Chicago Title escrow officer had to follow that course. She paid for the crime and did her time.
It all began in 2006 at a Chicago Title office in Stockton, Calif. An employee was promoted to escrow officer. What is usually a momentous occasion actually marked the demise of this employee's career. She developed a master plan to use her entrusted position of handling other people's money for her personal gain.
The escrow officer's master plan involved her husband, her daughter, her daughter's boyfriend and home improvements. She figured out how simple it would be to take dormant funds and refund checks from files and request wire transfers to be made payable to her family members' companies and companies contracted for her home improvement projects.
The escrow officer began moving funds from one file to another in order to cover the shortages she created by her unauthorized disbursements. Oh, how she must have loved the feeling of deception and greed! She continued to steal funds for two years.
Many of the unauthorized disbursements the escrow officer made were to MZB Co. This did not raise concern, as it's a local courier service owned by the escrow officer's daughter. However, one day suspicion arose when a manager received a trial balance report showing $265,502 was still sitting in a file for a longer period of time than normal. The manager needed to look into this further. Upon reviewing the status ledger of the file, which detailed the checks and wires that were received and disbursed, the manager found a wire in the amount of $282,530 that was returned on Oct. 15, 2007. Immediately the manager contacted the accounting department and was told there was a return wire for the same amount, but it was applied to a different file. This caused concern that all of the files the escrow officer had worked on were possibly in jeopardy of misappropriation.
The manager decided to dig deeper into the escrow officer's files. Upon review she found file after file of transfers, discrepancies and unauthorized disbursements. Wire transfers were made to her husband's Police K9 training company, her daughter's boyfriend, GHP Flooring, mortgage payments and even to her husband's ex-wife for child support! A total of 196 misappropriations of funds were found, totaling $61,563.90.
When the escrow officer was questioned on the files her initial response was she was merely transferring funds to cover shortages in the files. Upon further questioning she broke down and admitted she was committing fraud.
A full investigation was completed on the escrow officer's files. Chicago Title had a fiduciary responsibility to deposit funds the escrow officer had taken and place them back into the appropriate accounts. Seeking to recoup the paid out funds, the Company took action against the escrow officer. Not only did the Company seek repayment for the stolen funds, but also restitution for all of the fees that were incurred in the audit and investigation process.
The District Attorney's final judgment against the escrow officer required her to pay $74,500 to Chicago Title, and serve four months in County Jail, followed by five years probation. Besides personal humiliation, the escrow officer had to ask her parents to take equity out of their house in order to pay off the judgment against her. She is jobless, has a felony on her record and is serving time. Her crime wasn't worth it!
Moral of the Story
As a settlement agent we are trusted with other people's money – disbursing monies appropriately, following disbursement instructions and crediting refunds correctly. The fraudulent appropriation of funds entrusted to your care – funds which are owned by someone else – is called embezzlement. To refresh yourself on the duties that you are entrusted with, view the training module Exercising the Highest Standards of Conduct, found on home.fnf.com. Under "Escrow Administration" select "Web Based." There you will find all of the Web-based training modules. If you don't have access to the Company's intranet, the module is available on CD Rom by request at email@example.com.
When homebuilder concessions exceed the lender's maximum, find out what a desperate mortgage broker attempts to pull off in order to close the deal.
It is not uncommon or fraudulent for sellers to provide written instructions to a settlement agent to transfer their proceeds from the sale to another office or title company. They use the proceeds from their sale as the down payment on the new property they are purchasing. Customarily the settlement agent will show the transfer of the funds in the 1300 section of the HUD-1 and provide a copy to the seller's new lender as proof of down payment. Kim White, from our Fidelity Lake Oswego, Ore. office, had a file that began with this common practice, but later took a bad turn.
Kim received a phone call from a mortgage broker who was representing her sellers (we will call them "the Smiths") requesting an estimated HUD on the sale of their home. Upon approval from the Smiths, Kim prepared an estimated HUD and faxed it to their mortgage broker. Upon receipt of the HUD, the mortgage broker called Kim and explained the seller, who was a builder in the Smiths purchase transaction, was contributing to their closing costs. The mortgage broker further explained the builder would be depositing a $10K check into Kim's transaction to be credited to the Smiths. Kim would then transfer the sale proceeds from her file to the Smiths' purchase transaction, which would include this $10K.
Kim told the mortgage broker that this deposit from the builder would have to show on her HUD. The mortgage broker didn't mind since the Smiths' new lender only required an estimated HUD. Kim feared the mortgage broker would use the estimated HUD she already prepared, which did not include the $10K.
Additionally, the mortgage broker hinted to Kim the seller had already maxed out the contributions permitted by the loan program the Smith's had secured. It appeared the parties were trying to "hide" the additional seller concessions from the new lender by depositing the funds into Kim's file. She knew she could not assist the parties in misrepresenting the terms of a transaction. Kim told the parties she could not receive third-party funds into her escrow and proceeded with closing her transaction.
Kim didn't stop there. She found out later the Smiths were closing at another Fidelity office. She contacted the escrow officer there to alert her as well. The mortgage broker, buyer and seller had to "come clean" in order to legitimately close the purchase transaction, since our offices refused to participate in the mortgage fraud.
Kim was rewarded $1,000 as a token of appreciation from the Company, as well as a letter of recognition for herself and her personnel file.