Who Stole My REO's?

An asset management company attempts to steal multiple properties from unsuspecting lenders who are too busy to investigate fraudulent conveyances. Thank goodness for our Company and for the industry. We have employees who are more than smart enough to outwit the fraudsters.

As foreclosures rise, so does the sale of REO properties. REO is the acronym for Real Estate Owned. When a lender forecloses against a borrower and takes the property as all or a portion of the repayment for the loan, it becomes an REO property.

Lenders regularly work with an asset management company to oversee the foreclosure and liquidation of REO properties. An asset management company manages the property for the lender. It arranges for any necessary repairs, gets the property listed for sale with a real estate agent, markets the property, negotiates any offers, sees the property through the escrow phase and closes the deal pursuant to the terms of the negotiated contract. Once sold, the asset manager forwards the net sales proceeds and back-up documentation to the lender. Although this process is extremely effective, the story we are about to share with you illustrates just how it opened the door for fraudsters to take advantage of this process.

Real estate investors are purchasing REO properties. In some cases investors can purchase these properties in bulk at a discount. This is how the story began in Phoenix, Ariz.:

A company out of Cleveland, Ohio (we will call it ABC Asset Management, Inc., or "ABC" for short) placed an advertisement on CraigsList™ to sell REO properties it recently acquired. The asking prices were amazingly low. A whole new group of investors entered into contracts to purchase the homes. Escrows were opened with DiAnna Jackman in our Chicago Title's Scottsdale, Ariz., office on 18 different properties. The prices were so affordable those investors immediately marketed the homes for resale.

At the very onset, ABC told DiAnna that it was purchasing the properties through a bulk acquisition and they would have the deeds in a few days, so she might want to wait to order her title reports. Soon after, ABC sent copies of the recorded deeds to DiAnna, who noticed they were all Special Warranty Deeds recorded at the request of First American Title Lender Services. She ordered her title work.

Red Flag #1: DiAnna received a call from a real estate agent stating she was unaware that one of her properties had sold. DiAnna contacted First American Title Lender Services to confirm the sale to ABC Asset Management, Inc. First American Lender Services was unable to confirm the sale or even locate a file on that property. The lender said it would do some additional research and call her back.

Red Flag #2: DiAnna reviewed the deed in more detail, as the first red flag was inconclusive. She noticed the deed was signed via Power of Attorney (POA) by a Vice President of ServiceLink™, one our sister companies. DiAnna tracked him down. She sent him a copy of the deed hoping he could validate it. Although the signature appearing on the deed was his, he had no record of signing the deed. ServiceLink's legal counsel was also asked to review the deed. He verified the deed was not prepared by ServiceLink, which is contrary to the customary procedure when using a POA for REO lenders. Lastly, he confirmed there was no record of the receipt, signature, notarization or delivery of this deed anywhere in the ServiceLink system. Everything indicated the deed had been forged.

Red Flag #3: First American Title Lender Services contacted its client, the lender, who foreclosed on this property and asked the company to contact DiAnna directly. The lender told DiAnna that its records indicated the file was still active. The property had not been sold, nor had the lender received payment for it. When DiAnna contacted ABC to ask them for additional documentation to prove it had purchased these properties, she was told she would receive evidence within the next couple of days. ABC said the paperwork was with another department. Little did DiAnna know, that would be the last time she would hear from ABC.

While she waited for the proof ABC had promised she reviewed the other deeds recorded. She called the REO lender who purportedly sold these properties to ABC, one after another to confirm the validity of each and every deed. After holding for 30-45 minutes at a time she would receive the same answer: "Yes, that is the person who signs our deeds. Although our records don't indicate that we sold this property, the deed looks in order. Go ahead and close." Finally, DiAnna ran across one deed where the property was conveyed by an individual rather than a lender. She pulled the deed of trust signed by the previous owner to compare the signatures. It was a clear forgery. That's when she received her big break.

Red Flag #4: Lisa Capes, Sales Representative for Chicago Title, received an anonymous phone call from a real estate agent. The agent heard that DiAnna was making inquiries about ABC. The real estate agent explained that he had some previous pending sales with ABC and discovered that the company held title to the properties fraudulently; ABC was currently under investigation by the FBI. DiAnna contacted the FBI who confirmed the receipt of several nationwide complaints about ABC. The FBI took a statement from her as well. DiAnna promptly resigned from the pending transactions, stating our Company would not be in a position to insure these transactions.

DiAnna didn't stop there. She notified her senior counsel and management who contacted our sister companies only to discover they also had transactions pending with ABC. It was because of DiAnna's investigation and diligence this scheme was uncovered before we suffered any claims.

ABC clearly did a lot of research. They searched public records to find recently foreclosed properties. They also researched the deeds used on previously sold REO properties by these same lenders. By doing this they were able to create false deeds, which were hard to detect since they contained the signatures of the individual authorized via POA to sign such a deed. They acted quickly hoping no one would notice.

DiAnna just knew something wasn't right. She trusted her gut instincts even after speaking to lender after lender who repeatedly verified the signer and notary were employees and the authorized signers, yet they had no record of being paid for the sale. Although it is hard to determine the exact amount, DiAnna clearly saved our Company millions in potential claims due to the forgeries she found in the chain of title.

DiAnna's initial detection and her determination to uncover the wrong doings of ABC Asset Management, Inc. were rewarded with $1,000 and a letter of recognition from the Company.

Moral of the Story
Uncovering a fraud scheme is sometimes all-consuming. The reward pales in comparison to the personal sacrifice an employee must make in turning away business that will ultimately cost the Company losses. DiAnna continued to trust her gut instincts about the multiple transactions she received, despite the possibility of losing a potential customer with a lot of business. Remember, we only get paid for our insurance policies once – there is no continued annual premium. And, the risk of loss is huge. The average premium for a $250,000 home is only $1,200 (one-half of one percent). The one-time revenue is not worth issuing a policy or multiple policies that could ultimately cost the Company and its stockholders hundreds of thousands of dollars in losses.

Double Dipping

Common courtesy says you should never double dip your tortilla chip in the salsa, but does that same courtesy apply in the work force?

Maggi Heath, an escrow officer with Chicago Title in San Diego, Calif., had a pending sale transaction. The purchase and sale agreement indicated the buyers were applying for a new loan. After several attempts, the buyers weren't having much success. The real estate agent indicated the file was probably going to cancel. Maggi and her assistant, Chrissy Bridges, waited to draw cancelation instructions since the buyers were completing their application with one last lender.

Then, out of the blue Chrissy received a call from an escrow officer who worked for Ticor Title. We will call her Jane. Jane asked for the escrow and title fees on the file. Chrissy questioned why Jane was requesting this information, as she had this file. Jane stated she was just trying to help get the loan documents from CitiMortgage^SM. Chrissy explained that Chicago Title was under the impression this file was canceling so they hadn't even prepared a buyer's closing documents.

The next day Chrissy received a package. It contained the original, fully executed Trust Deed, a copy of the loan instructions and executed note, along with an invoice and a note from Jane. The note explained that Jane had the loan documents sent to her. She coordinated the signing of the loan documents with the buyer and the buyer had approved all of the fees listed on the enclosed invoice. The invoice included several fees:

Chrissy called Jane and asked her why she was interfering with Chicago Title's file. Once again she reiterated she was only trying to help. Chrissy pointed out they had not prepared the buyer's closing documents, including a closing statement. Jane told her she prepared the appropriate amendment and closing statement. She quickly added she did that only to provide them with "examples" of the additional documents they would be required to sign.

Next Chrissy asked about the invoice that was included in the file. Jane explained the buyers approved all of these charges and everything was okay. After pressing Jane, Chrissy uncovered that K&J Management was owned by Jane. Jane then confessed she had an additional interest in this transaction; not only did she work as an escrow officer for Ticor Title, she also worked as a transaction coordinator for the loan originator. Chrissy immediately reported all of this to Maggi.

Maggi's first priority was to confirm all of the lender's requirements were indeed met, as she would not be willing to sign their closing instructions otherwise. Jane assured Chicago Title she packaged the loan back and all that was needed was to call for funding. After a lot of extra phone calls and verification, the transaction did close. Maggi was able to ensure all the loan conditions were met and all the parties were in a position to close.

Maggi didn't stop there. She reported the entire incident to her manager, as it appeared to be a conflict of interest for Jane to work for both Ticor and the loan originator at the same time. It turns out Maggi and Chrissy were right.

FNF's employee handbook says:
"The Company expects its employees to transact business according to the highest ethical standards of conduct. Accordingly, all Company employees have an obligation to conduct business within guidelines that prohibit actual or potential conflicts of interest."

"The following examples could involve a conflict of interest:

• Serving as an employee, officer, director, business partner, or consultant for a customer, vendor, or competitor of the Company."

Outside Employment
"The Company recognizes your right to engage in activities outside of your employment, which are of a private nature and unrelated to Company business. Therefore, an employee may hold an outside job, whether paid or unpaid, as long as he or she meets the performance standards of the job held with the Company."

"Further, any outside employment that constitutes a conflict of interest may be prohibited. This includes, but is not limited to, work for an actual or potential customer, vendor or competitor."

Clearly the role of a transaction coordinator presents a conflict of interest. Additionally, Jane was working in both capacities during Ticor's business hours and while she was in her Ticor office. Immediate action was taken.

Here's the best part of this whole story: Your National Escrow Administrators were notified of this by Chicago Title's Escrow Administrator, Diane Lindsey. When asked if she would be interviewed for an article in Fraud Insights, she immediately said all the glory belongs to her escrow officer, Maggi Heath. When Maggi was called, she said she would be happy to provide all the details but any reward should be given to her assistant, Chrissy Bridges, who was the one who truly uncovered this story. How's that for some deep-rooted ethics?

Chrissy Bridges will be rewarded $1,000 for uncovering this conflict of interest and sharing the details with us.

Moral of the Story
It is your obligation, at all times, to act in the best interest of the Company and not allow any personal activity to conflict with or interfere with your service to the Company. How can an escrow officer remain neutral, the most basic of duties, while also working for a loan originator?