Who Is Cashing In This Season?
By Lisa A. Tyler
National Escrow Administrator
This holiday season is ringing in a whole new set of challenges. But fraudsters aren't taking time off for the holidays, and are actually developing fresh approaches for the changing market. That's why FNTG employees need to stay on guard. Recently we have heard of a new scam for getting some extra holiday cash.
Every community has a plethora of vacant properties that lenders are desperately trying to sell, or homes that are simply abandoned by homeowners who can no longer afford the mortgage payments. This has opened up an opportunity for some creative crooks out there who are breaking into the vacant properties and holding an "open house" for potential renters. When the crooks snag a bona fide tenant, they have them execute a lease agreement as well as deposit their first and last month's rent. Then, when the tenants try to move in, the crooks are long gone with their money. The tenants are unable to move into the property as their "landlords" were never the true owners of the property. Unbelievable!
Are you up for a challenge? Marjorie Ramseyer Bardwell, FNTG senior staff underwriting counsel, challenges the Fraud Insights readers this month with an opportunity to identify more than 10 red flag warnings on their own. Read her article entitled "Forgeries Revealed" to see if you are up to the challenge!
Two employees, Beth Hosker and Paty Wylie, earned some extra holiday cash this year by detecting fraud in their own transactions. Each received a $1,000 reward and letter of recognition from the Company for their stories entitled, "Legal Husband Versus Real Husband – Isn't One More Than Enough?" and "Down Payment Assistance Programs – Banned Or Not?"
It's AMAZING what ordinary people can do with information, support and resources. Set yourself apart in your market by attending a 2009 escrow training event. It's fun! It's free! And the cutting-edge information shared at each event is nothing short of AMAZING! Check out the 2009 agenda of events using the Company's intranet: http://www.vencio.com/fnf/ SeminarRegistration/schedule.aspx.
A piece of title insurance folklore about forgery is that it cannot be detected. This is not true; there are red flags that can tip off an alert searcher and/or examiner to a possible forgery.
In the following case study, try to identify ten red flags that would tip you off to a possible forgery. List as many as you can and then compare your answers to the Helpful Red Flag Hints section.
Hercules Bedyby has signed a contract to buy a very valuable vacant beach front property. He plans to use the property to develop a luxury high-rise condominium complex. Mr. Bedyby asks that the title insurance be placed with us. The seller complies.
When the seller is asked for prior title evidence, he tells us he has none, because he bought the property without title insurance. A check of title shows that the seller obtained the title six months ago from the former owner, who was in title for more than thirty years. The deed was recorded two months ago. The former owner held title as Victoria M. Farnsworth but conveyed out as Victoria N. Farnsworth. The present seller apparently bought this property – for cash – because there is no evidence of financing on the record. The examination of title also shows that one month before the present seller bought the property, the beneficiary under a large deed of trust on the property substituted Hiram Houdini for a large downtown bank as trustee of the deed of trust. The trust deed was released several weeks later.
This is a super rush deal. We are told that a closing is scheduled for the end of the week. The seller has a sick aunt in Europe whom he has to visit. Mr. Bedyby is a good customer. He deserves the best service we can give him.
Can you identify the red flags? List as many as you can and then compare your answers to the Helpful Red Flag Hints.
A forged instrument of conveyance is void. The fact that a purchaser has paid value and has no notice that the current vesting instrument or a prior instrument in the chain of title was forged does not cause the real owner whose signature was forged to lose ownership. Thus, whenever we issue a title policy, we run the risk of having a complete loss (one which might require us to pay the face amount of the title policy we issued). We consider this to be an acceptable risk if the instruments of conveyance upon which we rely appear to be customary. We classify that risk as one of the "unknown" risks that cause prudent purchasers and investors to purchase title insurance.
If, however, facts or circumstances exist that raise the possibility that a forgery has occurred, this possibility becomes a "known" risk, which we are not willing to accept. If this occurs, you should not issue the title policy until it has been determined through investigation that the instrument under consideration was not forged.
A "forgery" also results when a deed bearing a genuine signature is delivered without authority, or where it is altered significantly without authority.
Helpful Red Flag Hints
Facts and circumstances that might indicate the possibility of a forgery in your current transaction or previously in the chain of title might include the items listed below. Some of these items might also reflect other types of fraud, such as mortgage rescue scams. Use this list to find all ten of the red flags in the scenario presented above:
|(a)||The name of the grantor conveying is spelled differently than the name of the record owner;|
|(b)||The name of the grantor conveying has a different middle initial than the record owner or one has a middle initial and the other does not; |
|(c)||The name of the spouse joining with the grantor is different from the name of the spouse joining in a prior mortgage; |
|(d)||The residence of the grantor stated in the deed-out is different from the place of residence stated in the deed by which the grantor acquired title; |
|(e)||Taxes or special assessments are shown as being paid in the name of the former owner or some other party; |
|(f)||The former owner is in possession claiming to be the owner, that is, the former owner has not delivered possession pursuant to the deed purported to be executed by such former owner; |
|(g)||Property has been owned by a party for many years, but that owner had not paid any taxes or special assessments; |
|(h)||A deed is dated long prior to the recording date; |
|(i)||The last recorded deed has been recorded a great many years ago; |
|(j)||The title deed on which we are relying was recorded very recently and there was no prior activity for a number of years, or there was no financing for that recent transaction on a valuable piece of property; |
|(k)||There has been a relatively recent transaction but we are told there was no title insurance issued, or owner or lender wants title insurance on a previously uninsured transaction; |
|(l)||There has been recent activity on the deed of trust or mortgage (release of mortgage or reconveyance of deed of trust, or assignment of mortgage or substitution of trustee on a deed of trust together with the release or reconveyance) with no corresponding refinance; |
|(m)||The "Seller" is not of record yet, but brings vesting deed in at closing; |
|(n)||There is an unusual or unexplained failure of the parties to appear at closing in person, particularly if funds due to them are to be paid to others; |
|(o)||Rush order – new customer – no attorney or broker involved – seller leaving town or wants funds wired offshore — or any combination of the same. |
Determination as to whether some further investigation is necessary is a matter of judgment and no hard and fast rules can be formulated. Lapse of time reduces the possibility of forgery of older prior instruments in a chain of title.
If you are doubtful as to whether there has been a forgery, there are a number of things you might consider:
- Pull other documents in the chain to examine signatures.
- Check the possession of the property to see if it is occupied and, if so, whether the occupant claims to be the owner, or the tenant of an owner, who is not the same person as the one who is making, or has made, a transfer.
- Other proof of identity might serve your purpose. Sometimes your request that the prior recorded deed be exhibited to us will expose a proposed forgery.
- Search the death records or run the owner or prior owner in a search engine on the Internet. We have picked up evidence of the death of the true owner in this fashion.
- Remember – trust your instincts – if it doesn't look right, or "smell" right, it probably isn't.
Losses from forgery are not limited to those involving instruments of conveyance. Forgeries of releases and assignments of mortgages also occur. Requiring that the note or other loan documents be exhibited to us will sometimes expose this type of forgery. We should always require a copy of the note if we are paying off an individual person or persons as lender.
If you think you have a forgery in your current or prior transaction, talk to your underwriter or manager. We should determine if we need to just walk away; we do not need to give a reason other than we are unwilling to continue in the transaction.
Legal Husband Versus Real Husband – Isn't One More Than Enough?
Community property states (such as Arizona, California and Texas) require both spouses to sign encumbrance documents to bind the community property estate to the repayment of the debt. In this story, find out why a wife who can't decide who is her legal husband could not mortgage her property.
Beth Hosker, an escrow officer with Fidelity's Houston operation, recently handled a $115,000 sale transaction with a $103,500 purchase money loan. The buyer was to take title as a married woman, as her sole and separate property. The buyer, Mrs. Speech, came to the closing on Friday with a Power of Attorney for her "husband" because he had left for Nigeria. The Power of Attorney was not acceptable because it was not signed in the presence of a Fidelity-approved notary.
Further, the POA was signed by Aladito Onabanjo (husband) but in the acknowledgement by the notary it stated she (Mrs. Speech) appeared before the notary – not her husband. The husband had signed the POA but his wife took the POA to her bank and they notarized it without him there.
When Beth questioned Mrs. Speech about the notary she stated she works at a nursing home and her patients sign medical POA's all the time where they send documents to the family members to have them notarized and the notary is never present for the signature. Mrs. Speech was SHOCKED that Beth was so adamant about the notary.
Beth was making arrangements to send another POA for the husband to sign at the American Embassy when she received a phone call from the Lender stating that Mrs. Speech is not married to the man from Nigeria (he is just the father of her children), and that she is actually married to Mr. Speech, who lives in the United States. The Lender was willing to go through with the transaction if Mr. Speech would join in on the transaction and "If it was okay with the title company." Texas is a community property state and it is required that any spouse join in on the Deed of Trust to encumber community property. Mrs. Speech was the only "borrower" on the loan.
At this point Beth was not sure Mrs. Speech even knew to whom she was legally married and she chose to resign from the transaction. For upholding the Company's document execution guidelines and recognizing a bad acknowledgement, Beth was rewarded $1,000 and a letter of recognition on behalf of the Company.
Moral of the Story
Although the buyer and lender might have agreed to accept the signature of Mr. Speech, we were unable to determine the identity of Mrs. Speech's legal husband and ultimately we declined to insure this transaction. Without the joinder of her lawful spouse, the Company might have been exposed to a risk of claim from the lender in the event the lien of the deed of trust was found to be invalid.
Down Payment Assistance Programs – Banned Or Not?
Down Payment Assistance (DPA) programs are nothing new and have been in existence since before 1994. They have a long history and came into being by non-profit organizations in an effort to provide funds to homeowners who did not have the down payment funds needed to purchase a home.
On July 30, 2008, President George W. Bush signed the Housing and Economic Recovery Act of 2008. Through section 2113 of the Act the cash-investment requirements and sources of down payment funds due from buyers/borrowers on FHA insured loans changed.
The most significant change that affects settlement agents involves down payment assistance programs. Subsection C says:
"PROHIBITED SOURCES – In no case shall the funds required by subparagraph (A) consist, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale:
|(i)||The seller or any other person or entity that financially benefits from the transaction.|
|(ii)||Any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in clause (i)."|
The new regulations went into effect Oct. 1, 2008. However, they only apply to FHA insured loans. We are still receiving transactions involving down payment assistance in connection with conventional financing. Here is a story about one just received in the Phoenix, Ariz. area:
Paty Wylie, an escrow officer from Chicago Title in Phoenix, received a fax from Rycho Funding demanding $14,500 plus fees from the seller proceeds at closing. Paty thought the faxed invoice was for a DPA program, since the purchase contract clearly stated: $14,500 down payment through owner's assistance program.
Paty called Rycho Funding to let them know she would not be able to sign the agreement attached to the invoice, because it called for her to enter into the agreement and to commit to pay their charges, regardless of the seller's authorization to do so. A Rycho representative informed Paty they were not a DPA company, but that the seller signed up for an "ownership program" and that we were required to send them their fees under the terms of the program. The mortgage broker was pushing Paty to sign the form presented by Rycho and to also have the buyer sign the form.
Paty knew she would not be sending money to a third party without an authorization form from the seller, so she contacted the seller for permission. The seller did not recall signing up for the "ownership program."
Paty called the lender and asked for permission to pay this fee. At first the lender stated they didn't care, since the $14,500 plus fees was coming out of the seller proceeds at closing.
Paty noticed that the lender's instructions made no mention of a DPA program and this still seemed like a DPA program to her. She contacted the lender again. This time the lender decided to look into the matter. The lender reviewed the buyers' source of closing funds and Paty's suspicions were confirmed. The buyers had a recent deposit in their account for exactly $14,500, supposedly for a commission. The $14,500 was the exact amount the buyers needed for a down payment and the exact amount Rycho was demanding plus fees. The lender thought it was too much of a coincidence and pulled their loan.
Paty's diligent effort was rewarded by the Company with a letter of recognition and a check in the amount of $1,000.
Moral of the Story
Regardless of the type of program, funds should always be disclosed to the lender and any payments out of the seller's proceeds should be fully disclosed and authorized by the funding lender. And, for loans of $200,000 or more with down payment assistance of 5 percent or more of the total sale price, all associates should refer to FNF's underwriting bulletin numbered 2005-RC-01.
Lastly, settlement agents should not agree to any terms required by a third party that might interfere with or contradict their responsibilities and duties owed to the principals of the transaction. The settlement agent is not a party to the outside agreement. Signing documents provided by a third party company providing down payment assistance could put the settlement agent in direct conflict with instructions provided by the buyer or seller.