Layton Liar

A mortgage broker tried to pass off several forged reconveyances and a forged subordination agreement to a savvy escrow officer in Layton, Utah. The escrow officer not only refused to close his transaction, she turned the broker in to the lender, who in turn reported him to the Utah State Attorney General's Office.

Trudy "TK" Fenner, an escrow officer in the Layton office of Founders Title Company, was getting ready to close a $280,000 refinance. The mortgage broker was pushing hard for a quick close and provided TK with a copy of a previous policy to help speed up the process of distributing a new commitment. TK and her title examiner accepted the previous policy, but searched the chain of title further than the policy date because the issuing agent didn't have a great reputation in the area.

TK and the examiner found several trust deeds which hadn't been reconveyed and were subsequently shown on the new commitment. After the mortgage broker's receipt of the commitment, he supplied documents, including several reconveyances for the trust deeds, that were supposed to have been paid off and a subordination for a trust deed which was going to remain on title.

TK reviewed the documents and noticed one of the reconveyances was signed by the beneficiary rather than the Trustee. TK notified the broker and within 30 minutes had a new reconveyance signed by the Trustee, a title company in Utah County, Utah. TK thought the process ran far more quickly than usual and therefore warranted further investigation.

At first, the reconveyance appeared valid because the name of the signing party matched Company information of record, but then TK noticed that a subordination agreement supposedly signed by an out-of-state lender was notarized in Utah County. A call to the person at the title company who had supposedly signed the reconveyance confirmed he had not signed it. Another call to the lender confirmed the loan had not been paid off.

After TK confirmed her suspicions, she went to her manager for a review of the transaction and the documents the mortgage broker presented. As it turned out, two of the three reconveyances provided to TK had been forged. She also suspected the subordination agreement was forged, though she was not able to confirm the forgery with the alleged signer. TK and her manager contacted the new lender in the transaction, bypassing the mortgage broker altogether, and told them what they had discovered. The lender immediately referred the matter to their legal department. Their legal department contacted the Utah State Attorney General's Office, which opened a criminal investigation of the mortgage broker.

Needless to say, the borrower was very upset that we had "blown up" the whole transaction. The lender pulled its loan and TK cancelled her transaction. For her heroic efforts TK received a $1,000 reward and a letter of recognition from our Company.

Moral of the Story
Duane Phillips, CEO of Founders Title Company, summed it up when he said, "I can't think of a better customer to lose than one who has committed forgery and fraud." The sharp attention to detail by the escrow officer in this transaction prevented Founders Title and their underwriter from sustaining a direct loss due to forgery and fraud. Founders has underwriting agreements with several FNF underwriters, including Chicago Title Insurance Company™, Ticor Title Insurance Company and Security Union Title Insurance Company^SM. Since 65 percent of all policies of title insurance issued by our Family of Underwriters are issued by our network of title agents, we appreciate the extra effort Founders employees have taken to protect all involved from risk of claims and loss.

If TK had looked the other way and not investigated the forged reconveyances, she would have closed a loan that should have been in first lien position into a junior lien position. If one or more of the lenders had to foreclose their lien position, it would have been contested by the other lenders who had valid loans. The lender's recourse would have been to make a claim against their policy of title insurance, which protects them from risk of loss in a scenario like this.

Silent Seconds Revisited

According to the FBI, IRS and other criminal investigators, the use of silent seconds is one of the top five indicators of a mortgage fraud scheme. As lending requirements have gotten tighter, we have seen a rise in requests for our settlement agents to participate in this type of concealment.

See if you can detect the correct answer in the following scenarios. Each represents different approaches real estate professionals and consumers have attempted to take in order to conceal additional financing at closing.

Scenario #1
Buyer doesn't have enough money to make the minimum down payment required by the lender. Unbeknownst to the new lender the buyer borrows money from a private party to put toward the down payment and asks the escrow settlement agent to record a second deed of trust. Can our Company agree to conceal the second mortgage from the first lender by handling the second loan in another escrow file – that is, by transferring those funds to the purchase escrow and mark the funds as received from the buyer?

Yes or No?

Scenario #2
Funds come from the seller, mortgage broker, one of the agents or some other third party, and the escrow settlement agent is asked to mark them as received from the buyer. The party returns later and asks the escrow settlement agent to create a note and deed of trust or mortgage from the buyer to the third party. Can we do that?

Yes or No?

Scenario #3
The seller at closing wants to give a $1,500 credit to the buyer. Since the lender won't approve any credits, the settlement agent can't show it on the settlement statement. So the settlement agent decides to cut two checks to the seller, one for the amount of the credit, and the other for the balance of proceeds. The seller can then endorse the first check to the buyer. To make sure it's all okay, the settlement agent has the seller authorize the disbursements in writing. Can we do that?

Yes or No?

Scenario #4
$80,000 was wired in for a closing. The funds came from a third party. The buyer tells the escrow settlement agent the note and trust deed for a private party loan were drawn, executed and recorded outside of escrow. The buyer is obtaining a new conventional loan. Does the settlement agent need to make the new lender aware of the third party deposit?

Yes or No?

Now check your answers below:
Scenario #1 NO!
Scenario #2 NO!
Scenario #3 NO!
Scenario #4 YES!

In all of the above scenarios, the parties are attempting to circumvent the lender's loan requirements for the buyer's equity and debt-to-income ratio. This is considered loan fraud.

Do not close these types of transactions, and instead, contact your local manager or escrow administrator and let them help you resign from the transaction. The buyer must come in with the down payment and closing funds required by the lender with their own funds.

Recording Service Fails to Record

When times got tough the owner of a recording service company decided to abscond with money from title clients who employed the company to deliver documents to the recording authority and pay transfer taxes to the city and county. Then, to make matters worse, the owner never even recorded the documents.

Michigan Express Recording was regularly used by all of the title companies in Troy, Mich. for delivery of documents to the local recorder's office, as well as payment of recording fees and transfer taxes. Michigan Express required the checks for recording fees and transfer tax be made payable to the recording service company. However, when times got tough, the owner of the company ran off with the funds and NEVER recorded the documents entrusted to his company. One of the local offices in Troy had 120 deeds marked "not of public record," with fees of more than $157,000 that were paid to the recording service, but never disbursed to the recording authority or the municipality.

The original, unrecorded documents had not yet been found, so the companies that were harmed have started recording Lost Deed Affidavits and attaching copies from their files. These companies now each have full-time staff dedicated to checking the public records to ensure all documents have been recorded on previously closed and insured transactions from years past. Those same title companies have taken both civil and criminal action against the recording service company's owner.

Because of this, effective immediately, all recording fees and transfer taxes paid through closing must be made payable to the recording authority and municipality – not a recording service. If a third party service provider advances the fees on behalf of the Company, then the office can reimburse the service once the office has evidence that the documents were presented to the recording authority for recordation.