Sizzlin' Summer Schemes
By Lisa A. Tyler
National Escrow Administrator
A perfect summer day is when the sun is shining, the breeze is blowing, the birds are singing and the lawn mower will not start. This edition of Fraud Insights provides schemes that are sizzling hot, just in time for summer. Thankfully, throughout all seasons, our associates continue to uphold their integrity and keen sense of wrongdoing to protect the Company and its customers from ongoing fraud and forgery.
Nothing is more sizzlin' hot than a story about a Russian imposter! The story, entitled "Alert Escrow Officer Foils Forgery," provides insight on how one of our escrow officers followed her suspicions and foiled a forgery attempt by a Russian imposter.
"Once Upon a Time in Montana" is a story detailing a fraud we have seen, time and time again, involving a short sale transaction. Most payoff lenders do not allow a short sale processing or negotiation fee to be paid at closing, however, short sale negotiators are still looking to make a buck in this niche market. As a result, many short sale negotiators are attempting to receive payment through deception of the payoff lender. Read all about it and discover how one of our finest escrow officers protected the Company and transaction participants from the fraud a negotiator tried to pull off.
As a sign of bad economic times, escrow officers in Arizona are receiving unusual requests to hold a pre-signed deed in lieu of foreclosure on their seller-financed transactions. Find out the results of this industry-wide concern in the article "Pre-Signed Deed in Lieu of Foreclosure."
We are in our fourth year of publication and have started to see a decline in readership. Our associates know they will receive Fraud Insights around the 15th day of every month, and often put off reading the publication for another day, ultimately never getting around to reading it. However, if you are one of our recent hires, or if you wait on the edge of your seat for each and every edition, then the following idea is for you:
We want to re-energize our readers! Here is one simple way to do that – assign an article for each person in your office to read. Then, host a "lunch and learn" and have each appointed associate share what they learned from the article assigned to them during a brief lunch meeting. The program creates a win-win situation – everyone learns something that protects their livelihood without having to commit the time to reading the entire newsletter. Lunch and learn events provide a great way to cultivate conversations about how you can stop fraud. And to give you further encouragement – remember your crime fighting stories could earn you a $1,000 reward!
If you have other ideas to increase readership, please feel free to share them with us by e-mailing your escrow administrators at firstname.lastname@example.org.
Alert Escrow Officer Foils Forgery
A Russian seller located in the Ukraine suddenly appears in our Vancouver, Wash. office to sign a Power of Attorney, granting his brother the authority to sign on his behalf. A few days later, the supposed brother appears for the signing as attorney-in-fact. Guess what – it's the same guy, and no, these guys are not twins!
Traci Fraley, an escrow officer out of Fidelity's Fisher's Landing office in Vancouver, Wash. was handling a short sale transaction. According to the listing agent, the property owner was unavailable to sign his closing documents because he was in the Ukraine.
The agent also said the owner was not going to be able to come back to the U.S. to sign his documents, so Traci began making preparations to have the documents executed internationally. Days later the agent called to tell Traci the seller was suddenly able to catch a flight back to the U.S. and was on his way to her office to sign a Power of Attorney (POA), giving his brother the power to sign on his behalf. The agent was extremely excited and insisted the owner would be at her office in the next 15 minutes.
Traci thought it odd the seller was able to find a flight to the U.S. so quickly, however. She drew the POA document as instructed and it was executed, thus granting the ability for the owner's brother to sign. A few days later the brother came in to sign on behalf of the owner. Something didn't seem right, as Traci was fairly sure this was the same gentleman who had come in to sign the POA – representing himself as the seller – a few days before. The two were said to be brothers, so Traci thought similarities seemed possible and the "brother's" ID photo matched his appearance. After the signing, Traci asked the opinion of the office receptionist, who also thought it was the same individual who had come in to sign a few days previously.
Traci had a gut feeling something was wrong with the situation and conducted more research. The printing and signature from the POA and seller's newly signed closing documents appeared to be very similar. Traci examined the copy of the ID she had taken from the individual who signed the POA (representing himself as the seller) and the signature did not appear to match the one she had received on the POA. Traci brought the signed documents and ID copies first to her branch manager and then the county manager. The signatures on the seller's ID did not appear to match up with the seller's signature on the POA. But Traci was still certain that the seller and the brother were the same individual, posing as separate individuals.
As a result of her suspicions, Traci and her manager contacted the listing agent to let him know we would not be able to accept the POA. Traci expected the agent would be at least slightly irritated, however no questions were asked and no arguments were made. Traci made arrangements to contact the seller directly to execute the documents in the Ukraine.
For her keen sense and awareness of a possible crime, Traci received a $1,000 reward from the Company, along with a letter of recognition. Discovering a crime is all-consuming and the Company appreciates the time and dedication Traci showed to ensure the closing documents were executed by the correct parties.
Moral of the Story
Traci did the right thing by not confronting the parties with her suspicions. Instead, she contacted her manager and together they denied the use of the POA, thus protecting the Company from insuring a deed with a possible forgery. If we had accepted and insured a forged deed, the owner could have come back to the buyer laying claim to the property. We are expected to protect the buyer's ownership interest under the owner's policy of title insurance issued through this transaction, since protection against forgery is the cornerstone of any of our policies.
Once Upon a Time in Montana
When an escrow officer finally made direct contact with a payoff lender she had been trying to reach, she found out the short sale negotiator was misrepresenting the transaction. The negotiator had raised the sale price by $12,000, with $8,000 to be given back to the buyer at closing and $4,000 to be paid to the negotiator as his fee.
Once upon a time in the Flathead Valley, short sales were just beginning in the town of Kalispell, Mont. So, when Linda Crimmin, a local escrow officer, received her first short sale transaction, she consulted her manager on the proper steps needed to close.
Her manager told her to obtain a Seller Authorization form and payoff information. She was also instructed to order a title report and prepare an estimated settlement statement for the payoff lender. The seller had hired a Florida-based "negotiator," named Sam, who was going to be communicating with the lender (EMC) to obtain the short sale approval.
Linda prepared the settlement statement, sent it to Sam and waited for the title report so she could address any unknown liens. A couple of weeks passed and the title report did not contain any surprises. Linda waited for the "payoff approval letter." During that time an addendum was generated, increasing the sale price by $12,000. According to the negotiator, the payoff lender requested the sale price be increased. The buyers were eager to increase the price, as they really wanted the house and thought they were getting a good deal on the property.
The negotiator called to advise he would be collecting a $4,000 short sale fee at closing. Linda told him the fee needed a matching invoice and would be reflected on the settlement statement she sent for approval to the payoff lender. He provided the payee's name and amount and asked Linda to forward a settlement statement to him for submittal, which she did.
Viola! Like magic, the payoff approval letter arrived in the next couple of days and the parties were on track to close. Total amounts due, closing costs and commissions were all accurate according to the payoff letter – Linda just needed to have the settlement statement approved by EMC.
Linda forwarded the settlement statement to EMC for approval with a copy to Sam the negotiator. Within the hour, Sherry at EMC called Linda back, asking where the "seller concession" was reflected on the settlement statement. Linda replied that there was no seller concession and proceeded to verify this with the listing and selling agents to be sure she was not missing any addenda to the purchase contract. The agents confirmed there was no seller concession to be credited to the buyers at closing.
EMC was quite upset as the negotiator had advised them there was an $8,000 seller concession to the buyer in exchange for the increased sale price. Come to find out, the settlement statement EMC had initially received when they provided payoff approval reflected a seller credit. EMC had been faxing approvals and other communication to Fidelity National Title, but had been given Sam's phone and fax number. EMC professionals thought they were communicating with Linda when all along it was really the negotiator. Furthermore, they had not approved any type of short sale negotiator fee to be paid. One of the terms and conditions of the payoff letter was that EMC receive the settlement statement directly from the escrow holder. So when EMC received the settlement statement directly from Linda it was the first valid communication they actually had with Fidelity.
EMC called both agents directly for verification of the purchase contract, demanded that the parties reduce the sale price back to the original offer and refused to allow Sam to receive any compensation out of the transaction. The EMC representative told Linda they were also turning Sam into the fraud division for investigation.
In the end, following our written instruction, internal policy and "red flag" awareness really saved our Company, both agents and the buyer and seller from being involved in fraud. Sam was never heard from again. As a result of her diligence and for following the payoff lenders' written instructions, Linda has received a $1,000 reward from the Company, along with a letter of recognition.
Moral of the Story
Had Linda closed the transaction based on the terms provided by the negotiator, instead of the terms in the payoff letter, we would not have received a lien release from the payoff lender. Since we insured free and clear marketable title to the new buyer, as well as a first lien position to the buyer's new lender, we would have been forced to make EMC "whole" in order to clear the lien of record. The terms and conditions of payoff letters on short sales can be complex, but continuing to read and follow them is a duty we owe to the Company and our customers.
Pre-Signed Deed in Lieu of Foreclosure
In a seller carry-back transaction, where the seller is providing the financing, can the seller have the buyer sign a deed that will convey the property back to the seller in the event the buyer defaults on the payment terms?
Pat Baldwin, escrow administrator extraordinaire from Fidelity's Maricopa County, Ariz. operation, shared the following scenario with her local operation. The escrow officers in Maricopa County recently received a request to prepare and hold a deed in lieu of foreclosure from the buyer back to the seller as part of the purchase contract terms in seller financed sale transactions. The deed in lieu of foreclosure would be held at an escrow company, or by an attorney, and would have the agreed-upon terms by the buyer and seller in the event of buyer's default. If the buyer defaulted, the seller would be able to instruct the escrow company to record the pre-signed deed, which would give the property back to the seller instead of the seller having to foreclose on the buyer. The seller would be placing the deed and terms of the agreement with the escrow company or attorney with the buyer's full knowledge and approval. Would this be acceptable?
The intent is for the seller/lender to circumvent the time periods for foreclosure and go right to record with the default documents. If our offices are asked to participate in this type of arrangement, we simply refuse. The reasons we cannot participate in this are as follows:
- Pre-signed documents for forfeiture or foreclosure are invalid. They must be executed at the time of the default. If the default occurs and the borrower THEN wants to execute a quit claim deed or deed in lieu of foreclosure to the lender, then that document would be valid – but not a pre-signed document.
- We would not complete these documents for the lender to hold. At the time of default the lender must give the borrower the proper notices according to the applicable statutes based on the property location. The lender and borrower cannot simply ignore or circumvent the statutes with regard to foreclosure proceedings.
- Even if the borrower willingly and with full knowledge executes these pre-foreclosure documents, they would be held invalid because the borrower cannot waive their statutory rights for proper proceedings in the event of a foreclosure.