Counterfeit Checks Plague Colorado
In October 2009, two different operations in Colorado were presented with fraudulent checks for closing funds. One check was in the amount of $12,252.19 and the other was $725,000. Only one operation suffered a loss – read the story to find out which.
Colorado closings are conducted by table funding, which means the signing, closing and disbursement occurs all at the same time. Since this is the custom and practice, the funds deposited must be good funds. In a perfect world, the Colorado offices would only accept incoming wires at closing from the buyer and lender. However, the offices do accept cashier's checks. This is how two offices became victims of a crime.
In the first instance the buyer's mother brought in closing funds to Security Title Guaranty Co., totaling $12,252.19, in the form of a cashier's check. It looked like this:
The mother endorsed the check over to Security Title and the cashier's check was deposited in the trust account that same day. The file closed and was disbursed on October 6, 2009. On October 15, 2009 a notice from our bank was received stating the check was being returned because the account at Academy Bank could not be located. Janet Sosnowski, Compliance Officer for Security Title, first faxed a copy of the check, then called a representative from Academy Bank who confirmed the cashier's check was fraudulent.
Janet immediately contacted the buyer and told the buyer to wire replacement funds no later than noon that day. Noon came and went. Every time the buyer was contacted she had an excuse as to why the funds were not received by Security Title. She even claimed Security Title could call an officer at Academy Bank to verify her reasons. Security Title followed her advice and called the bank. The bank officer told Security Title they could not provide any details but they would confirm Security Title would not be getting the funds. Next, the closer and compliance officer filed a report with the local police.
The buyer's lender was also contacted to inform them their borrower's down payment was fraudulent. The lender told us they wanted to unwind the deal because the borrower also provided them with some fraudulent documents and statements. Janet asked them to send us the instruction to unwind the deal in writing. In the meantime the buyer, seller and their real estate agents were also notified. The seller happened to be a real estate agent, and by the next morning had spoken to the new lender. The new lender retracted its previous statement and indicated it no longer wanted to unwind the deal, stating Security Title would have to recoup the loss themselves.
The bad news – we never received replacement funds. Security Title could pursue legal action, but the court and attorney costs would most likely exceed the $12,000+ loss. Regardless, the operation has to take a loss to cover the overdraft. Security Title will file a small claims action against the buyer but the maximum amount awarded in small claims is $7,500. Through small claims court they can obtain a judgment and hope to recover at least that much.
Why did it take so long to be notified the check was fraudulent? It took longer to be notified because it was a third party check endorsed over to Security Title. Endorsed checks take longer to clear. Since the payee does not match the name on the account the deposit gets pulled aside so someone can view the endorsement. This takes time and delays the process of clearing the check with the issuing bank. This is crucial time which works in the favor of fraudsters and they know this!
Here are a few tips to prevent falling victim to this type of crime:
- Read and familiarize yourself with Escrow Tech Memo #78-2008 Protecting Our Trust Accounts. This check was missing a clearing bank, and the check number and the MICR on the bottom do not match. Both items are mentioned in the Escrow Tech Memo.
- Call the issuing bank and ask a bank teller to review the check for legitimacy. You can fax it over to them.
- Strongly urge buyers to wire their funds – especially for large amounts.
In another story our Ticor operation in Denver was presented with this check in the amount of $725,000 representing the buyer's closing funds.
Since the check was not a cashier's check and drawn off of a Canadian Bank, the escrow officer, Diane Bambrick, told the buyer she would not close until the check cleared the bank. The only communication she had from the borrower was via e-mail with no phone number or addresses ever provided. The buyer contacted Diane regularly to confirm the check cleared and when he could close. Twenty days after the check was deposited Diane was notified the check was fraudulent and being returned by our trust bank. In addition, Ticor's account was charged $30 in fees comprised of a $10 Foreign Bank Charge and $20 U.S. Bank Charge.
Diane was lucky she found out the check was fraudulent within twenty days. Since the check was issued from a foreign bank it could have taken much longer to be notified. This is precisely why we should not accept any foreign checks – and why wires are the best way to conduct these transactions. There is no legitimate reason buyers cannot wire the funds to us, especially for this amount. Diane did a great job in waiting patiently and not allowing anyone involved in the transaction to pressure her into closing. Once Diane became aware of the fraudulent check she and her manager took the following steps:
- They immediately resigned from the transaction. There is no reason to waste any more time on the file and the seller needs to know ASAP they do not have a legitimate buyer so they can put their house back on the market. They are losing valuable market time.
- They notified the title plant so the buyer's name could be posted to the plant records in case this same buyer tries to open transactions at another office or brand within the FNF Family.
- They filed a police report. We never know if this could be part of a bigger scam and if the information we provide is the last piece of information law enforcement needs to prosecute.
For her suspicion of the counterfeit check item and for not caving under the pressure to close with a counterfeit check, Diane was rewarded $1,000 along with a letter of recommendation on behalf of the Company. Had she closed and disbursed against the counterfeit check we would have never recovered. We suspect the sale proceeds would have been shared between buyer and seller.
Moral of the Story
Wires are the best form of payment. Several operations in table funding states have taken the stance that closing funds must be wired, turning the procedure into a sales campaign. Everyone adds a message to all correspondence they send out which says: "Please note: all closing funds must be wired in order to close same day." These operations have been very successful in their campaign and comply with the following Company Policy.
UNDERWRITING BULLETIN –No. 2007 -RC-05 entitled Collected Funds states: "It is the Company's policy that when we refer to disbursing only upon "good funds," it is intended that disbursements only take place on COLLECTED FUNDS. This means that unless your bank can confirm that the funds are in your account with no ability of the funding party/lender to "recall" them in any fashion, then you should not disburse." When a check, regardless of what kind of check (i.e.; personal check, cashier's check, official check) is deposited into our trust account the bank gives us immediate, conditional credit for the amount of deposit. This means we can access the funds immediately, but if the check is returned by the issuing bank our bank will immediately reverse the credit from our account balance. If the funds have been disbursed, we will have used someone else's money to fund the file.