Marketing Materials Used in Fraud Scheme

By Lisa A. Tyler
National Escrow Administrator

February has a lot more happening than just Groundhog Day, Valentine's Day and President's Day. This February we are celebrating two employees who received $1,000 each for their detection of fraud – and thus declare today Fraud Insights Reward Day!

This edition of Fraud Insights contains three intriguing stories; the first is about reward winner Stephanie Cobb from Fidelity's Metro West office in Florida. Stephanie discovered a foreign seller on a short sale transaction, held up the closing and saved the buyers and the Company thousands of dollars in Foreign Investment Real Property Tax Act (FIRPTA) penalties to the IRS. Her story is entitled "U.S. Embassy Requirement Triggers Cancellation."

The second is also about a reward winner. Daniel Evans from Ticor's Payoff Department in Tustin, Calif., is featured in "Payoff Department Detects Counterfeit Checks." He discovered three counterfeit checks and halted a transaction that would have cost the Company and the funding lender thousands of dollars.

The third is entitled "Marketing Materials Used in Fraud Scheme." According to the Colorado authorities, a mortgage broker posed as a title company employee, using the title company's marketing materials – such as note pads and pens – as part of her disguise! Read all about the warning provided to us by the Colorado Division of Insurance – then guard your marketing supplies from suspicious characters.


Incredible Escrow Training!

Did you attempt to register for a 2010 Incredible Escrow Training Event last month only to find out there is not one being hosted in your area? Don't fret – there's great news! We offer quarterly live Webcast events you can attend from your own workstation – no travel, no traffic, no expense! The topics covered in the Webcast are similar in content to the hands-on training events, so the only thing you miss is a free lunch! Plus, these classes have been approved for continuing education hours in some states where licensing is required. Each live Webcast event occurs over two days for three hours each day. Sign up for an event at under Escrow Administration.

If you have a heroic story to share, please submit the details to If your story is selected for a future edition of Fraud Insights the hero in the story will receive a $1,000 reward from the Company as well as a letter of recognition.



U.S. Embassy Requirement Triggers Cancellation

A foreign seller poses as a U.S. Citizen. His lie is uncovered when the U.S. Embassy refuses to notarize his closing documents without additional identification.

Stephanie Cobb, an escrow closer for Fidelity's Metro West Office in Florida, recently handled a short sale transaction in which the seller filled out the approval paperwork listing his individual taxpayer identification number (ITIN) number as a Social Security Number. The short sale lender processed the short sale approval as if the seller were a U.S. Citizen.

Everyone in the transaction assumed he was a U.S. Citizen, including his real estate agent. The seller was in Brazil for the closing so Stephanie e-mailed him the documents to sign. She instructed him to go to the U.S. Embassy to have the deed notarized and provided him with the U.S. Embassy address and contact information.

The seller called Stephanie the next day and complained that he couldn't make an appointment with the U.S. Embassy and would need more time. He stated that because he was not a U.S. Citizen the Embassy required two forms of identification from their approved list of identification. The seller told Stephanie he would need an extra day to return his closing documents.

The conversation triggered a problem for this closing. Stephanie informed all parties that there might be an issue, since the seller was not, in fact, a U.S. Citizen and there was no withholding available to pay the IRS under the Foreign Investment Real Property Tax Act (FIRPTA). The real estate agent representing both buyer and seller, along with the buyers' new lender and the mortgage broker, wanted to push everything through and close immediately, regardless of the tax ramifications.

Stephanie called the short sale lender, who agreed to speak with her and the IRS on a conference call, to determine whether or not the withholding amount was due under federal regulations. Stephanie and the short sale lender spoke with the Social Security Administrator who determined that the identification number provided by the seller was not a valid Social Security Number. The short sale lender then was able to dig further and found that both the seller and his wife had been in and out of the U.S. illegally for several years. They had worked in the U.S. without green cards and there was even an outstanding warrant for the wife's arrest. Through the conversation, Stephanie and the short sale lender discovered the couple would owe taxes to the IRS if they were to go through with the short sale.


As a result, the short sale lender withdrew its approval letter and is proceeding with the foreclosure. In addition, the lender has petitioned the court to appoint a Florida Guardian Ad Litem for the sellers, since it is unlikely they will return to the U.S. to be served.

The buyer is not happy, having lost a great deal on a new home. The buyers' lender and mortgage broker are upset because they lost a new purchase money loan. They are not upset with Stephanie for detecting the problem, but they are upset with the real estate agent for not knowing earlier the seller was a foreigner.

Luckily, because of the problems the seller ran into at the U.S. Embassy, Stephanie was alerted to the fact he was actually a foreigner before the buyer signed or the lender funded. Had this transaction closed, the IRS considers the buyer the withholding agent and could have placed a lien on the buyer's property under FIRPTA for non-payment of the tax owed by the foreign seller

For her detection of the foreign seller and owed funds to the IRS, as well as her diligence in getting the short sale lender to speak directly to the IRS, Stephanie has received a $1,000 reward and letter of recognition on behalf of the Company.

Moral of the Story
Most sellers, buyers, real estate agents and even settlement agents believe a short sale means the seller is selling the property at a loss and therefore no 1099-S, federal or state withholding is required. This is simply not true. Settlement agents typically don't know the original purchase price of the property versus the short sale amount. Nor do they know how much the property had depreciated or how much equity had been cashed out – so there is no way for the settlement agent to determine capital gains. The capital gains are owed by citizens and foreigners alike, whether or not they receive proceeds at closing.

A seller that is a U.S. Citizen doesn't have to pay tax on the gain until they file their income tax return. A foreign seller has to pay an estimated tax on the gain of 10% of the gross sale price, regardless of whether they receive proceeds at the closing or not.

Remember: the U.S. Embassy requires at least two forms of acceptable identification from non-U.S. Citizens. This practice is sound given the fact U.S. notaries are not trained in the detection of foreign identification cards. All notaries should implement this practice for foreign signers or those presenting questionable identification. It's not likely a forger will have a second identification card, such as a principal's work badge or library card.


Payoff Department Detects Counterfeit Checks

Three checks from two different banks all with the same check number – what are the chances? These days, independent escrow companies are having buyers make their down payment and closing cost checks payable directly to the title insurer – meaning our payoff clerks have to examine the check items for fraud. One payoff clerk discovered three counterfeit checks in the same transaction!

In southern California, approximately 70 percent of all real estate transactions are closed with independent escrow companies. The new lenders on those transactions typically refuse to send loan funds to an independent escrow company. To accommodate the market, the title companies receive the loan proceeds and any additional monies needed to pay existing encumbrances and taxes. Once the encumbrances, taxes and title charges are deducted from the funds, any balance is sent to the independent escrow company to disburse proceeds, commissions and other miscellaneous charges.

Daniel Evans works in the payoff department that receives the funds and pays the existing encumbrances and taxes for Ticor Title in Tustin, Calif. When he recently handled an $840,000 sale transaction with a new loan in the amount of $588,000, the loan proceeds from Bank of America were not sufficient to pay the existing encumbrances in this transaction.

The independent escrow company delivered two checks, totaling $25,000, from two different bank accounts representing a portion of the earnest money deposited by the buyer in the transaction. One of the checks was written for $20,000 from an operating account and the other for $5,000 from the trust account, which seemed highly suspicious to Daniel. The next day, the escrow company brought in an additional $10,000 representing the balance of the earnest money.

The earnest money and loan proceeds were still not sufficient to pay the encumbrances, so the independent escrow company instructed the buyers to make their down payment and closing cost check payable directly to Ticor.

The buyers provided three separate checks. The first check in the amount of $75,000 numbered 1595 was drawn from Washington Mutual Bank, which Daniel knew was no longer in business. The second was a check drawn from JP Morgan "Bnak" – the issuing bank name was misspelled on the check – in the amount of $50,000 and was numbered 1595. The third check, again from JP Morgan "Bnak," was in the amount of $40,000 and also numbered 1595. Three checks from two different banks all with the same check number – what are the chances?


One other thing Daniel caught, which was brilliant, was that one of the independent escrow company checks for the earnest money deposit contained the same signature as one of the checks brought in by the supposed buyer.

The third check from the independent escrow company and three checks received from the buyer had not yet been deposited. Daniel sent copies to his trust bank and the bank confirmed his suspicions – the items were counterfeit. Daniel told the independent escrow company Ticor was resigning from the transaction and refusing to insure. He returned the loan proceeds to Bank of America and turned the original check items over to FNF's compliance department. More importantly, Daniel waited until the two items he had deposited from the independent escrow company cleared the bank before refunding any money.

For his detection of the counterfeit items and for having the fortitude to halt the transaction, Daniel has received a $1,000 reward on behalf of the Company as well as a letter of recognition.

Moral of the Story
Had Daniel allowed the transaction to close and disburse, the Company would have potentially suffered a loss of more than $165,000. He also saved Bank of America from making a purchase money loan to a borrower who did not have sufficient funds to close, which makes us wonder what the borrower submitted to the bank as proof of funds.


Marketing Materials Used in Fraud Scheme

Mortgage broker uses marketing materials to pose as a title company employee and pilfer a buyer's down payment and closing costs. The strange thing is, the buyer doesn't seem to mind!

According to the Colorado Division of Insurance, an order was opened with a title company and the person purporting to be the mortgage broker asked about the possibility of closing the loan herself while still having the title company perform the title work. A few days later, someone claiming to be from the mortgage company came by the title company's office and asked if she could have some pens and pads. After a title company employee gave her the requested supplies, the mortgage broker also asked to use their closing room the next day to perform a document signing on the transaction they recently opened. The title officer told her she could not conduct the document signing yet, as there were judgments and liens that still needed to be addressed.

The buyer called, indicating a closer from the title company had come by her office and had her sign all the documents, then left with her cashier's check made out to the title company. She indicated the settlement statement showed a refund was due to the buyer and wanted to know where her refund was.


The title company's manager asked for the issuing bank information from the buyer. After the title agent alerted the bank's fraud department, the bank said the cashier's check was deposited in a bank account under the title company's name. The account had been opened just a few days prior – with what turned out to be a phony opening deposit! To further complicate things, the buyer now claims she doesn't think it's a big deal, and has thrown away all her closing paperwork, which is highly suspicious.

The Colorado Division of Insurance asks that everyone be wary of unknown persons wanting to do their own closings, and trying to obtain company materials with which to do it. Please notify Andy Helm at the Colorado Division of Insurance by telephone at 303.894.2194 or e-mail at if you hear of anything similar.