What a Nice Guy!

Title report reflects a third lienholder on a recent short sale transaction – much to the surprise of the listing agent and escrow officer. The seller states the loan is an equity line of credit with a zero balance. The escrow officer was unable to obtain a payoff statement, so the seller offers to get it for her. The seller then altered the statement to show a zero balance due the lender before giving it to the escrow officer.

The listing agent on a recent short sale transaction told Tara Abrams, an escrow officer with Fidelity's Brentwood, Calif. office, there were first and second loans with Wells Fargo Bank and Wells Fargo had agreed to short payoffs on both loans. However, when Tara received the preliminary report she discovered a third loan with Washington Mutual. Tara contacted the listing agent and seller. The seller told her the loan was an equity line of credit with a zero balance. Tara called Washington Mutual (now known as Chase Bank) to order a payoff statement showing a zero balance and to order a release of the lien.

The representative at Chase Bank told her since the loan was older and had been sold so many times they did not have record of it in their system, and it would take 15-20 days to find the loan and prepare a payoff statement. Tara told the listing agent and the seller there would be a delay in closing until the payoff statement could be obtained from Chase Bank.

The seller offered to call Chase Bank to expedite the delivery of the payoff statement and said he had been dealing with someone directly at the bank already. Sure enough, the seller delivered a payoff statement from Chase Bank that stated "the net proceeds to Chase Bank must be no less than zero with a closing date of February 31, 2010." The correct date should have been February 28, 2010, but the payoff statement actually listed a non-existent date of February 31, 2010. Tara sent the payoff letter to the National Escrow Administration team to see if it was acceptable. The administrators told Tara to call the bank to verify they were willing to except nothing in exchange for their release since;

• The loan obviously did not have a zero balance as the seller had indicated, and
• The letter said "no less than zero," but did not reflect the minimum they were willing to accept.

Tara found a phone number for Chase Bank on the cover letter faxed to her by the seller. The telephone number struck Tara as odd, since it was a number with a 510 area code which would be a local number, even though the address for Chase Bank was Columbus, Ohio. Tara called the number and was surprised when a gentleman who called himself "Sue Alan" answered the phone and said he was a representative of Chase Bank. She asked him what department he worked in and he said, "the loan department." She asked him why his number was a 510 number (seeming to be a cell phone). He stated he was an external divisional manager of Chase Bank. Mr. "Sue Alan" confirmed no funds would be due on the loan as long as the sale closed prior to February 28, 2010.

Tara was suspicious. She hung up the telephone and waited a bit; then called back. The telephone went to voicemail on the cell phone. The name on the message was not "Sue Alan." She did not leave a message.

Instead, Tara asked her co-workers if anyone else had a Chase Bank short sale going on and fortunately, someone in her office did, so she compared letters. She noticed the negotiator's name and other information had obviously been removed with white out from her letter. She called the number to Chase Bank on the other letter. The Chase Bank representative could not find the loan number. She advised Tara what to look for on the payoff letter and then confirmed that it did not come from their office – otherwise the loan number would pull up in their system. As it turned out, the reason no one was able to pull up the loan number was because the loan was transferred to a collection company. Tara contacted the collection company who confirmed there was a $396,000 balance!

While all the above was happening the buyer on the transaction insisted on signing the loan documents to complete the purchase and kept calling Tara demanding she close because the buyer's wife was pregnant and they needed a place to live before the baby was born.

Tara notified the listing agent of the fake payoff letter and stated she would need amended payoff letters from Wells Fargo Bank on the first and second loans allowing for payoff of the Chase Bank loan. She added he would need to start negotiating a short pay with Chase Bank. The listing agent was furious. He said if his seller had been upfront and honest with him he would have negotiated with all three lenders from the beginning.

The transaction has not yet cancelled. The agents are still trying to negotiate short payoffs with all three lenders. In the meantime, the buyer's loan documents have been returned to the new lender awaiting the outcome.

Tara has been rewarded $1,000 on behalf of the Company for her recognition of an altered payoff letter and for protecting the Company from a potential loss of more than $396,000.

Moral of the Story
Had Tara accepted the altered payoff letter from Chase Bank and closed the transaction, Chase Bank could have foreclosed and taken the property from the new buyer. In that case, the Company would have been responsible to payoff the Chase Bank lien to protect the ownership rights of the buyer.

Bryan Ryan, Notary Public

An astute title officer detects two forged reconveyances by tracking down the notary and discovering the notary's commission had expired a year before the documents were executed.

Roy Boyles, a title officer for Lawyers Title in Burbank, Calif., opened a title-only order for a sale transaction in the amount of $399,000. The initial title report reflected two unpaid loans secured by purchase money deeds of trust from 2007. The first deed of trust was in the amount of $475,000. The second was in the amount of $89,250.

A little more than a month later, the independent escrow agent handling the settlement called for an updated report because the seller paid off the two loans secured by the subject property. Roy brought the title to-date to prepare the new report and discovered two recorded reconveyances. Roy pulled copies of the documents and discovered they were not executed by the correct entity. They were executed by California First Capital Lenders, even though the beneficiary of both deeds of trust was Bank of America.

Roy looked closely at the documents and discovered the reconveyances were signed and acknowledged on the same date by the same person in front of the same notary. The reconveyances were also recorded concurrently on the same date.

Roy contacted the independent escrow agent to let him know he could not remove the outstanding deeds of trust from his report. The escrow agent he spoke to was upset he was questioning the validity of the recorded reconveyances. Roy asked for proof of another transaction that paid the loans, but received no response. He asked for a statement of information from the seller giving authorization to contact Bank of America's payoff department to confirm the loans were indeed paid. The escrow officer never provided the seller's authorization.

The notary stamp on both documents indicated B. Ryan was the notary and he signed as "Bryan Ryan, Notary Public." Roy performed a notary database search and found many B. Ryans. He matched the commission number for the B. Ryan on the reconveyances. He found out B. Ryan worked for Tustin Community Bank, not Bank of America. Using the Internet he found the bank's telephone number and gave B. Ryan a call. When B. Ryan answered the phone, Roy was surprised – B. Ryan was actually "Bev Ryan!"

Bev said her notary expired January 19, 2009, but the stamp on the documents reflected an expiration date of January 10, 2011. After realizing her stamp was being used to commit fraud, Bev explained she usually attempts to mutilate her old stamp by removing the rubber seal after renewing her commission and obtaining a new stamp, but had failed to do so this time.

She hung up with Roy and filed a police report. Roy kept in contact with Bev and in their last conversation, she said she had been contacted by several other title companies with the same question about her notary stamp on false reconveyances. She said there must be quite a few false stamps with her name on them.

Roy notified the escrow agent. The escrow agent said he would contact the seller. The agent indicated in the telephone conversation that now this transaction was going to have to become a short sale! Roy also notified Bank of America's Real Estate Fraud Unit about the two recorded reconveyances, in case the owner attempted this type of fraud at another title company.

As a token of appreciation to Roy for his instinctive reaction to the reconveyances and for his extraordinary detective skills, the Company has given him a $1,000 reward and letter of recognition.

Moral of the Story
If the transaction had closed, the Company would have issued an owner's policy to the new buyer insuring them free and clear, marketable title to the property, as well as a loan policy to their lender insuring them a first lien position. After closing, the seller probably would have stopped making payments to the lienholders. The lienholders would probably have started foreclosure for non-payment of their loans, only to find out their liens had been released.

Foreclosure notices would have been sent to the property. The buyers would have contacted the title insurance company once they started receiving the notices – usually shocked and confused as to why they were receiving foreclosure notices from different lenders when they were not behind on their payments. Since the Company had insured their interest, the Company would have had to pay the lienholders to keep them from asserting their lien rights and then chase after the former owner/seller and hope they had assets the Company could lien until reimbursement could be made for the loss.

Recently, the Company has noticed an increase in claims resulting from forged reconveyances of deeds of trust or releases of mortgages. As a result the following guidelines have been put in place for title officers.

• It is necessary to have a chain of title that at least indicates when the most recent loan was satisfied or released. Any recent release of any loan on the property must be investigated.
• If a loan of record has been cancelled within the prior 12 months without a corresponding sale or refinance, title must contact the lender for confirmation that the mortgage has been released. A "corresponding sale or refinance" would involve a conveyance of the land for value with an accompanying deed of trust/mortgage or a refinance deed of trust/mortgage. In either event, the new deed of trust/mortgage must be in an amount sufficient to satisfy the released deed of trust/mortgage.
• If a property is free and clear of any loan and the current owner has owned it for less than ten years, the transaction has to be assessed by an underwriter prior to insuring.
• If the seller, buyer or third party presents a release for an uncancelled loan, the title officer must contact the lender for confirmation that the loan has been released. The title officer must use independent means to obtain the lender's telephone number. The title officer cannot rely upon a number supplied by the parties to the transaction.