How many times do sellers want to negotiate and provide their own judgment lien payoffs? It happens often. The seller does not want the creditor to know they are involved in a real estate matter or do not want the creditor to know the transaction details — such as how much they might be receiving in proceeds — so they demand to negotiate directly with the creditor and provide the payoff statement themselves.

That is the exact scenario for a sale transaction recently insured by one of our offices. The seller had many liens against him, including judgment liens and tax liens. He would not allow the escrow officer handling the sale of his property to contact the creditors on his behalf to obtain payoff statements. He demanded to obtain the payoff statements himself. The escrow officer allowed the seller to do just that.

The seller negotiated with the creditors and then provided payoff statements from each one of them, addressed to him. The escrow officer, who works for an independent escrow company, did not have the seller's authorization to call the creditors to verify the amounts shown on the payoff statements — so she took them as valid.

At closing, the buyer's new lender wired loan proceeds to the title company. It is common for the new lender to wire proceeds to the title company to pay off existing encumbrances, taxes and the title invoice. The balance of the proceeds is then sent to the independent escrow company to disburse.

The title company paid off the existing encumbrance, as well as tax liens, judgment liens and property taxes. The balance was sent to the independent escrow company. In this transaction, the seller provided a written assignment of proceeds instruction to the escrow officer to wire the proceeds to his daughter in New York. Ironically the proceeds were $666,000.

All funds were sent out. A few days later the title company received a call from one of the judgment creditors claiming the payoff funds were short. Thinking that was odd; the title officer asked for a fax of the payoff statement originally issued by the creditor.

While the title officer waited for the payoff statement, another judgment creditor called claiming their payoff was short as well. Both creditors sent the payoff statements they originally issued; the payoff statements in the title file were clearly altered. The payoffs were short $29,925.91.

The title officer alerted his manager and escrow officer. The escrow officer attempted to recall the wire transfer of proceeds to the seller's daughter. The escrow officer told the sending bank the wire was connected to a fraud perpetrated by the seller in the transaction.

The sending bank told the receiving bank the wire was connected to a fraud. Since the fraud was perpetrated by someone other than the account holder (the daughter), the receiving bank indicated they would need the account holder's permission to return the wire. Needless to say the account holder refused to return the wired funds.

The title officer turned the matter over to his manager, who reached out to the actual seller. He denied altering the judgment lien payoffs and refused to bring in the $29,925.91 to pay the liens in full. The title company had to take a loss in order to obtain lien releases and deliver free and clear, marketable title to the buyer in the transaction.