An escrow officer received a hard money loan transaction from a lender in Didnotseethatcoming City, USA. The loan was to be secured by five properties. The five properties were all rentals owned by a husband and wife who lived out of state.

The owners were so desperate for the hard money loan they drove four hours to sign their loan documents. The escrow officer recorded the driver license numbers for the husband and wife in her journal and then proceeded to have them sign the loan documents. The loan closed and the escrow officer paid the borrowers nearly $600,000 in proceeds.

Months later, a real estate agent was attempting to list for sale one of the five properties securing the loan. The real estate agent obtained a property profile from another title company and discovered the $600,000 lien.

The real estate agent contacted the title company that recorded the lien to let them know there must be some mistake. The agent said the owners told her repeatedly the property was owned free and clear of all liens. The agent was referred to the escrow officer who closed the loan.

After the escrow officer spoke with the real estate agent, she became concerned and contacted the lender for a copy of the documents in the loan file used to identify and qualify the borrowers. The lender provided nothing but the title agent's statement of information. The lender stated he had only received one loan payment and wanted to know what his next steps would be to start foreclosure!

The escrow officer gave the lender the name of a foreclosure attorney and then later thought to escalate the matter to her manager. The manager contacted National Escrow Administration who ran the names, addresses, social security numbers, dates of birth and driver license numbers from the statement of information and identification presented at the signing only to discover the driver licenses did not contain valid numbers.

The address provided by the borrower at closing was not valid. The real owners lived elsewhere, as reflected on the deeds and tax bills for all five properties. All properties purchased were closed as all–cash short sales between 2011 and 2013. Some of the purchase transactions were closed by the same title agent that closed the loan.

The signatures on the note and deed of trust were not even remotely close to the signatures on the documents used to close the purchase transactions. In fact, the imposters signed names that were not even the borrowers' names. The person posing as the husband signed the name "Barney" instead of Joe Smith!

Some potential red flags to alert you to a fraud scheme, especially if more than one occurs in the same transaction:

• The borrowers applied for a high interest rate, hard money loan when they owned five properties free and clear, and could have sold any one of them for hundreds of thousands of dollars.
• Verified the authenticity of the identification presented at the signing by a commission notary (in this case, the escrow officer was a notary) using a UV light. The borrowers signed in the title agent's office.
• Recognized the borrowers did not sign the names as typed under the signature lines.
• The borrowers used a mailing address other than the address where the deeds and tax bills were being sent.

All the information provided at closing — the email addresses, physical addresses, phone numbers and identification — was fake. The perpetrators are going to be difficult to locate. Chances are they have already funneled the nearly $600,000 in proceeds out of the country.

Read the story in the November 2015 edition of Fraud Insights, entitled "VERIFYING the statement of information," to discover how an escrow officer halted a similar crime.