At an escrow branch across town, orders were scarce and the escrow officers were clamoring for new business. One of the seasoned escrow officers landed re-sale transactions from an out-of-area agent who used to do business with a former employee of the Company. The escrow officer was determined to provide great customer service in order to keep this agent as a customer, because the agent was a high producer.
The transaction in this story was strange in that the earnest money check from the buyer (brought in with the purchase contract) had a note that read, "do not deposit." The escrow officer put the check in the file and did not deposit it. The buyers were putting no money down and instead were obtaining gift funds from a donor in the amount of $11,000. The balance of the purchase price was to be funded by a new FHA loan.
The lender provided the escrow officer with a copy of the donor's cashier's check, which would be brought to closing by the buyers. The copy of the cashier's check was certified by the real estate agent to be a true and correct copy of the original check. It was in the amount of $11,000 and payable to Fidelity National Title, showing the donor as the remitter.
The buyers came to the Fidelity branch and signed their loan papers; however, they did not hand over the original cashier's check. Instead, they told the escrow officer the check would be direct deposited into Fidelity's trust account at the bank.
Afterward, the escrow officer started receiving suspicious emails from the selling agent indicating his commission would need to be wired to cover the $11,000 check. The escrow officer thought the request was odd, but confirmed that once the loan funds were received and the file was ready for disbursement, the commission would be wired to the broker's account. The agent sent another message with the commission disbursement authorization showing the commission should be wired directly into the agent's account.
The escrow officer knew she would be receiving loan proceeds the next day, along with the buyer's down payment, so she released the documents to record. Later that afternoon the loan proceeds were received by wire transfer and the down payment was direct deposited. The escrow officer was provided with a deposit receipt from the bank by the selling agent, so the escrow officer issued a receipt for the deposit. The settlement statement she returned to the lender did not reflect the $11,000 deposit from the third party donor, but instead showed the credit for the deposit on line 201 of the statement.
The escrow officer wired the commission to the agent's account and posted all other disbursements. The next day, the selling agent notified the escrow officer his $11,000 check would probably bounce and they would work on replacing it! The escrow officer thought the $11,000 deposited from the donor was a cashier's check and not a personal check from the selling agent!
The escrow officer contacted the accounting center, who sent her a photocopy of the actual deposit – it was a personal check. The next day, the accounting center notified the escrow officer the $11,000 personal check was returned for non-sufficient funds. The escrow officer never notified the lender the deposit was from the agent, instead of the donor.
The selling agent reacted fast and went to the bank with a $3,000 check and cash in the amount of $8,000. The agent direct deposited both amounts to the trust account and sent evidence to the escrow officer. The officer receipted the $3,000 as if it came from the donor, even though she did not have a copy of the check, and receipted the $8,000 as if it came from Bank of America, since she did not have a remitter name for the cash.
In the meantime, the escrow officer was flustered because the down payment had bounced. She contacted the escrow manager to let her know the file was overdrawn by $11,000. The escrow manager paid a visit to the branch and the first words out of the escrow officer's mouth were, "Are you here to fire me?"
The manager indicated she wanted to audit, and then discuss, the escrow file that was the subject of the direct deposits. The manager discovered the following errors by the escrow officer:
- Held earnest money deposit instead of cashing it and did not notify the seller
- Failed to disclose third-party deposits on the settlement statement
- Accepted third-party deposits with no instructions
- Disbursed against uncollected funds
- Recorded documents prior to receiving any funds
- Did not disclose to the lender funds were deposited by the agent and not the donor
When the manager finished auditing the file, she discussed her findings with the escrow officer and immediately terminated her employment with the Company. She advised the escrow officer if she was going to continue to work in this business she should not let her customers walk all over her. As she packed her desk, the escrow officer nodded in agreement and replied that she had been, "…desperate for orders, and willing to do anything to keep a new customer so I would not be laid off."
Once the manager took over the file, the selling agent revealed that he was, "…currently in a recovery program." How sad, that the escrow officer allowed an addict's actions to get her fired! After working through the file, the manager forced the donor to bring in the $11,000 deposit to her office and refunded all other deposits once they cleared. The deposits have all been disclosed on the settlement statement and all the details have been provided to the lender.
MORAL OF THE STORY
No transaction is worth compromising an escrow officer's integrity. By failing to fulfill her fiduciary duty to the lender, the escrow officer put the Company at risk of having to buy the loan from the lender. Gaining a new customer or keeping an existing customer happy should never include conspiring to commit mortgage fraud. Remember, if you do it once, that customer will expect you to continue to do it forever.