in this issue

On August 9, 2010, an escrow assistant received a call from a representative of XYZ Land Company, LLC, and the buyer in a commercial transaction. He said he was closing out the books for the LLC for the 2009 year and discovered they did not receive a credit for an earnest money deposit at a May 9, 2009 closing in the amount of $25,000.

The assistant was unable to locate the funds. They were no longer in the closed escrow file. She contacted the manager at the Operation Accounting Center (OAC) and turned the matter over to her.

An investigation by the manager at the OAC revealed that on May 1, 2009, the escrow officer for this particular transaction had transferred $25,000, labeled as "earnest money transfer" to an unrelated escrow file. The manager dug further and discovered the escrow officer had transferred funds amongst various files in order to conceal that she had deposited funds into her personal account in October 2008 by ordering several cashier's checks made payable to the bank in an amount totaling $25,000. The account where those cashier's checks were deposited is the same account where the escrow officer's paychecks were deposited.

The accounting center manager expanded her investigation by reviewing every transaction where the escrow officer created a disbursement to her bank, as well as every transaction where she transferred funds from one file to another. She uncovered 115 disbursements totaling $787,053.12.

Additionally, there were two instances where the escrow officer cut checks directly out of an escrow file payable to her bank and deposited them into her checking account, and one instance where she cut a check to pay her mortgage payment. These three transactions totaled an additional $19,749.40.

These defalcations occurred between February 2005 and March 2010. The nature of the scheme was a combination of theft of dormant funds overcharging fees, payoffs, taxes or neglecting to refund overages to the proper party at closing and then depositing overages into her personal bank account.

At the request of the account manager, the bank froze the escrow officer's personal bank account. However, the bank indicated there was very little money in the account.

Since this defalcation was uncovered, the operation has taken the following steps to prevent a similar incident:

  • Automatic lockdown on escrow files containing dormant funds
  • File–to–file transfer requests must be reviewed and completed by the accounting center
  • Checks cannot be made payable to the Company for the purpose of transferring funds from one file to another
  • Cashier's check service requires secondary escrow review prior to ordering the check

The escrow officer had been employed by the Company since 1994. She was terminated in May 2010 due to a reduction in workforce, prior to the discovery of her theft.

The accounting center manager opened a claim for the missing funds and worked diligently to determine the rightful owners of the stolen escrow funds so they could be made whole. This matter was reported to local law enforcement and the U.S. Attorney's Office, as well as the FBI, IRS and the Department of Insurance. The Company has retained counsel and is pursuing the escrow officer for recoupment.



How Long Does Justice Take?

Fast forward three years later, the escrow officer in this story was finally sentenced after pleading guilty to stealing $773,303.34. She was convicted of three felony counts of theft. She is now 60 years old and was sentenced to serve five years in prison for each offense. Each sentence will be served concurrently.



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