In the course of a residential refinance, a borrower signed loan documents on January 22, 2021; the three day right of rescission expired on January 26, 2021 at midnight.
The lender did not fund the loan until February 8, 2021. The deed of trust recorded on February 9, 2021, and loan proceeds were disbursed that same day.
The loan was sold on the secondary mortgage market to a major bank. The onboarding process for new loans serviced by the bank requires an audit for compliance with Regulation Z of the Real Estate Settlement Procedures Act (RESPA) regarding the three day right of rescission.
The bank's auditor reviewed an escrow settlement statement provided by the loan originator that reflected the funding date as January 26, 2021, with a recording and disbursement date of January 27, 2021.
The bank auditor reached out to the title company in order to confirm the dates shown on the purported escrow settlement statement. The escrow officer could not confirm any information about the transaction, as the bank was not a party to the loan transaction.
The escrow officer raised the issue with her manager. The manager was confused as to why the settlement statement from the bank did not match the settlement statement generated by their office. She noticed it was drastically altered.
Not only were the settlement and disbursement dates changed, but other areas of the settlement statement were altered, including: prepaid interest, lender credits, messenger fees, title insurance premium, sub-escrow fee, county taxes, recording fees, payoff amount, the balance paid to the borrower at closing and even the date/time stamp in the footer of the document.
The escrow manager contacted her manager; they reached out to the loan officer who readily admitted that he provided settlement statements to purchasing banks that contained estimated dates which were not always updated with the actual escrow settlement dates. As a result of the altered escrow settlement statement and this conversation, the title company determined they could no longer do business with this loan officer.
The escrow manager's boss called the owner of the lending company who declared he no longer allowed this loan officer and his team to originate loans for his lending operation — as of that day.
After thorough consideration, the title company concluded they would resign as escrow holder and title insurer on all pending transactions involving the lending company to avoid potentially becoming involved in any incorrect or misleading documents in these transactions. In addition, they have elected to refrain from future business with this lender.
Resigning from a transaction is always a last resort; however, in certain circumstances it is necessary. Gaining and retaining customers is hard work but a company's reputation is even more valuable.
The escrow company's management recognized the importance of ensuring they protect the reputation of their company and employees by choosing not to conduct business with someone — who by their own admission — falsifies closing documents relied upon by others.
If you become aware of any fraudulent practices by your lender customers do not hesitant to bring it up to your management. It is always best to error on the side of caution.