One of the most widely read editions of Fraud Insights this year was the March edition where we shared frequently asked questions from the Company's nationwide network of settlement agents. Below are all new questions from the settlement agents and all new answers from your national escrow administration team:

Q. Why can't I offer the seller in my transaction the ability to sign the Certification for No Information Reporting, rather than a Substitute Form 1099-S, if they hold title in their family trust? 

A. Per IRS regulations we may choose to report any transaction whether it qualifies for an exemption or not. Filing a 1099-S does not remove the ability of the seller to claim any potential exemption they may qualify for on their tax return, including the one for principal residence. We have made it Company policy to not offer the certification to entities, as the entity would have to certify the entity resides at the property. We instead choose, within IRS regulations, to report the sale. 

Q. How do I close a loan cross collateralized by properties in two different states? 

A. You will have a loan escrow, title order, and a separate title-only order with the out of state office. 

You need to confirm with the lender if the loans' liens should be in first or second position. Then be sure to coordinate with title there and in state to ensure the liens are recorded in the correct order. 

You will have just one closing statement where you will collect the fees for the other loan policy and endorsements on the out-of-state property and their recording fees, along with all of your escrow and title fees. 

Your title department will need a separate title-only order for the other loan being originated and closed by the out-of-county/state office. Title will need to ensure they know what lien needs to be recorded in what order and bill the out-of-state office for their fees. 

Q. I have an outside audit firm requesting file copies and confirmation of documents, such as the settlement statement used to close the transaction. Can I provide them with the requested documents and confirmation? 

A. No, your response should read as follows, "Our files are confidential, and our fiduciary responsibilities require that — without the express written consent of the principals — we not disclose to outside parties that we even have a transaction." 

Q. The seller in my transaction is a foreign individual. He does not want to pay federal withholding at closing. Can I transfer the property to his non-foreign uncle prior to closing? 

A. No, you should not provide an accommodation deed from the foreign person to the non-foreign person. This could cause issues with financing and insurability for the new buyer. Not to mention the IRS reporting requirements. Yes, you would be accountable to the IRS for reporting this transfer. Furthermore, it would be outside our scope as settlement agents to assist with transferring real property for tax planning or tax avoidance. 

Q. The seller in my transaction is a trust. The trustees have never opened a bank account in the name of the trust. They want to assign the proceeds to themselves as individuals. Is that acceptable? 

A. We would not allow escrow to pay anyone other than the owner of record for the following reasons: 

1. Legal reasons: We would have no idea if we had the trust agreement and all amendments thereto to know whether or not a third-party payment was allowed, nor do we want to jeopardize the Company getting dragged into post-closing litigation for paying unauthorized third parties. 

2. IRS Reporting reasons: Distributions made on behalf of the trust to its beneficiaries are separately reportable on a 1099. The settlement agent is only responsible for reporting the transfer of real estate on a 1099-S. We would not know which of the 17 different 1099 forms used to report distributions, and we would not want to take on the responsibility or liability for reporting. 

3. New lender: If there is a new lender on the transaction it is likely their loan instructions prohibit the payment of proceeds to anyone other than the owner of record since payments to third parties out of the seller proceeds has historically proven to be a tell-tale sign of mortgage fraud. We would have issued a Closing Protection Letter (CPD) binding the Company to close in accordance with those instructions. 

Alternatively, the owner of record could direct the escrow officer to pay the proceeds to the trust account of their attorney on their behalf to make the distribution and perform the necessary IRS reporting. Or, they could add the trust to their existing bank account.