At a title company around the corner, a cash-out loan transaction was opened by a local hard money (non-institutional) lender in the amount of $1 million. The lender was a trust, and the trustee opened the transaction on August 4, 2023.
- The property was free and clear of any liens and worth more than $2 million.
- The property used as the collateral for the loan was non-owner occupied. The owner of record lived in San Mateo, California, and the property was in Los Angeles.
- The loan documents were signed outside the office with a mobile signing agent in San Diego.
On August 11, 2023, the cash-out loan transaction closed, and a wire transfer was sent to the account indicated on the borrower’s signed Disbursement Instructions in the amount of $944,305.53. On August 17, 2023, the real owner of the property reached out to the lender asking why they had made an inquiry on their credit.
The lender reached out to the title company to let them know the true owner contacted them stating they had never completed the loan application and never signed the loan documents. The person who signed the cash-out loan documents was an imposter who forged the signature of the true property owner on every document.
As a result, the title company recalled the wired proceeds for fraud. The title company requested the receiving bank restrict the receiving account until the recall was processed, to prohibit the fraudster from syphoning off the loan proceeds sent to the imposter’s account.
Luckily, the bank was holding the wire transfer due to the amount and the fact the account had just recently been opened. The fraudster’s account was not credited. On the same day, the fraudster reached out to the lender wanting the funds to be wired to a completely different bank account, since the other account had not been credited.
The difficult task was unwinding the transaction. The title company had to perform the following steps:
- Notify the true owner of the transaction by sending a letter to the address where the property tax bill was sent.
- Recall the wire transfer and provide the receiving banks with indemnity letters.
- Obtain a refund of the account servicing set up fee.
- Obtain a refund of the hazard insurance premium paid at closing.
- Work with the lender to sign and record a reconveyance of the lien.
- Reimburse the lender.
- Reverse all title and escrow fees earned in the transaction.
The title company should have followed three steps to avoid closing and insuring this loan transaction:
- Assume it is fraud – Prior to opening the order and placing an order for a title report, compare the address provided by the borrower to the address where the property tax bill is being mailed. If the address provided by the borrower is different from the address where the property tax bill is being sent, send a written notice of pending real estate transaction to the owner.
Caution: In some instances, the fraudster may have changed the mailing address with the tax collector. When possible, contact the tax collector to determine whether a change of address was submitted recently.
If the subject property is located within a common interest community with a homeowner’s association (HOA), contact the management company to verify the contact information for the true owner.
- Verify, verify, verify – Interview the borrower using an online meeting platform and ask questions such as:
a. When did they acquire the property?
b. How much did they pay for the property?
c. What is the purpose of the loan? (In the above story the property was worth $2 million, so why would the borrower need a hard money loan?)
d. What type of property is being used as collateral for the loan?
- Utilize the best line of defense – Employ an approved mobile signing agent trained to spot fake identification. Compare the borrower’s signature to signatures contained in previously recorded documents.