Bank of America Short Sale Letter Verification Hotline

short pay letter verified

You might recall our post titled,  “FAKE Short Pay Letters? True Story...” which discussed how an alert settlement agent identified a fraudulent approval letter supposedly issued by Bank of America. She prevented the closing, saving the Company from potential future liability.

In an effort to prevent the reoccurrence of such fraud going forward, Bank of America will now give our representatives the ability to verify approval letters without a title–company–specific Third Party Authorization already in place.

Title & Escrow Officers and Original Borrowers May Use the Hotline

Bank of America Short Sale Customer Care Department

Phone 1.866.880.1232
The hours of operation are:
Monday through Friday:
8 a.m. to 10 p.m. EST
Saturday:
9 a.m. to 5:30 p.m. EST

Below is a telephone number settlement agents or title officers may call to verify certain key data points for approval letters where the original loan balance exceeded $500,000. This original loan cutoff amount was selected because, thus far, fraudsters have concentrated on large–balance loans.

If any of our title or escrow officers are suspicious of an approval letter provided by the Listing Agent, we may call to confirm its validity.

Both title officers and original borrowers can use the same telephone number included in the following standard disclosure on the approval letter below:

“Bank of America appreciates all of your efforts and cooperation in this matter. If you have any further questions, please contact our Short Sale Customer Care Department at 1.866.880.1232.”

To verify an approval letter, select Option 1

The hours of operation are:
Monday through Friday: 8 a.m. to 10 p.m. EST
Saturday: 9 a.m. to 5:30 p.m. EST

Bank of America will verify the following information with title officers when they call the number:

  1. The original borrower’s name
  2. The property address
  3. The loan number
  4. The agreed–to short sale payoff amount
  5. Amount approved to junior lien holders specified on letter
  6. The date by which this amount must be received by the bank

When title officers call Bank of America, they will access the approval letter provided to them by the listing agent, as it will be needed to complete the verification process.  Also, an approval letter that does not direct the borrower to contact the Customer Care Department, is likely fraudulent.  At a meeting between Our Company and Bank of America representatives, they stated, “We look forward to partnering with you in this effort and thank you for your cooperation.”

Questions or comments?  Please share below!

Accommodation Signing Protects Against Elder Abuse

Escrow prevents Elder Abuse

An unknown investor walked into our escrow branch to open an escrow for the purchase of residential property. The investor presented a handwritten contract that contained highly unusual terms. Sheri Davidson, the escrow officer, opened the escrow, but was suspicious based on the terms of the contract, which were as follows:

The Sketchy Contract Terms

Sale Price $256,580
Earnest Money Deposit $500 (POC)
New 1st Loan with Private Lender $58,000
Seller Carryback 2nd $256,580

Note Terms:

  • Principal-only payments for seven years
  • Payments commencing 90 days after closing
  • Borrower has the right to sell the property on a wraparound financing whereas borrower continues to pay seller directly and remain fully responsible for repayment of the note
  • Borrower has the right to substitute other real property with equal or greater equity to secure the remaining balance due of this note

This transaction was not a short sale; the seller owned the property free and clear. Sheri called the seller who was the trustee of a survivor’s trust. She quickly discovered the seller was a widow who lived out of the area and would not be able to come to Sheri’s office to sign the closing documents. Even though Sheri verified the sale price was in line with the current market value of the property based on assessor’s tax roll information and comparable sales, she did not feel comfortable sending out a mobile signing agent. She wanted to be sure the seller knew exactly what kind of deal she was getting.

A Local Escrow Officer is Chosen for the Mobile Signing

Sheri located an office near the seller and contacted Elizabeth Stoops, an escrow officer. Sheri asked Elizabeth if she would be willing to perform the signing and Elizabeth agreed. Elizabeth received the closing documents and reviewed them. She felt equally uncomfortable with the terms.

Elizabeth made the appointment and when the seller arrived, Elizabeth asked for her identification and realized the seller was 74 years old. Elizabeth began to review the closing documents with her and quickly discovered the seller did not know her carryback lien for 100 percent of the sale price was in second position. The seller was aware she would be receiving monthly payments, but was not necessarily aware the payments were principal-only payments. The seller mentioned she was so stressed that she had suffered a stroke over the subject property. One of the most menacing predicaments that brought on the stroke, was that her stepson lived in the property and paid just $200 a month for rent.

Legal Council is Recommended

Elizabeth asked if the seller had an attorney or tax accountant she could confer with over this deal. The seller gave her the name and phone number of her tax accountant, and asked Elizabeth to fax the closing documents to him for his review. The seller spoke with her tax accountant who advised her not to close until she met with an attorney. The accountant sent the closing documents to the seller’s attorney and she scheduled an appointment to meet him the following day. Since the seller had signed the closing documents during her appointment with Elizabeth, Elizabeth felt compelled to hold them until after the attorney reviewed them. Elizabeth informed Sheri of what happened during the signing appointment.

MORAL OF THE STORY

Even though the seller was desperate to change her circumstances and rid herself of a property that had become an albatross, this transaction, according to her attorney, was not her best option.

The buyer had no down payment and no equity, so the chances of him walking away from the property were high! Had this transaction closed and the buyer defaulted on the first loan, the lender would have started foreclosure leaving the elderly seller with one of two options: One, lose her $256,580 nest egg to the first lienholder in a foreclosure action, or two, pay to bring the first loan current. Then she would have had to start foreclosure on her second deed of trust in order to regain ownership to her property.

The Investor Tries to Escalate the Process

Sheri contacted the investor to tell him the deal would not close until the seller’s attorney reviewed the closing documents. The investor decided to escalate his disapproval of her stance not to close. He called the National Escrow Administrator, Lisa Tyler, and demanded Sheri continue the transaction. He claimed the attorney was not on retainer and should not dictate whether or not the transaction closes.

Lisa told the investor the seller was not aware of a number of transaction terms, including:

  • Her carryback deed of trust would be in second position behind the $58,000 first loan
  • She would be receiving principal-only installments against her loan
  • The loan could be wrapped or the collateral could be substituted

The investor denied the allegations and swore she was aware of all the terms but was just, “…confused.” Lisa said, “Therein lies the problem. If she is confused would you want her signing the closing documents? As the notary and as the title insurer, I would not want her signing any documents she did not completely and thoroughly understand.” The investor hung up the phone stating, “It was no use talking to you!”

The Transaction is Halted

After one look at the contract and other closing documents, the attorney called Sheri and put a halt to the transaction. He also issued a letter to the investor demanding he no longer contact his client and insisted that if the investor wanted a refund of his $500 deposit he contact him directly. Elizabeth destroyed the signed documents and Sheri cancelled her file.

Questions or Comments? Please Share Below.

Payments to Entities vs. Payments to Individual Partners

Our Sister branch in Cerritos, Calif. was handling a sale of property wherein the seller was a partnership. The partnership was receiving almost $2 million in proceeds. The managing partner was concerned about depositing all the proceeds into one bank since the FDIC only insures deposits up to $250,000 per depositor, per insured bank.

Can Proceeds be Disbursed to Partners of an Entity?

Disbursements to entities vs disbursements to partnersThe managing partner asked our settlement agent handling the transaction to disburse the proceeds to the individual partners instead of the partnership. Our Company took a firm stance on this issue years ago: Seller proceeds are only made payable to the seller.

The escrow officer, Rodil San Diego, knew Company policy required the proceeds be disbursed to the partnership and explained to the managing partner he was unable to honor his request. The managing partner explained to Rodil his concerns about the stability of our nation’s banks. He was concerned the bank the funds would be deposited into could fail and be taken over by the FDIC.

Proceeds May be Paid Only to the Partnership

As the managing partner, he felt he had to take every step to ensure protection of the partnership’s proceeds. He was even considering opening seven different accounts at seven different banks in order to deposit funds which would not exceed the FDIC-insured limits. Rodil told the customer he would escalate the request. Rodil emailed the National Escrow Administration Department at settlement@fnf.com. Corporate Escrow Administrator, Diana Williams, responded by confirming that Rodil was correct and Company policy requires proceeds be paid only to the partnership. National Escrow Administration did recommend Rodil wire the proceeds to the seller so the funds could be accessed by the managing partner without delay and disbursed to the individual partners.

Seller proceeds are only made payable to the seller.

The managing partner received Diana’s contact information and called to ask her to reconsider. She responded by confirming these types of payments are beyond the services Our Company has the ability to offer as the settlement agent. Paying the individual partners could impose additional reporting and/or withholding requirements the Company is not equipped to handle.

Moral of the Story

One of Our Company Precepts is “Customer- Oriented and Motivated.” The Company stands behind this precept but it is important to keep in mind the exact services we offer. Our Company’s policies and procedures are not implemented without careful consideration – which includes the effect they might have on the customer. In this story, the customer simply needed a clear explanation to understand why the Company was unable to honor his request.

The Difference Between Paying the Partnership and Paying the Partners

He asked what the difference was between paying the partnership and the individual partners as all the payments would just be disbursements. Diana explained when the settlement agent pays the partnership, they are disbursing the proceeds from the sale of real property.

Paying the individual partners turns those disbursements into distributions, which are the responsibility of the partnership. Our Company does not keep specific details or status of each individual member that would allow us to know if withholding must be deducted or if their particular distribution must be reported to any state or federal agency. These are the duties of the managing partner.

The partner thanked Diana for taking the time to explain Our Company’s position and said he would make other arrangements for the proceeds.

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payments to entities vs payments to individuals

Questions or comments?  Please share below!

The REO Transaction Process [Infographic]

REO Transaction Process Infographic

Click the image above to download.

With the housing market continuing to show positive signs with home values and rent prices moving upward, foreclosures continuing to decline, and interest rates at record lows, home buyers are presented with a unique opportunity as they search for real estate in the Puget Sound market.

Because REO or Real Estate Owned Transactions still comprise a significant portion of the inventory in the Puget Sound region, we have created the illustration below that depicts the REO transaction process, breaking it into three general sections; The Beginning, the Middle, and The End.

Understanding the general process from the opening of escrow to closing can make the closing experience a better one for all parties involved.

REO Transaction Process Infographic

To download this infographic in a printable PDF format, click here.

Related Articles

REO Fixer Fiasco
REO Transaction Tips for Setting Expectations
4 Hot Tips for Working With Escrow on an REO Transaction

Please share your questions or comments below!

An Assignment of Proceeds Fraught with Fraud

Our Company decided years ago to take a stand and stop accepting assignments of proceeds to third parties. Our decision was spurred by too many bad experiences. This story provides yet another reason why we do not accept assignment of proceeds instructions.

Absentee Borrower

assignment of proceeds fraudThe transaction was a loan for a borrower who owned their property free and clear. The property was located in the state of Washington, but the borrower lived in California. The transaction was being handled by an escrow officer in Washington, who arranged for an approved notary to meet with the borrowers in California to execute the loan documents.

Proceeds Wired

Along with the executed loan documents, the borrower submitted instructions to the escrow officer regarding where he wanted her to wire his loan proceeds. The loan amount was $248,000 and the borrower’s proceeds were for just over $209,000. The wire instructions from the borrower instructed the escrow officer to wire almost $90,000 to a small business and the balance of $120,000 to another individual. The escrow officer complied with his request and the loan closed.

The owner contacted the lender stating he did not have a mortgage with them or anyone…

Surprise! No Loan Payments Are Made

The first payment date came and the borrower failed to pay. The lender sent a notice of late payment, but instead of sending it to the borrower’s mailing address in California, they sent the notice to the property address in Washington. The owner contacted the lender stating he did not have a mortgage with them or anyone, as his property was free and clear, and that he did not sign any loan papers with them. When the lender asked if he lived in California he said no, that he lives at the property address and had for years.

A Forgery is Revealed

The lender looked into the file and discovered the borrower was an imposter. The lender has now filed a claim under the title policy for forgery. Upon notification of the claim, we attempted to recall the outgoing wires and freeze the recipient’s two separate bank accounts – both located at Chase Bank. Chase Bank responded both accounts were drawn to a zero balance and closed upon receipt of the wire transfers.

What If?

If the escrow officer had stuck to Company Policy and Procedure would she have closed this fraudulent deal? We’ll never know. None of the loan proceeds were made payable to the actual borrower. If she had insisted on paying the proceeds to the borrower what would he have done? Would we still have the money? To add insult to injury, the signing was set up with an approved notary and not BancServ. The approved notary only carries $100,000 in errors and omissions insurance which is the minimum amount required by Our Company to be included on the approved notary list. If it is proven the notary did not properly identify the signer, the maximum amount which can be recouped from them is $100,000. BancServ carries $15 million in errors and omissions insurance. Had a BancServ notary been used, instead of an approved notary, we would stand a better chance of being reimbursed our losses.

Moral Of The Story

Company policy prohibits settlement agents from accepting assignments of proceeds to unrelated third parties. Company policy also prohibits splitting up proceeds. Instead, settlement agents should make one disbursement. To add insult to injury, neither of these disbursements appeared on the closing statement and the lender knew nothing about them. In this story, had the escrow officer followed policy she might have been able to avoid a very expensive claim for fraud and forgery.

Questions or comments? Please share below!

10 Tips for a Successful Signing Appointment

tips for a successful escrow signing appointment

Your escrow closing date is coming up and there is one more important appointment before closing, whether you are a Buyer or a Seller. That is your Signing Appointment!  Our Escrow professionals have provided some tips that will help you to prepare for it. Here are the top 10 things you can know and do to be fully prepared for this important milestone on the way to closing.

Signing vs. Closing

Remember: Your signing appointment is a crucial step towards closing escrow. For an explanation of the many steps that take place after signing, check out our related article. What happens between signing and closing.

Tips for a Smooth Signing Appointment

  • Please try to keep your schedule flexible. Once Escrow has received all the necessary documentation for closing they will be calling you to schedule the signing appointment which is usually 2 – 3 days before your closing date.
  • Signing appointments for sellers usually take between 15 and 30 minutes.
  • Signing appointments for buyers will be 45 to 60 minutes.
  • If you’re going to be traveling during the closing process, please be sure to let Escrow know.
  • If you are required to bring money to closing, remember that it must be in the form of a Washington State Bank Cashiers Check or Wire Transfer. Escrow cannot accept personal checks. These funds need to be received by the Escrow office 24 hours in advance of the recording/closing date indicated on your Purchase and Sale Agreement.
  • If you are receiving funds from your closing and choose to have funds wired, you will need to provide a deposit slip or voided check at time of signing.
  • A valid picture ID, such as a Driver’s License, is required for all persons who will be signing documents. Signatures will be notarized.
  • Sellers: Contact all your utility companies PRIOR to closing and make arrangements for your final bills.  Please note that Escrow does not transfer utilities from Seller to Buyer. (If your Purchase and Sale Agreement has instructed Escrow to handle lien-able utilities, such as water and sewer, Escrow must have the NAME AND ACCOUNT NUMBERS of the utilities being requested.)
  • Escrow will contact all parties upon the closing of the transaction.
  • Your agent will facilitate the exchange of property keys at that time.

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10 Tips for a Successful Escrow Signing Appointment


After Your Signing Appointment

Keep in mind that the date of signing is not your closing date. Closing usually occurs within 1-2 days after signing. Once the lender has reviewed all the documents, they will give authorization for the recording of the documents transferring title and will initiate a wire transfer for the loan funds being provided. Per the Purchase and Sale Agreement, closing occurs once documents have recorded and funds are available to the seller.

Per the Purchase and Sale Agreement, closing occurs once documents have recorded and funds are available to the seller.

Clear Communication is Key

Remember that communication and preparation are the keys to a successful closing.  Contact your Escrow team with any questions as early in the transaction as possible.  Arrive for your signing appointment on time and be prepared with the items noted here.

Related Article: What happens between signing and closing

Questions or comments? Please share below!

The Story of a Stolen Payoff Check

stolen payoff check

In 2011, one of our sister branches processed a sub-escrow payoff for an independent escrow office on a residential refinance. Later they received a call from the escrow officer, on behalf of the borrower, claiming the prior loan was never paid off. The borrower had been receiving delinquency notices from his lender for payments on the old loan. The title officer pulled the file and confirmed a check for the payoff was sent on Nov. 22, 2011 and the check had cashed on Dec. 5, 2011. The title officer told the escrow officer they would call the lender to prove to them the loan had been fully paid.

The Check Never Made it to the Lender

Before the title officer made the call to the payoff lender, Wells Fargo Bank, she pulled a copy of the cancelled check so she would have it in hand. She viewed the check front and back and was shocked. The original check, numbered 870159622, was made payable to Wells Fargo Bank in the amount of $73,025.74. The check with the same number she held in front of her was payable to Bertha Flores Americ in the amount of $73,025.74! She viewed the endorsement on the check and, sure enough, the check had been deposited to the account of Bertha Flores Americ on Dec. 5, 2011!

Next, the title officer pulled the UPS tracking information for the package containing the payoff check. The tracking information indicated the delivery status for the package remained “undelivered.” The title officer’s heart sank.

The Payoff is Covered

She immediately contacted her manager and obtained a new, updated payoff figure from Wells Fargo Bank. She filed a loss to cover the new payoff amount and this time remitted the funds via wire transfer.

On the same day, the accounting center received two checks from their trust bank, Bank of the West, that were being rejected for payment because they did not have a matching positive pay record.

The first check was numbered 870169624 in the amount of $63,025.74 payable to Smooth Sailing Productions. The second check was numbered 870169626 in the amount of $9,025.74 payable to Michael S. Dittelman. The checks were deposited, but the bank refused to pay them.

The Moral of the Story

When possible, payoff funds should be sent via wire transfer and not by check. If the payoff lender demands a check, then the package containing the check should be sent by some traceable means. Additionally, someone in the office must be responsible for tracking that package to a successful delivery.

Then out of the blue, Peggy in our accounting center received a call from another check’s payee, named Michael Brunner, who had received check number 870169629 in the amount of $9,052.50. He had no idea why he received the check and was suspicious, because he had no transactions with our sister branch and his name was misspelled on the check. Peggy confirmed the check was counterfeit and Mr. Brunner mailed the check to Peggy’s attention.

A Duplicate Check was Created

Working closely with her accounting center, the title officer was able to determine the package containing the payoff check was stolen from the UPS delivery truck. The check was then used to make a duplicate of the original check payable to another payee. That check cleared the bank, since there was a positive pay record at the bank containing the valid check number and valid check amount. Positive pay does not match a check’s payee name. The other subsequent checks did not clear the bank, since there was no positive pay record to match the check numbers and check amounts.

The office’s management team worked quickly to file a claim with UPS for non-delivery of the package as well as a claim with Bank of America for acceptance of a counterfeit check. Bank of America honored the claim and reimbursed the trust account the $73,025.74 lost. The operation only took a loss for the additional days interest in the approximate amount of $200.

Questions or comments?  Please share below.

Why Altered Checks for Earnest Money are Unacceptable

Altered Earnest Money Check

Settlement agents are regularly pressured into accepting altered checks (which they should not) for earnest money. This usually occurs when the buyer’s original offer to the seller indicates one escrow company and then, somewhere in the negotiations, the principals agree on another escrow company. Real estate agents do not want to go back and ask their buyer for a new check, so instead the check is altered and the buyer initials the changes. Accepting the check is done at the sole risk of the operation. In this story, our office accepted an altered check which proved to be risky.

The original check is altered

One of our sister offices received a fully executed Purchase and Sale Agreement, along with a personal check representing the earnest money. Per the agreement, the amount of earnest money due was $1,000. The check was originally written to Old Republic Title Co., but during negotiations the principals agreed to change the escrow and title company to ours. Rather than obtain a new check for $1,000, the buyer simply crossed through the original payee, wrote in our company name and initialed the change.

Transaction is cancelled
Earnest Money refund is requested

The settlement agent receipted-in the funds and began to process the transaction. About a month later the buyer decided he wanted to cancel the transaction. His real estate agent instructed the settlement agent to prepare cancellation instructions reflecting the earnest money as being refunded to the buyer. The settlement agent prepared the cancellation instructions and sent them to the listing agent.

At first, the seller was not sure they were willing to give the money back to the buyer. The real estate agents began negotiating for their respective clients. In the meantime, the buyer went to his bank, Wells Fargo, and tried to place a stop payment on his earnest money check. When the request was denied, he filed an Affidavit of Forgery, claiming the check was altered and cashed without his approval.

Earnest Money “refunded” twice

Simultaneously, the sellers signed mutual cancellation instructions agreeing to return the earnest money to the buyer. The settlement agent cut a check from the trust account to the buyer, representing the refund of the earnest money. The buyer deposited the refund into his account at Wells Fargo.

Shortly thereafter, our Operational Accounting Center (OAC) received notice from Bank of America that our trust account was debited $1,000 based on the fact the original earnest money check was altered. When a fraud report is filed, banks act quickly to freeze the amounts in question while they determine the merits of the report. Wells Fargo immediately contacted our bank, Bank of America, who reviewed the affidavit.

The risk of accepting altered checks

Anytime a settlement agent accepts an altered check, he or she subjects the instrument to questioning. As a matter of fact, accepting an altered or endorsed check is done solely at the operation’s own risk, since the banking agreements Our Company enters into offer no protection for these checks. The operation is on their own to prove they were entitled to negotiate the check.

Accepting an altered or endorsed check is done solely at the operation’s own risk…

The OAC quickly found this out. They contacted Bank of America upon receipt of the notice our account was debited. Bank of America referred back to the banking agreement. Neither Bank of America nor Wells Fargo would provide assistance since the office accepted and negotiated an altered check – even though they had already refunded the buyer their earnest money deposit.

The OAC filed an Affidavit of Claimant on the refund check disbursed to the buyer. The basis for the affidavit was the fact that the borrower had already collected the original earnest money deposit. The claim was denied.

The Borrower withdraws Affidavit of Forgery

Next the settlement agent contacted the buyer’s real estate agent. She explained the borrower needed to withdraw their Affidavit of Forgery since he had received his refund. The borrower finally withdrew it and their account received credit for the original deposit. Whew! All of this work for a $1,000 deposit on a cancelled transaction for which we will never be paid!

The Moral of the Story

When Our Company opens a trust account, a banking agreement is signed which outlines the bank’s and Our Company’s responsibilities. One of our responsibilities is to accept checks made payable to Our Company only. If an office deviates from the agreement and accepts a third-party-endorsed or altered check, the bank has no obligation to assist or defend them; which is exactly what occurred in this instance. Settlement agents should be aware of the risks when accepting personal checks which have been altered or endorsed, and request a replacement check.

Have you encountered a situation where an altered check was either used or not accepted? Please share your comments below!

10 Tips for Saving Resources

Tips for saving energy and becoming more green

Every year on Earth Day we’re all reminded to look for ways to become more efficient, less wasteful, and more considerate of how our actions impact our environment.

If you’re looking for ways to become a little greener, check out the tips below:

Did you know?

Ticor has taken the steps necessary to earn a Green Certification for each of our Title & Escrow locations in the Puget Sound region.

We’re proud to be the first operation in the FNF family of companies to achieve complete green certification in our marketplace.

  1. Don’t print e-mail attachments! Save important files in an organized file structure on your computer hard drive for easy future reference. You’ll save paper and office space!
  2. Check your printer settings. Some studies have reported that resetting basic printer settings can save the average user 1,400 pages of wasted paper a year. You can also set the printer to print on both sides by default, further reducing paper usage. Check the manufacturer website on your user manual for details on changing your printer settings. Also, always use “print preview” before printing to avoid printing unusable pages.
  3. Send faxes directly to E-mail boxes. Faxing directly to a recipient’s inbox as opposed to their fax machine is an easy way to eliminate wasted paper.
  4. Recycle your office paper. If you have sheets of paper printed in error or no longer necessary, consider running them through your printer on the unprinted side for proofs and personal use.
  5. Turn off the lights when you leave a room if you’re going to be gone for more than 30 seconds. Put timers on lights if you have kids who forget to turn them off.
  6. Recycle! Some cities do, but if your city doesn’t, consider separating cans, glass, plastic, and paper and take it to a recycling center every month so that it is not such a chore. Have the kids help so they get used to the idea.
  7. Try to buy local foods whenever possible. Food that has to travel a long distance is not “green”. If you don’t have access to much local produce, or if you’re not sure, try to buy from a local Farmer’s Market if you can. It will be green as well as fresh.
  8. Go with rechargeable batteries when possible. Be sure to properly dispose of your used batteries – they must be recycled.
  9. Close your curtains! Heat and cool air loss from older windows can be substantial and the sun beating in the windows will warm the house causing the A/C to come on and work harder.
  10. Don’t leave the water running while brushing your teeth.

Do you have tips or suggestions on conserving energy or reducing waste?  Please share below!

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HELOC Spending Spree – Was it Fraud or Ignorance?

Honest Mistake?

During a refinance transaction, a home equity line of credit was paid off – but not closed. Later the refinance lender foreclosed and sold the REO (bank owned) property to a new owner. One of our underwriters insured the refinance, issued the trustee’s sale guarantee and insured the new owner on the sale out.

The former property owner then ran up $172,622 in debt against his home equity line of credit, which was secured by a house he didn’t own. He made no payments, and the home equity lender started foreclosure!

HELOC fraudAs part of a refinance transaction the settlement agent paid, in full, a home equity line of credit (HELOC) in the amount of $149,392.71.

The lender’s payoff statement required the borrower, Mr. Gonzalez, to check either box:
[] Payoff Only
[] Payoff, Terminate and Satisfy/Discharge Mortgage

The payoff statement also provided:
If neither box is checked, the account will remain open and no satisfaction of mortgage will be filed.

The payoff statement further provided:
Notice to Borrower and Closing Agent: A Request to terminate/close your home equity line of credit account to satisfy the mortgage will be processed if (1) the second block is checked; (2) all amounts owed are paid in full; and (3) at least one borrower on the account signs this payoff request.

A Very Small Oversight

Gonzalez signed the payoff request, but due to an oversight on the settlement agent’s part, neither box was checked. As a result the payoff check and request were sent, but the HELOC was not frozen and no reconveyance of the deed of trust securing the loan was ever recorded.

Fast forward two years later: Gonzalez fell behind on his payments, and the refinance lender foreclosed, obtaining a Trustee’s Deed upon sale. Subsequently the lender re-sold the property to a new buyer. The sale transaction was handled by one of our offices. The preliminary report showed the HELOC still of record in first lien position as well as a recorded Notice of Default. A claims attorney allowed the title office to insure around the outstanding HELOC, since Our Company had insured the previous transactions involving the refinance lender, the trustee sale guarantee to the refinance lender, and now the ultimate re-sale to the new owner. An endorsement was issued to the final policy of title insurance deleting the exception of the HELOC loan.

The New Owner Files a Claim

The HELOC lender moved forward with its Notice of Default and set a date for Trustee’s Sale. When the new owner received the notices of an impending foreclosure, she opened a claim with Our Company, as she was about to lose her home. The claims department contacted the HELOC lender for a new payoff statement. When the payoff statement was received, the claims attorney noticed Gonzalez (the former owner) had run up $172,622 against his line of credit!

In order to protect the insured’s interest in the property, the Company paid the HELOC lender off again and this time demanded the HELOC be closed and the lien released. The claim was deemed an escrow loss and charged back to the operation dollar-for-dollar!

In an attempt to recoup our losses, the claims attorney sent a written demand to Gonzalez for reimbursement of the amount paid on his behalf to the HELOC lender. Gonzalez called in response to the letter and was friendly, but confused about what was happening. The claims attorney explained to him that Our Company expected full reimbursement for our losses. Gonzalez made it clear that he did not have the resources to pay back the Company. He stated he would retain an attorney.

Moral Of The Story

Does Gonzalez’s decision to run up the HELOC after he lost the property to foreclosure constitute fraud? Yes! Gonzalez intentionally charged $172,622 against a mortgage on a property he no longer owned.

It can be argued that many borrowers are oblivious and don’t understand that they can’t continue to draw on a line of credit after he/she has paid it off and/or no longer live at the property. The issue is that the bank continues to solicit the borrower to spend against the line of credit by providing debit cards and checks that enable more spending!

It is imperative that our settlement agents ensure the HELOC closure letter is signed and, more importantly, delivered to the payoff lender.

It is imperative that our settlement agents ensure the HELOC closure letter is signed and, more importantly, delivered to the payoff lender. There are plenty of instances where the payoff funds are transmitted via wire transfer and the payoff closure letter is not sent to the payoff lender at all, but rather left in the file. There are also plenty of instances where the HELOC payoff statement reflects a zero balance and, subsequently, the signed closure letter is not sent to the payoff lender.

When either instance happens, one of two things eventually occurs later – the lender never closes the line of credit and continues to solicit the borrower to charge against the available balance (which many borrowers do); or the lender continues to accrue annual fees. Either way, once the property is further conveyed, encumbered or foreclosed upon – the HELOC lender is contacted to release its lien and it insists on payment in full AGAIN! Settlement agents need to do their part to protect the Company from these types of losses by sending the closure letter.

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