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!

Download tips for becoming more green

Click the image above to download the energy conservation tips.

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.

Questions or comments?  Please share below!

Real Estate Investor Tries to Defraud the IRS

IRS Liens & Over-Encumbered Property

Foreclosures are just one of many challenges facing our country in this economic crisis. People are not only failing to pay their mortgages, but they have also fallen short on many other obligations. Paying taxes is one of them. It has become common for an IRS lien to appear on a title report.

The IRS, however, is not in the business of owning real estate so they regularly work with taxpayers to release the property from the lien. They do not discharge the lien altogether, but examine the transaction and often release the property when they can determine there will be no proceeds because the property is over–encumbered. Read on to find out how one settlement agent was duped into assisting a real estate investor trying to defraud the IRS.

IRS Tax lien

One deed and one lien

One of our sister offices in Las Vegas opened a sale transaction. The seller was a real estate investor who purchased the property only a few months earlier. Title was held as John Doe, an unmarried man. When the title report came in it showed the property was encumbered by only one deed of trust along with a tax lien. The tax lien was against a limited liability company (LLC) and its members, one of whom was our seller Doe. The settlement agent, Betty, contacted Doe to inform him she needed to order a demand from the IRS.

He explained the lien was against the LLC, was not his personal obligation and should therefore not affect his sale. Betty explained she could not close without a release of lien for this property from the IRS. She asked Doe if she should proceed with ordering a demand from the IRS or if he would be contacting them to negotiate a release of the property only. Doe told her he would take care of it.

A second deed appears

A couple of weeks later Doe asked Betty to update the title report, as there should be a second deed of trust of record. He also requested a HUD–1 Settlement Statement showing a payoff of both loans resulting in no proceeds to him. He planned on submitting the HUD–1 to the IRS to induce them to release the property from the tax lien. Betty thought this was odd and contacted management.

Unbeknownst to Betty – Jane, another settlement agent within the Company, handled the initial purchase of this property for Doe. Jane contacted management about the IRS lien, as she had heard the property was under contract and now in escrow with another settlement agent within the Company. Jane was curious about the IRS lien since it was against the LLC and not Doe individually, and did not appear on her title report when Doe acquired the property.

Since both calls came at the same time, management reviewed the updated title report and documents. The second deed of trust had been prepared by someone in the Company and notarized by Jane. Management noticed the document was dated two months earlier, when Doe purchased the property, yet it was recorded only a few days ago. When management inquired about the document, Jane explained Doe had come into her office and said he forgot to have her prepare and record a deed of trust in favor of his investor on the purchase. He asked her to help him out, and she allowed Doe to back–date the deed of trust and she back–dated the notarial certificate. Jane gave the original to Doe who promptly recorded it.

No-go for Doe

Doe was contacted by management who told him they would not be providing him with an updated title report reflecting this fraudulent deed of trust. They made it clear to Doe Our Company would not assist in defrauding the IRS. Fortunately they were able to convince Doe he was headed down the wrong course and he did not proceed.

Settlement agents are considered the last honest people in a real estate transaction. The IRS certainly counts on it. When the IRS agrees to provide a release in order to allow a taxpayer to sell their over–encumbered property, their approval is conditional. It is conditioned upon receipt of a HUD–1 Settlement Statement confirming the seller received no proceeds. The IRS knows, per Title 18 U.S. Code Section 1001 and 1010, “It is a crime to knowingly make false statements to the United States on this or any other similar form. Penalties upon conviction can include a fine and imprisonment.” Upon confirmation from the settlement agent the IRS prepares and records their release.

Moral Of The Story

Jane’s behavior is inexcusable. Settlement agents should never allow a document to be back–dated in their presence. Settlement agents who are also commissioned notaries should never participate in back–dating a notarial certificate. Lastly, settlement agents should never prepare courtesy documents.

The trouble with a non arm’s-length short sale…

The Backstory

An investor opened several short sale transactions, acting as the buyer in each. One–by–one the short sale transactions began to cancel for one reason or another, leaving the escrow branch disgusted with the amount of work they put into each one without remuneration. The next deal in line came extremely close to closing – until the real buyer was discovered.

Non Arms Length Transaction

An all cash short sale

After preparing numerous estimated settlement statements and providing a preliminary report, one of our sister branches’ New Communities office in Riverside, Calif. finally received a short pay letter from Bank of America. Bank of America was the short pay lender on the first and second loans. They included the shortage amounts they would be willing to accept on a single short pay letter. The bank was due almost $490,000 but they were willing to accept $260,000. The transaction was an all–cash short sale in the amount of $280,000. The closing documents were drawn and executed by the buyer and seller. All that remained for the transaction to be complete was the buyer’s down payment and closing costs.

Will the real buyer please stand up…

The buyer was an entity by the name of Willowbrook Financial, Inc. and the buyer assured a wire would be forthcoming. The seller was a Ronald and Michelle Aksland. Maggie Vega, an assistant escrow officer, was leery due to all the previous transactions that had fallen apart just prior to closing with Willowbrook but, ‘lo–and–behold, the wire transfer arrived at the bank! Maggie received notification from the accounting center of funds wired in the amount of $280,000. Maggie reviewed the incoming wire and noticed the funds came from an account in the name of Gary Aksland. She called the investor/buyer to find out who Gary Aksland was and why he was depositing the funds to close. The investor told her Gary was the current owner’s father.

The missing affidavit

Maggie reviewed the short pay agreement issued by Bank of America and found the following condition, “#2. The approved buyer(s) is/are WILLOWBROOK FINANCIAL, INC. RICHARD MERCADO…” – not Gary Aksland. Maggie escalated the file to her escrow officer, Elvia Salaz. Elvia contacted the short sale negotiator at Bank of America, because there was no arm’s length transaction affidavit attached to the short pay agreement and there was no condition for an arm’s length transaction contained in the agreement. Elvia explained the wire was received from Gary Aksland, and the short sale negotiator said, “Don’t close!” The short sale negotiator stated the arm’s length affidavit was not attached to the short pay letter because it had been signed in advance by the buyer and seller, and submitted with the short sale negotiation package. Clearly the principals had lied.

Elvia contacted National Escrow Administration, who also insisted the transaction could not be considered arm’s length if the owner’s father was putting up the funds to purchase. The national escrow administrator insisted on either (1) Bank of America approving the owner’s father as the new buyer; or (2) we resign as escrow holder and not close.

Step away from the transaction

Elvia elected to resign. As a result, the calls started pouring into the office. The listing broker was the first to call. When he insisted his real estate firm would never be a party to any fraudulent transaction and demanded to know why we were resigning, he was informed the wire transfer came from the owner’s father. He was silent for a moment, then he apologized and hung up.

“…he was informed the wire transfer came from the owner’s father.”

The investor/buyer also called and when we explained our reason for resignation, he only asked that the wire transfer be returned to the father, which we promptly did.

Maggie’s attention to detail and recognizing the wire was received from a third party saved the Company from closing on a transaction that was clearly not arm’s length.

Moral of the story

Since the buyer in this transaction did not put up the money to close, the transaction is not arm’s length. Had we closed, the short pay lender could have realized this and rescinded their short pay letter – then kept their lien in full force and effect to foreclose. By not closing on this transaction, Maggie saved the Company from a potential claim of $280,000 from the insured owner and/or the hassle of having to unwind this transaction.

Questions or comments? Please share below!

A Case of Brotherly Identity Theft…

The case…

This is a real estate fraud/identity theft case brought by plaintiffs Darryl Dumas (“Darryl”) and Darryl Dumas as Trustee of the Dumas Revocable Living Trust Agreement Dated February 7, 2001 against Darryl’s brother Derrick Dumas (“Derrick”), among others, concerning real property located at 1875 Paradise Drive, Los Angeles, Calif. 90025 (“Subject Property”). On January 12, 1994, Darryl purchased the property by Grant Deed. In 1998, Darryl moved out and began renting out the subject property. In April of 2001, Darryl transferred title to the property to his trust.

Identity Theft
In 1999, Derrick started a mortgage brokerage company known as Countywide Loans. In February 2008, Derrick indicated he could arrange for Darryl to obtain a line of credit with Chase, secured by the subject property for up to $500,000 on favorable terms. Darryl was interested in an increased line of credit to have the flexibility to make investments when the opportunities arose. Darryl agreed to apply for the Chase secured equity credit line and allegedly provided his brother, Derrick, with his personal financial information in order to facilitate the application.

ID Theft & Real Estate Fraud

Derrick was out of the country from June through November of 2008. In early November 2008, Darryl’s other brother, David, informed him that Derrick had obtained a loan against his home under his name without his knowledge or consent. Darryl then asked David to check the records for the subject property to see if Derrick might have done something similar to him. A few days later, David advised Darryl there was a $350,000 loan against the subject property in favor of a lender named Overland Direct. Derrick’s company, Countywide, had originated the loan and sold it to Overland Direct. Our Company insured this transaction and issued a $350,000 lender’s policy to Overland Direct.

“Derrick confessed that he had stolen Darryl’s identity, forged his signatures on the loan documents to take out a loan…”

Derrick returned to the United States in the middle of November 2008. On November 16, 2008, Darryl confronted him at their parents’ home. Derrick confessed that he had stolen Darryl’s identity, forged his signatures on the loan documents to take out a loan from Overland Direct against the subject property and kept the loan proceeds.

Forgery Claim Covered

The Notaries…

The notaries of the various documents involved in this fraud were Dante C. Gumiran (Commission No. 1638844, CA) and Caroline P. Diaz (Commission No. 1522651, CA). Both Gumiran and Diaz were employed by Derrick at Countywide Loans. Gumiran signed a declaration that his boss, Derrick, instructed him to notarize the relevant documents outside the presence of the purported signer, Darryl. Diaz alleges in her declaration that she did not notarize the documents at all and that her signature is a forgery. She insinuates that someone used her notary stamp, which she left at her desk at Countywide Loans.

In February 2009, Overland Direct’s $350,000 note went into default and the loan went into foreclosure. Overland Direct received notification from Darryl, however, that his signature was forged and that he never applied for the loan in question. Based on this information, Overland Direct submitted a claim to Our Company.

Our Company ended up defending our insured lender in a suit filed by Darryl as well as ultimately incurring a policy limits loss ($350,000) plus expenses on this claim.

Recouping our Losses

This matter has been reported to law enforcement and we are following up to ensure the notaries have been reported to the notary board in California for further investigation. In addition, we are pursuing Derrick in a civil action to recoup our losses.

By The Way
We have two other claims involving Derrick forging borrower’s names, which are still in the midst of investigation and will result in further litigation. As a result, the names of the parties (with the exception of the notaries) have been changed.

Questions or comments? Please share below!

Betrayed with an Uninsured Deed…

Beware of uninsured deeds.An escrow officer in one of our sister operations opened a purchase transaction for $347,000. She ordered the title report and the order was assigned to Casandra, a commercial title officer. Casandra issued the report reflecting two owners of record: Maysa Alhelow, a single woman and Thomas Paul Helo, a married man as his sole and separate property.

The escrow officer processed the order and once she received all signed documents and monies, shipped the documents for recording. It is normal and customary in California, where the property is located, to record prior to disbursing the escrowed funds. The escrow officer was waiting for recording confirmation.

Uninsured Deeds

Uninsured deeds in the chain of title always pose a whole new level of risk for a title insurance company. Title officers are taught to scrutinize those types of deeds for obvious signs of forgery or other misconduct on the part of the grantors and grantees. The title officer in this particular order did just that and ultimately halted a transaction that would have inevitably caused a title claim.

When the recording package arrived Casandra noticed only Alhelow signed the deed to the new buyer, and not the co–owner Thomas Paul Helo. Casandra called the escrow officer and asked why there was no deed from Thomas. The escrow officer explained that she was told the owners had recently recorded a deed, wherein Thomas conveyed his interest in the property to Alhelow.

Casandra located the recorded deed from Thomas to Alhelow.
She inspected the deed and noticed the following:

  • Deed was uninsured
  • Deed was not notarized by a Company–approved notary
  • The signature of Thomas Paul Helo appeared to be VERY different than his signature on other recorded documents

A New Deed was Needed

As a result, Casandra called the escrow officer and insisted Thomas sign a new deed in the presence of an employee or Company–approved notary. The escrow officer called the number she had for Thomas, but Alhelow answered the phone. The escrow officer explained the need for a new deed from Thomas. Alhelow responded Thomas could not possibly come into the office to sign the new deed as he was in Los Angeles and would not be returning anytime soon. The escrow officer informed her it was not a problem as Thomas could sign at one of our Los Angeles offices. Alhelow said she would contact Thomas.

In the meantime, the escrow officer did some research, found a Los Angeles number for Thomas and contacted him directly. When she explained the need for him to sign a new deed, Thomas confirmed he did not sign the first deed conveying his interest to Alhelow, and he had no knowledge the property was even being sold!

“…and he had no knowledge the property was even being sold!”

The escrow officer asked Thomas if he was even interested in selling the property and he stated, “No.” The escrow officer immediately resigned from the transaction, knowing full–well Thomas was not going to agree to the sale.

A Forgery Indeed

It was later discovered that Thomas’ brother, Kahir Tim Helo, had actually forged Thomas’ signature on the deed. And the escrow officer and Casandra discovered Kahir is Alhelow’s boyfriend! Ruth C. Escobar, who notarized the forged deed, works for a tax preparation office in Bakersfield. It is unclear as to what identification Kahir provided the notary.

Casandra’s keen observation of the uninsured deed disclosed a forgery and prevented a future claim from the real Thomas Paul Helo.

Our Title Insurance Policies Insure Against Forgery

Thomas’ brother and his brother’s girlfriend were attempting to sell the property without Thomas knowing, so they would not have to split the proceeds with him. Our title insurance policies insure 100% against forgery. Had Our Company closed and insured the transaction, and later Thomas Paul Helo made a claim to his interest in the property, we would have had to defend our policy holder – the buyer. As the insurer, we would have had to settle with Thomas in order to obtain a valid deed and cure the title defect for the new owner of the property.

Thoughts or questions? Please share below!

Fake Short Pay Letters? True Story…

Short sale fraud

Leading the way.

The FNF Family of Companies is the leader in the industry. Being the leader is not always easy. Many times we are the first ones who uncover the latest schemes and, as a result, issue a new policy and procedure. It is our settlement agents who are on the front lines implementing the new policy and often hear, “No other company makes us do this!”

This story illustrates just how important it is for us to follow the Company policies and procedures even if no one else requires them.

Joy Turner, senior escrow officer for one of our sister branches, opened a sale transaction. The seller was in the process of negotiating a short sale with his lender, Bank of America, through the services of a third-party short sale negotiation company. There were no real estate agents involved. The buyer was purchasing the property using a private lender and the sales price was $200,000, pending approval from the existing lender.

On June 10, 2011, Bank of America issued their short pay letter approving the sale for $200,000. Per the letter, the closing was to take place no later than June 27, 2011. As the 27th approached, it was clear the buyer and seller were not going to meet this deadline. It did appear the transaction was going to close, but they just needed an extension of a few days. Joy told the seller she would need a revised letter extending the closing deadline.

The new lender’s funds came in on June 28, 2011 and so did the extension letter from Bank of America. The new deadline for closing on the short pay letter was July 1, 2011. On the morning of June 29, 2011 Joy worked to get everything together for recordation and disbursement. Per Company policy, Joy knew she needed to contact the loss mitigator at Bank of America to confirm the terms and amount shown on the short pay letter.

Something’s Fishy
Something about the extension letter and HUD-1 approval Joy received from Bank of America didn’t look right. First, the communication did not come through www.equator.com. This was unusual since approval letters were delivered using this online system for every Bank of America short sale Joy had closed recently. Joy picked up the phone and called the person named on the HUD-1 approval. His name was Vitto Pastor. Joy found it odd his title shown on the approval letter said Senior Operations Analyst, Business Operations, since it is usually a loss mitigator who issues short pay approvals. She left him a message.

“…according to their records, the seller had never applied for a short sale”

Shortly thereafter Joy received a returned phone call but it wasn’t from Pastor. It was Kenneth Teele, senior investigator at Bank of America. Kenneth advised her Pastor did work for Bank of America – but not in their Loss Mitigation Department and Pastor did not issue the HUD-1 approval letter. Kenneth went on to explain the HUD-1 approval and short pay letter she received were fraudulent and, according to their records, the seller had never applied for a short sale. He also revealed the outstanding loan balance for this loan exceeded one million dollars.

Joy left a message for the seller to call her, stating there was a problem with the short pay approval. Instead of returning her call, the seller e-mailed Joy asking her to send him copies of everything he signed, including the short pay letter. Joy again asked him to call her, but he responded by saying he was in a meeting and would call later. He never did.

The Buyer’s Perspective…
The buyer called to find out if his file had closed. Joy was in another closing so she asked one of her colleagues to tell him we would not be closing as the short pay letters were invalid. The buyer’s only response was, “Oh really?” Joy also attempted to contact the third-party negotiation company who never answered the phone or responded to her calls or e-mails.

The buyer’s lender contacted Joy on July 1, 2011, asking her to return the loan funds to them. Joy verified with her Operational Accounting Department the funds were being sent back to the same account they came from and reported the incident to her manager, Lisa.

Lisa shared the details with all the escrow officers in her operation and notified National Escrow Administration. Turns out, this was the 15th time our Company had been the target of this scheme. The bad news is, 14 of these closed and our claims department is currently working on them. The good news is Joy Turner prevented us from falling prey a 15th time.

Moral Of The Story
Joy’s transaction involved a $200,000 short sale on a loan with a balance of more than one million dollars. Had Joy accepted the short pay letter and closed, Bank of America would have rejected the nearly $200,000 short pay. The Company would have had to either unwind the deal or face a potential loss of more than $800,000 to obtain a lien release, and deliver both free and clear title to the insured buyer, and a first lien position to their new lender.

Following Company policy can seem cumbersome, but this story proves it is well worth the extra effort.

Questions or comments? Please share below!

What Happens Between Signing and Closing of Escrow…

What happens between signing and escrow closing

Note: This Article was originally published October 25, 2011. An updated version with current information is available here: What’s the Difference Between Signing and Closing Escrow

What’s the difference between “Signing” and “Closing Escrow?”

When people talk about a real estate purchase, they sometimes use the terms “signing” and “closing” interchangeably in reference to the event when the buyers sign documents with Escrow. However, there are several events that take place between the buyer’s signing appointment and the actual closing of the real estate transaction. Let’s take a moment and review that process.

Download

What happens after escrow signingDownload a printable article here: What Happens Between Signing and Closing of Escrow

Signing of Documents:

Escrow receives the loan documents (if applicable) from the Lender and prepares them for the buyer to sign along with final statements and any other required documents.  Upon receipt of the loan documents from the lender, the escrow closer prepares the HUD 1 settlement statement and all other legal documents required for the transfer of title into the buyers name.

Lender Reviews Documents & Funds the Loan:

Once the loan documents have been signed, the escrow officer delivers them back to the lender for review. When the lender is satisfied that all required documents have been signed and all outstanding loan conditions have been met, the lender will notify escrow that they are ready to disburse the loan funds to escrow. Upon receipt of the wire from the lender, the escrow officer is authorized to send the transfer documents to the county for recording. The time frame for review is normally 24 to 48 hours.

Excise Tax:

Real estate transactions in Washington State that involve conveyance of property require consideration of Excise Tax. All appropriate tax amounts must be paid before the county will allow the Deed conveying title to be recorded.

Deed of Trust:

A legal document that evidences an agreement of a borrower to transfer legal title to real property to an impartial third party, a trustee, for the benefit of a lender, as security for the borrowers debt.


Warranty Deed:

The legal document used in most states by which title to real estate is conveyed from one party to another.

Recording is Authorized:

Once recording is authorized by the lender, documents are hand carried (in most cases) to the county recorder’s office by the title insurance company. The Warranty Deed is recorded first, showing the transfer of the property to the buyer, with the Deed of Trust recorded next. Recording the Deed of Trust just after the Deed insures the lender’s first lien position on the property.

Recording Numbers Received:

Recording numbers are the unique numbers given by the county recorder’s office to a properly executed legal document thereby making it part of the public record. In other words, when we have recording numbers, the buyer is “on record” as holding title to the property.

Now We Have Closed Escrow

Once the deeds have been recorded, and funds are available to the seller, we can say that we have “closed” and the new owner may take possession of the property as set forth in the Purchase and Sale Agreement.

Do you have questions or thoughts about the escrow process?  Please share by leaving a comment below!

Top 8 Questions About FIRPTA

FIRPTA Frequently asked questions

What is F.I.R.P.T.A.?
F.I.R.P.T.A. is an acronym for Foreign Investment Real Property Tax Act.  It was established in 1980 for the purpose of withholding the estimated amount of taxes which may be due on the gain of the disposition of a U.S. Real Property Interest from foreign persons.  A U.S. real property interest includes sales of interests in parcels of real property as well as sales of shares in certain U.S. corporations which are considered U.S. real property holding corporations. Persons purchasing U.S. real property interests (transferee) from foreign personsare required to withhold 10 percent of the amount realized.

FIRPTA top questions

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What is the purpose of withholding 10%?
Real estate withholding is a prepayment of anticipated tax due on the gain of the sale of a U.S. real property interest. It is not an additional tax. Any difference between the amount paid and the amount owed is refunded to the seller when a tax return is filed.

Who is responsible for finding out if the transferor is a foreign person?
It is the transferee’s/buyer’s responsibility to determine if the transferor/seller is a foreign person and subject to withholding.

Are there exceptions from FIRPTA withholding?
Yes.  Exceptions are explained on the IRS.GOV website here.

Who is responsible for withholding 10% of the amount realized?
Withholding is the responsibility of the transferee/buyer.

How and where is the F.I.R.P.T.A. withholding paid?
The buyer must complete IRS Form 8288 and Form 8288-A and remit them, along with the payment to the IRS at the address shown on Form 8288.

What is the settlement agent’s role with regards to F.I.R.P.T.A.?
The IRS Rule requires the transferee/buyer to determine if withholding applies and, if so to remit the withholding to the IRS. If the buyer has determined F.I.R.P.T.A. withholding applies, the buyer and seller may mutually instruct the settlement agent to deduct the 10%, gather the applicable forms and remit them to the IRS on their behalf.

Will a Limited Practice Officer (LPO) give legal advice with regards to F.I.R.P.T.A.?
A LPO or settlement agent is not qualified to provide legal or tax advice relating to F.I.R.P.T.A.  If you are involved in a real estate transaction with a foreign person or entitiy and require legal advice, you will need to seek council from a professional other than the settlement agent.

More information on F.I.R.P.T.A. can be found here:
Internal Revenue Service – FIRPTA Withholding
Internal Revenue Service – Exceptions from FIRPTA withholding
Internal Revenue Service – Reporting and Paying Tax on U.S. Real Property Interests
Internal Revenue Service – Withholding Certificates (reductions in 10% withholding)
Internal Revenue Service – Definitions of terms and procedures unique to FIRPTA
Internal Revenue Service – Foreign Persons Involved in U.S. Real Estate Transactions

Questions or comments?  Please let us know by sharing below!