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 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.


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

Click the image above to download a printable version of this article.

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!

Flopping – The Latest Short Sale Scam

Short Sale Loss Mitigation

Short Sale Fraud
It is estimated lenders lose hundreds of millions annually in undervalued short sale transactions. Loss mitigators working on behalf of the lenders have anywhere from 450 to 600 active files on their desks at one time. Working the best deal for the lender is an all-consuming task for the loss mitigators and each short sale has its own complexities.

When a seller applies for short sale approval, the seller submits hardship affidavits and signs forms such as a Purchaser Eligibility Certification which includes statements such as:

In making this request for consideration of a short sale I certify under penalty of perjury:

  • All of the information in this document is truthful.
  • I/We agree that the financial information provided is an accurate statement of my/our financial status. I/We understand and acknowledge that any action taken by the lender of my/our mortgage loan on my/our behalf will be made in strict reliance on the financial information provided.
  • I understand that if I have intentionally defaulted on my existing mortgage, engaged in fraud or misrepresented any fact(s) in connection with this document, the lender may cancel any modification of foreclosure prevention agreement and may pursue foreclosure on my home. I understand the lender will use the information in this document to evaluate my eligibility for a short sale.

Even with statements such as these, the loss mitigator still goes through a process to confirm the information provided by the seller is true, but some fraudsters have found ways around this.

A Short Sale Flopping Example

In August 2010 one of our our South Pasadena, Fla. offices closed a short sale transaction. The seller (we will call him Jim Kling) had two loans on the property and the lender on both loans was Bank of America. The sales price was $425,000. Bank of America agreed to the sale and issued short pay approval letters for both loans.

The buyer was a LLC and the managing member of the LLC was Bill Hamley. The buyer purchased the property with cash and did not get a purchase money loan. At closing, the buyer and seller both signed an arm’s length affidavit which contained these statements:

“There are no hidden terms or hidden agreements or special understandings between the Seller(s) and the Buyer(s) or among their respective agents which are not reflected in the Agreement or the escrow instructions associated with this transaction.

There is no agreement, whether oral, written, or implied, between the Seller(s) and the Buyers and/or their respective agents which allows the Seller(s) to remain in the property as tenants or to regain ownership of the Property at any time after the consummation of this sale transaction.”

Cindy Archer at our escrow office was the settlement agent. She closed the sale in accordance with the terms of the short sale approval letters. Upon receipt of the payoffs, Bank of America promptly prepared and recorded a satisfaction of mortgage for each loan.

In April 2011, the buyer decided to sell the property. The seller entered into a purchase and sale agreement, and opened escrow with Cindy Archer. The title report was ordered, and upon receipt of the title report Cindy reviewed the requirements. She ordered the HOA demand, checked the property taxes and looked up the LLC with the state. The LLC was in good standing but the managing member had changed. According to the state the managing member was now Jim Kling. Remember that name? Jim Kling was the borrower who signed an arm’s length affidavit when he sold his home via short sale stating he had no side deals with the buyer. This same Jim Kling was now re-selling his home for almost one hundred thousand more than what he sold it for just eight months earlier. Not in our office he’s not!

Flopping is where the buyer of a short sale purchases the property for less than the true fair market value by influencing the appraiser or real estate agent to provide a Broker Price Opinion (BPO) which undervalues the property.”

How could Jim re-sell the same property less than a year later for $100K more when the real estate market is still depressed? This is the latest trend in mortgage fraud and it is called flopping. Flopping is the opposite of flipping. Flopping is where the buyer of a short sale purchases the property for less than the true fair market value by influencing the appraiser or real estate agent to provide a Broker Price Opinion (BPO) which undervalues the property. This information is provided to the loss mitigator who approves the sale based on the fraudulent information. The buyer then turns around and sells the property at fair market value, realizing a profit the lender should have received. In this instance, both the buyer and seller participated in defrauding the lender.

Flopping is a serious concern.

According to Fannie Mae a flopping scheme requires the perpetrator to conceal or provide falsified information to the loan servicer. This is information the servicer needs to make an informed short sale decision. These concealments may include hiding:

  • The true parties to transaction
  • Any contingent transactions
  • The true value of property
  • The transaction described above was not an arms-length short sale. Clearly the principals worked together to facilitate a reduction to the existing loan, resulting in the original borrower making a profit from the sale of his home. This is mortgage fraud on the part of the seller.

Our Company will not knowingly participate in defrauding or misrepresenting to a lender any facets of a transaction. Cindy had no knowledge of the fraud during the prior transaction. But, in the subsequent transaction, she could see what transpired and was not about to facilitate the completion of this crime. Cindy resigned from the transaction.

Earnest Money Instructions Clarified on New NWMLS Form 21

NWMLS form 21 Clarifies Earnest Money InstructionsThe recent changes to paragraph b “Earnest Money” in the NWMLS Purchase and Sale agreement (Form 21) finally gives escrow the authorization they need to assist in the release of the earnest money upon termination of the agreement. We are very pleased with this change; it will not only eliminate delay but will result in happier buyers, sellers, brokers and happier closing agents.

The Old Paragraph B – Why the confusion?
Remember that Escrow is a neutral third party that can only follow written instructions agreed upon between the buyer and seller. In the former version of the NWMLS Form 21 paragraph b. the instructions for what a closing agent could do with Earnest Money was EXTREMELY limited.

Under the old agreement the parties had to agree in writing as to disbursement of the earnest money, in the absence of such an agreement (Rescission) the closing agent was instructed to commence an interpleader action within 30 days of the demand. These limited choices left everyone including the closing agent feeling very frustrated.

A New Paragraph B – Clear Instructions
The revisions made to the form as of 8/11, provides the closing agent with the clear and precise instructions they need in order to release the earnest money in a timely manner. Not only does it give clear instruction to the closing agent but the buyers and sellers have also been given clear notice of the process if there is a dispute with earnest money.

Upon termination of the agreement the parties shall execute a release form (Authorization to Disburse Earnest Money – Form 50), if either party fails to execute the form, the other party may make a written demand to the closing agent for the earnest money. The closing agent shall promptly deliver notice of the demand to the other party. If the other party does not object to the demand with 10 days of said notice the closing agent is authorized to disburse the funds to the party making the demand. In the event of dispute over the earnest money, the closing agent can still commence an interpleader action.

What do you think?  Will these revisions save you time and effort in the future?  Please share your thoughts by commenting below!

For your reference, we have included paragraph b. here:
nwmls form21 paragraph b

Residential Title and Escrow Rate Calculator –

Online rate calculators for title and escrow services have become indispensable tools for loan originators over the last couple years.  Why?  Because a higher degree of accuracy is now required when loan originators disclose settlement fees to consumers on the Good Faith Estimate or GFE.  And with settlement fees falling into three tolerance categories it’s critical for loan originators to know that the fees quoted by the title insurance and escrow provider will be accurate and won’t change by more than 10%.

Calculate rates for your GFE instantly! Try out the free title and escrow rate calculator today! Click here to try it now at!

Therefore as a service to our clients Ticor has created an easy to use, online rate calculator.  View the calculator at to try it out today! benefits:

  • It’s easy to use
  • 24/7 availablility
  • No need to log in
  • Calculate Fees in under a Minute
  • Quotes are valid for 60 Days

Here’s a 2-minute video tour of
Click on the play button below to watch it now.

Unable to display content. Adobe Flash is required.

A quick review of the GFE and HUD-1 Settlement Statement Changes

Last year significant changes were made to RESPA’s two primary disclosure forms (GFE and HUD-1 Settlement Statement) for the purpose of ensuring more timely and effective disclosures of the settlement costs of residential mortgage loans. One of the major changes was the addition of a third page to the HUD-1 which facilitates a side-by-side comparison of the settlement charges listed on the Good Faith Estimate vs. actual charges on the HUD-1 settlement statement.  In addition, the new HUD-1 makes it easier for lenders and settlement agents to identify tolerance violations with the settlement charges.

Charges that cannot increase on the HUD-1 Settlement Statement

  • Origination charge
  • Credit Charge
  • Adjusted origination charge
  • Transfer taxes

Charges that cannot increase in total by more than 10% on the HUD-1 Settlement Statement

  • Recording fees
  • Title Services
  • Any other required services that are provided by a company identified by the loan originator

Charges that can increase on the HUD-1 Settlement Statement:

  • The initial escrow deposit
  • Daily interest charges
  • Homeowner’s insurance
  • Any required services consumers purchase from providers not identified by the loan originator

What do you think? Is this calculator a time saver for your business?

Please share by commenting below!

Fraudulent Mechanic’s Liens Thwarted

Unfortunately, REO properties are a prime target for fraudulent Mechanic’s Liens, since it is not uncommon they might need some repairs or work done and since there are so many different people involved in rehabilitating foreclosed properties for eventual resale.

Mechanics Lien Fraud

A fraudulent mechanics lien was filed repeatedly against bank owned properties.

Fool me Once…
One of our sister companies had a sale transaction wherein Federal National Mortgage Association (FNMA) was the seller as the property was an REO bank owned property. The title report reflected a Mechanic’s Lien payable to Anna Moskovyan for painting. Moskovyan was contacted for a payoff statement and lien release. The payoff amount was shown on the settlement statement, however, FNMA stated they were not aware of any work being performed on the property by Moskovyan. Since this transaction was so close to closing, FNMA approved the payment and did not dispute the invoice or lien. Moskovyan came to our offices and picked up her check in exchange for a release of her lien.

Something’s Fishy…
Shortly afterwards an officer, Paula, from another sister company noticed Mechanic’s Liens appearing on all the title reports wherein FNMA was the seller. Paula did some further investigation and discovered, upon closer examination, it appeared the lien was exactly the same – simply recorded over and over again against different REO properties owned by FNMA. This is when the following warning was sent to her co-workers:

Mechanic’s Liens were recorded on FNMA properties in our area. The exact same lien, for the exact same amount, for the exact same service, was found recorded against several properties. We’ve checked with FNMA and the Listing Agent and this woman who signed this Mechanic’s Lien had not been contracted with to provide any services; the properties in question were not painted and were never scheduled to be painted. If you receive a title report or a supplemental report with a Mechanic’s Lien, let us know immediately so that we can get this addressed before you try to record. The agent in this particular case has had six of his FNMA listed properties compromised in this manner, and he has no idea who this person is.

We are not sure how wide-spread this is and whether it has gone to surrounding counties, however, it will likely disrupt recordings in our area for a while, and we need to keep our eyes open for them.

Once our offices confirmed FNMA had not contracted with Moskovyan to perform work on its properties, the operations obtained an indemnity on each transaction in which a fraudulent Mechanic’s Lien was filed with the county recorder and proceeding to close without paying the lien holder. The listing agent reported the fraudulent liens to the police department, and a case number was assigned.

Be Aware
If this lien or similar liens appear on your title report, do not take the lien at face value. Do some investigating and contact the seller and listing agent to make sure any lien affecting a property is, in fact, a true lien and not fraudulent. This could end up saving the customer and Our Company from a potential lawsuit.

The sad part of this tale is how it illustrates anyone can take a document to the County Recorder’s office, pay the appropriate recording fee and have it recorded against any property. The county does not check for validity of a lien, just that the document is in the proper format. The integrity of our public records system is broken down with every fraudulent document recorded. This only emphasizes the importance of title insurance and what a vital role Our Company plays in the American dream of home ownership.

Questions or comments? Please leave a share below!

The Anatomy of a “Cash Back” Mortgage Fraud Scheme…

Cash Back Mortgage Fraud Scheme Busted

A cash back mortgage fraud scheme puts the loan at a greater risk because it originates with negative equity in the property.

In March 2011, seven people were arrested and indicted in a mortgage fraud scheme. For approximately two years the defendants had perpetuated their scheme in more than 18 transactions. The indictment says they “knowingly and willfully devised, and intended to devise, a scheme and artifice to defraud lenders … to obtain money from lenders by means of material facts and fraudulent pretenses, representations, and promises, and by intentional concealment and omission of material facts.”

Here’s an example of how the scam worked.
The loan officer lured in a straw buyer by telling him he would be paid $10,000 for every house he purchased without having to put any money down, along with additional money when the homes were resold. Sounds great, right? The ring leader would remodel the house and rent it out. After two years, the house would be resold to the renter. The rent payments were applied toward the mortgage payments.

The straw buyer agreed to lend his name and credit to a transaction. The parties closed on the purchase of one property on a Wednesday for $550,000. The straw buyer obtained a mortgage for $495,000. The loan application contained the following material false statements:

  • Inflated monthly income
  • Inflated bank account balances
  • Inflated assets

The lender wired $502,041.34 to the escrow/title company. The escrow/ title company issued a check in the amount of $144,861.78 to a shell company the ring leader owned. This disbursement was not disclosed to the lender on the HUD-1. The straw buyer was given $9,700 cash in a paper bag by the loan officer after closing.

On Thursday the ring leader withdrew $66,500 from her bank account and converted it to a cashier’s check. The cashier’s check was provided to the escrow/title company as the down payment and closing costs purporting to be from the straw buyer and not third party funds.

Did you notice the timeline? The file closed before all the funds were in. This is what facilitated the scheme. The $144,861.78 is released to the ring leader who deposits the funds into her account so she can turn around and provide the down payment check on behalf of the buyer. No one is out any cash up front.

The perpetrators were indicted on 14 different charges. Their scheme qualified them for almost $13.5 million in fraudulent loans and received over $2,907,452 in ill-gotten gain from the proceeds of these loans and real estate transactions.

Here are some of the other details from the indictment:

Straw Buyer Mortgage Fraud

A “cash back” scheme is one variation of mortgage fraud. In a “cash back” scheme, the perpetrator of the scheme offers to purchase a property for more than the

seller’s asking price and submits a contract to the seller for the inflated price. The seller agrees to the sale because they are generally receiving the full asking price.
Often a “straw buyer” is used to facilitate the “cash back” scheme. Generally, a straw buyer is someone recruited by the perpetrator to take out a mortgage and purchase a house in their name. The straw buyer normally does not live in the house or have the intent to reside at the house.

A Uniform Loan Application, also known as Form 1003, is prepared for the straw buyer. A lender uses this form to record relevant financial information about the applicant who applies for a mortgage. Misrepresentations are made to qualify the straw buyer for a mortgage. In signing the loan application, the straw buyer acknowledges that “the information provided in the application is true and correct.”

This scheme could have never been pulled off without the escrow/title company. The indictment goes on to identify the role of an escrow/ title company in a real estate transaction:

Generally, a straw buyer is someone recruited by the perpetrator to take out a mortgage and purchase a house in their name.

A title or escrow company is used in which the subject property is deposited for safekeeping under the trust of a neutral third party (escrow agent) pending satisfaction of a contractual contingency or condition. Once the conditions are met, the escrow agent will deliver the property to the party by the contract.

After receiving the loan documents facilitating the buyer and seller signing, escrow agents prepare a final HUD-1 wherein details of the actual receipt of lender funds and fund disbursements are listed for the records of the lender, seller and purchaser. The escrow agent is required to disburse funds according to what has been indicated in the HUD-1 settlement statement.

The escrow agent received the down payment from the ring leader in transaction after transaction and never disclosed them as third party funds. The disbursements were also hidden since the ring leader was paid out of the escrow file without being disclosed to the lender on the HUD-1. The escrow/title company who handled these closings is now closed.

A cash back scheme puts the loan at a greater risk as the loan originates with negative equity in the property.

All of this information was crucial to the lender because a “cash back scheme puts the loan at a greater risk as the loan originates with negative equity in the property.” To summarize, “the co-conspirators artificially inflated the sales contract prices … the defendants concealed from the lending institutions by intentionally withholding from the lender that payments were made to unrelated third parties to the transactions or omitting on the HUD-1 that at the close of each sale a portion of the loan was paid to an unrelated third party to the transaction. Additionally, in some transactions, the parties failed to disclose to the lender that the straw buyer or purchaser of the property received cash back from other members of this conspiracy for the use of straw buyer’s credit to purchase the property.”

Moral Of The Story
All receipts and disbursements must be completely and accurately disclosed on the HUD-1 and to the lender. Making disbursements to individuals or entities who are not a party to the transaction is completely unacceptable. Seller proceeds should be disbursed to the seller only and not their LLC or members of their LLC.

$1.5M Foreclosure Fraud Scheme Busted

During a routine title exam, Lisa H. uncovered a forged quit claim deed. After a more thorough investigation, Lisa discovered the deed was one of many recorded by two brothers who were recently charged with a $1.5 million fraud scheme.

Foreclosure Fraud Lisa works for one of our sister companies as a title examiner. She was examining the chain of title for a residential sale of property in San Bernardino County, Calif. with a $350,000 sale price when she came across a deed she was sure was forged.

These were the signs that made her question the deed:

  • To avoid the payment of transfer tax, the transfer was declared a “gift” on the face of the deed
  • It was an uninsured deed and not recorded by a title company
  • The deed was handwritten
  • The handwriting matched the signatures on the document, including the signature of the notary
  • The notary stamp reflected the notary’s last name as “Desahagun” however the notary clearly signed his name as “Deshagun”
  • The notary’s name was listed on the office postings as a suspect and all documents containing the notary’s stamp should be scrutinized
  • The grantor’s signature did not match signed documents recorded previously in the chain of title
  • The “when recorded mail to” name and address was neither the grantor’s nor the grantee’s
  • Lisa ran a search on the grantee’s name, David Zepeda, and found approximately 70 other properties in which he was suddenly the owner

Lisa brought the deed to the attention of the advisory title officer and together they called the escrow officer to provide their detailed findings and to notify the escrow officer our underwriters would not be issuing a policy for this transaction. The escrow officer in turn called the property owner to find out if he in fact executed the handwritten deed. It turns out he did not. Lisa was right, the deed was a complete forgery and the true owner stated he had no intentions of selling his property.

The property owner then reported the incident to the District Attorney’s office. As it turned out, he was not the only victim of David Zepeda. The District Attorney’s office confirmed that David Zepeda and his brother, John Zepeda, were being investigated as part of a ring of suspects involved in a foreclosure scheme known as the David Zepeda Trustee Foreclosure scam, which so far has claimed hundreds of victims.

This story is an excerpt from our parent company’s Fraud Insights newsletter.  To read the entire article, click here.

A Proactive Approach at Ticor Title Northwest
Our seasoned Title Officers, Examiners, Escrow Officers, and Escrow closers in Ticor’s Puget Sound operation are trained to operate with the highest standards of conduct.  We are proactive in our efforts to identify potentially fraudulent activity in any transaction.

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