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.

Questions or comments?  Please share by leaving a comment below!

 

REO Transaction? Watch for these details when setting client expectations…

Checklist for REO Transactions

Buying an REO (or Real Estate Owned) property involves a slightly different escrow process than your standard home sale. Realtors and Buyers need to remember that they are in escrow with a Bank/Lender (the “seller”) and the Bank/Lender has strict procedures in place that must be followed during the process.  Understanding certain details can help you set the proper expectations with buyers and help ensure that your REO escrow goes as smooth as possible.

Here is a glimpse of the details to look out for if you’re in an REO transaction.

Tips for smoother REO Transaction

Click the image above to download tips for REO transactions.

The Seller – In an REO transaction the Seller is an “out of state” Bank. The Bank contracts a 3rd party “Asset Management Company” which represents them in the transaction and approves the final escrow closing documents. All correspondence is done by email or by their website.

Title Commitment (prelim) – Escrow will handle ordering title to insure it is ordered from the appointed “title company”. This could be a local or national division depending on the arrangements the Seller has made.

Home Owners Association (HOA) – If you are aware of an active HOA, please be sure Escrow is also notified to insure all delinquent dues are paid current at time of closing.

Loan Documents – Should be delivered to Escrow five working days prior to closing. Once loan documents are received and Buyer’s Lender has approved the estimated HUD Settlement Statement, escrow can set an appointment for the buyer. The earlier the documents are available, the better the chances are of an on-time closing. A HUD Settlement Statement should be available to the Lender 24 hours after receipt of Loan Documents.

Proactive Communication

Our seasoned escrow staff believes that clear, early, and frequent communication with our clients is critical with every escrow closing.  With that in mind, we provide the information here to our clients immediately when an REO transaction is opened.  Being aware of potential roadblocks early in the process allows time for all parties to be better prepared and sets the stage for a positive closing experience.

Courtesy Signing – If the Buyer is unable to sign with the assigned Escrow Officer, an approved Mobile Notary will be required and an additional fee could be charged. Your Escrow Officer will arrange for the courtesy signing once the loan documents have been received.

“Seller documents cannot be sent until Buyers documents have been received.”

Seller Documents – Seller documents cannot be sent until Buyers documents have been received. The REO Seller and their 3rd party Asset Company may require 24-72 hours to approve the HUD after ALL demands have been received.

Courier Fees – Buyer courier fees will be “estimated” at time of signing and adjusted to the actual cost of courier fees at the time of funding.

Buyer / Lender Funds for Closing – To meet closing deadlines, we highly recommend wiring the funds. If you send a Cashier’s Check it will need to be held in the Trust Account overnight before we can record. If a Personal Check or Official Check is presented, it could require a 10 day hold before we could close and disburse funds.

Funding – Escrow will coordinate with the Buyer’s Lender on the Bank’s HUD approval before funding can occur. (Changes to the Seller’s side of the HUD require additional Seller approval).

Have you been a part of an REO transaction where one of these potential hurdles was cleared because an escrow officer alerted you? Please share by commenting beow!

Keys to a Successful Escrow Closing

Keys to a successful escrow closing - have your ducks in a row

Getting your ducks in a row for a smooth escrow closing

Closing on a home can be an exciting and stressful process all at the same time. With so many potential speed bumps it’s important we make your closing flow as smooth as possible. At Ticor we believe one of the easiest ways to accomplish this is by educating buyers and sellers as they prepare for the big day. In particular we’d like to highlight some of the simple steps a buyer/seller can take to expedite the process.  We call these steps the “Keys to a Successful Closing”.

Prior to Closing

Buyers:

  • Check that all conditions have been met by your Loan Officer.
  • Send the names of your lender and homeowner’s insurance company to your Escrow Officer.

Sellers:

  • Gather the following and deliver to your Escrow Officer:
  • Your forwarding address
  • Any existing mortgage information
  • Identify leased equipment
  • Homeowner Association information
  • Utilities (if they are to be paid out of escrow.)

Buyers and Sellers

  • Confirm with your agent that all contingencies have been satisfied.
  • Keep your agent informed of any vacation plans or times you will be unavailable.
  • If you plan to have your documents reviewed by an attorney, please notify your Escrow Officer at least 48 hours prior to signing.

Before Your Signing Appointment

  • Expect to sign at the escrow company one or two business days before the closing date.
  • If funds are required to close, be prepared to bring the monies in the form of a cashier’s check 24 hours before recording or wire transfer the same day as closing.
  • Have a valid photo identification available at your signing appointment: Driver’s License/State ID, Passport, or Green Card.
  • Expect the signing to last approximately one hour if you are the buyer and 30 minutes if you are the seller.

If you have questions or comments about the closing process, please share by commenting below!

Why do I need escrow? The escrow process in plain english.

When purchasing your first home, the escrow process can be a little confusing. Buyers and sellers may find themselves asking, “What is escrow and why is it needed?”

With that in mind we’ve formulated a brief synopsis of the escrow process in plain english.

An Unbiased Third Party

When buying or selling real estate, escrow is often opened for protection and ease. The escrow agent is setup as a disinterested third party and performs mulitple tasks, as directed, by the parties involved in the transaction. Some of these items include, holding of legal documents, disbursement of funds on the buyer or sellers behalf and distribution of funds in accordance with the instructions set forth by the buyer and seller. Both the buyer and the seller rely on the escrow holder to fulfill the intention of their instructions with consistency and in good faith.

The convenience provided by the escrow holder is realized by buyer and seller due to the fact that both parties can move forward independently, but in parallel to close the transaction. The idea is such that either party can submit inspections, loan commitments, funds, deeds and other items pertinent to the transaction’s closing. When all insructions are in order and consistent, escrow facilitates a seamless closing.

Summary: The Purpose of Escrow

The process of escrow was established to facilitate the purchase and sale of real estate. Here’s a brief outline of the escrow holder’s duties in a transaction:

• Act as the impartial “stakeholder,” or depository of documents and funds
• Process and coordinate the flow of documents and funds
• Keep all parties informed of progress regarding the transaction
• Respond to lender requirements
• Secure title insurance policy
• Obtain approval of reports and documents from the parties as required
• Proration and adjustment of insurance, taxes, rents, etc.
• Record the deed and loan documents
• Maintain security and accountability of monies owed and owing

Do you have questions or comments regarding the escrow process? Please share below.

4 Hot Tips for Working with Escrow on an REO Closing

Real Estate Owned transactions are much more common now than in recent years. And if you’re a Real Estate agent in the Seattle area, chances are you’ve been doing your homework on how to make these types of transactions flow better for everyone involved. Our escrow team has put together a few tips that will help:

The Seller requires the Buyer’s name(s) to appear on the purchase and sale EXACTLY how the vesting will be displayed on the ensuing Deed.
If there is a discrepancy between the two, the Seller will require an addendum to rectify this discrepancy. This can save a ton of time in the beginning portion of the REO Process and help eliminate future delays in closing.

Always review the Seller’s “Counter Addendum” to avoid surprises.
Escrow reviews the Counter Addendum for instructions regarding the closing. Some things we normally see addressed are: Closing extension fees, max seller paid closing costs, excise tax, actual closing dates, “property as is” clause, utilities ‘not’ paid through closing, etc.

4 tips for REO Escrow Closing

Click the image above to download 4 hot tips for REO closings.

Remind your Buyers that their Lender’s delivery of Loan Documents is the beginning of the final stage of closing.
This means Escrow absolutely needs the Loan Documents to generate a HUD for the Buyer’s Lender to approve. Consequently Escrow cannot send a HUD for the Sellers approval until the Buyer’s Lender is satisfied with the Buyer’s portion of the HUD. This is different than your standard transaction where your seller can sign ahead of time.

Depending on the Seller and their processing time frames; reviewing, signing and returning the Seller Approved/Signed HUD can take anywhere between 24-72 hours.
What this means is the Buyer’s Lender cannot fund the transaction until they have a Seller Approved HUD, even if Escrow has signed and submitted the Buyers funding package to the funding department. This is a commonly misunderstood portion of the process and can help set Buyer expectations in the final days of closing. It is best to plan for the full 72 hours anticipating any last minute delays from the seller.

How about you? Do you have questions or feedback regarding the REO closing process? Please leave a comment below!

The REO Transaction Process Explained

REO (Real Estate Owned) properties make up a significant portion of the inventory in the Puget Sound real estate market. As a reality of the current real estate industry REO transactions draw plenty of confusion and frustration for many who are involved. Here at Ticor we’ve been handling a steady volume of REO properties and deal with some large REO accounts. Based on our experience with REO transactions we’ve produced the following outline.

Please understand the REO process described below represents an “average” experience and just like any real estate transaction many factors can affect time frames and conditions.  For more details, click the following link for hot tips on working with escrow on an REO closing.

The Beginning – Mutual Acceptance

The beginning is signified by mutual acceptance of the Purchase and Sales Agreement

Day 1 Escrow is opened and Title is OrderedEarnest Money is deposited
Day 2-3 Deed is prepared and sent to SellerBuyer’s vesting info is taken from the purchase contract, if incorrect the Seller will request proper vesting and an addendum will be required

Buyer’s Lender requests fees from Escrow

Escrow orders HOA, Lien Demands and other money matters associated with the property

Day 4-5 Seller will begin requesting weekly status updates from Escrow regarding specifics like the appraisal, inspections, earnest money deposits, underwriting criteria for buyer’s lender, etc.

The Middle – Underwriting (10-20 Business Days)

For the next 2-4 weeks the Buyer’s Lender will work on underwriting the loan for the transaction and await approval to move forward.

The End – Closing Process (3-7 Business Days)

Day 1 Buyer’s Lender delivers loan documents to EscrowEscrow completes an estimated HUD and sends to Buyer’s Lender for approval
Day 2-3 Buyer’s Lender approves estimated HUD and notifies EscrowUpon Lender HUD Approval, Seller’s HUD is sent for signature

Schedule Buyer to sign loan documentation

Day 3-6 Signed Buyer’s documents are received back at EscrowFunding Package is assembled and sent to Buyer’s Lender for final funding approval pending Seller Signed HUD

Seller Signed HUD is received by Escrow and forwarded to Buyer’s Lender to accompany the Funding Package

 

If the Buyer’s Lender is satisfied with the funding package and conditions the transaction will fund, the Deed will subsequently be recorded and the transaction will close.

 

Questions or thoughts?  Please leave a comment below!

What is a Closing Protection Letter in Washington State?

A closing protection letter (“CPL”) is a written indemnity agreement requested by a lending institution or bank (“lender”) and issued by the title insurance company (“underwriter”) that will issue a loan policy insuring the lender. CPLs provide specific assurances to the lender which safeguard them in the event that dishonesty, fraud, or negligence cause failure of the escrow agent to properly disburse the closing or escrow funds in a real estate transaction. A CPL also provides assurances to the lender that their written closing instructions have been complied with.

CPLs are issued in most states and some of them restrict, limit or even prohibit their use. According to Washington State law (RCW 48.05.330) CPLs may only be issued when a title insurance company or its issuing agent is handling the closing.

Occasionally a lender will request a CPL when the closing is being handled by an outside party (i.e. independent escrow company or attorney) and not the underwriter or its issuing agent. In these cases the CPL can only be issued after a sub-escrow is opened and the underwriter or its agent has been instructed to accept lender loan funds, collect title related fees and premiums, the sub-escrow fee, payoff all liens that appear in the preliminary title commitment (i.e. “title report”) and forward the balance of funds to the outside party. The CPL does not protect against acts of the outside party.

Closing protection letters are largely misunderstood and misused. A CPL is not insurance and its application is limited. However, the lender”s title insurance policy does contain provisions which, among other things, insure the lender that it has an enforceable and valid lien on the subject property. Furthermore, the escrow agent must also have errors and omission insurance which provides protection against fraudulent or dishonest acts as well as unintentional errors and omissions.

Achieving Higher & Greener Standards in Real Estate

Uniform property informationQ: Is there an organization working on standardizing and streamlining the property records & transaction process in the United States so that we can have more efficient and greener real estate transactions in the future?

A: Why yes! In fact PRIA (Property Records Industry Association) is devoted to working on such things!

And we have had the privilege of having a brief phone interview with one of PRIA’s advisory council members, Mark Monacelli. In 2007 Mark was recognized with the PRIA Carl R. Ernst Award for Unique Industry Leadership. In the interview below, Mark explains what they do and how they are working to create higher and greener standards in the Real Estate industry.

PRIA is a non profit that develops standards and best practices on specific subjects within the Real Estate Industry. They create standards for a wide range of things including document formatting, eRecording standards, and a uniform set of standards from loan origination to closing for all states in the US.

If you have ideas, questions, or feedback on how you think the Real Estate Records process could be more efficient, please chime in by commenting below.