Escrow Officer Banned Because of Short Sale Oversight

The 90-Day Condition…

Short pay lenders are serious about the principals upholding the terms and conditions placed on them by the short sale agreement. One of the most common conditions reads, “The property will not be sold within 90 days of the closing date of the subject real estate purchase contract.” Short pay lenders enforce this condition by checking the chain of title post–closing to verify the property owner matches the buyer shown on the settlement statement provided them at closing.

When the title to the property is in the name of someone other than the buyer, they immediately ban the closing agent from closing any further short sale transactions involving the lender or from closing any new loans originated by the lender. The ban on the closing agent is personal and it is serious.

True Story…

An escrow officer at one of our sister companies closed a transaction July 31, 2012. The Realtor® completed a Short Sale Affidavit spelling out the above condition not to resale the property for 90 days. The seller signed the affidavit, as did the real estate agents – but not the settlement agent or the buyer. Their information was printed on the affidavit but their signatures were never rendered. On September 27, 2012 (just 57 days later) the same escrow officer closed a subsequent sale of the subject property to a new buyer.

Months later the escrow officer was working on another unrelated short sale transaction with the same lender. The agent was notified by the short sale processor of the following message, “All of our files are sent through quality review and the settlement company and agent do not meet our quality review guidelines. You will need to submit documents with an alternative settlement agency. Thank you.”

The agent did not have a clue why the short payoff lender needed to have the closing moved to another settlement agent. The settlement agent did not know either, so she reached out to the lender to find out why and this was their response:

We approved a short sale for a loan that was secured by the property located at 7519 Paradise Drive, Anytown, USA. The HUD–1 shows that this transaction was closed by an escrow officer of FN Title on July 31, 2012. All parties to the transaction, including the escrow officer, signed a Short Sale Affidavit in which the parties agree not to sell the subject property within 90 days of the close of the short sale.

However, public records show that the buyer from the short sale sold the property to another entity on September 27, 2012. A copy of the Grant Deed from the September sale was notarized by the escrow officer.

Wells Fargo Home Mortgage has concerns with business practices that may place us, our customers and/or investors at greater risk of loss in connection with short sales – whether we are the servicer on the loan being paid off short, the lender on a new loan for the property or both.

The following business practices are unacceptable:

  • Allowing a sale to close when the seller has not yet acquired title and paid off all liens that are not assumed (with the approval of the lender).
  • Producing a HUD–1 where the parties to the transaction are listed differently than the deed transferring the property shows.
  • Allowing a short sale to close without following all the requirements of the lender(s) being paid off for less than the full amount owed. This includes but is not limited to fee specifications, parties to the transaction and execution of all related documents.
  • Knowledge that the parties to the transaction are using a trust and/or transfer of beneficial interest that may mislead the current or new lender(s) as to the true identities of the parties involved.
  • Allowing a short sale to occur between parties that are related or affiliated by family, marriage or commercial enterprise.
  • Allowing a short sale to occur with an agreement or understanding between the parties that the Seller will remain in the subject property as a tenant, or will later obtain title or ownership of the subject property.
  • Allowing a short sale to occur without disclosing all agreements, understandings or contracts relating to the current sale, or subsequent sale, of the subject property of the short pay lender.
  • Allowing a short sale to close in which any of the parties to the short sale, including the settlement agent, will receive any proceeds or other remuneration from the short sale transaction except as set forth in the related settlement statement.
  • Allowing a short sale to close in which any of the parties to the short sale have any knowledge of any offer to purchase the subject property for a higher purchase price than contained in the short sale purchase contract that has not been presented to the short pay lender.
  • Allowing a short sale to close with any knowledge that the subject property will be sold again within 90 days of the date of the short sale.

Wells Fargo expects that settlement agents closing its transaction will not engage in this type of conduct. For this reason, Wells Fargo has declined to use your services at this time.

The escrow officer is appealing the decision of the lender banning her from closing any further short sale transactions or new loans, since she did not sign the Short Sale Affidavit containing the condition not to re–sale the property for at least 90 days. In response to the escrow officer’s appeal, the transaction has been reviewed in greater detail only to discover additional discrepancies as follows:

  • The 1st lienholder’s short pay agreement only allowed $2,000 to be paid to the second. The second lienholder demanded $4,700. The buyer paid the additional $2,700 at closing. She closed without the 1st lienholder’s approval of the additional amount being paid.
  • Payment of the additional $2,700 was not reflected in the 500 section of the HUD as a payoff, it was disclosed as a buyer charge in the 1300 section of the HUD.
  • After adjusting the prorations at time of disbursement there was an additional $46.48 in favor of the seller. The escrow officer paid the overage to the 2nd lienholder, instead of the first who was only allowed to receive $2,000.
  • Post–closing, the buyer received a refund of $564.55 even though the short pay agreement indicated, “Neither the seller nor any other party may receive any sale proceeds nor any funds as a result of this transaction except as noted in this Demand Statement.”
  • The borrower on the short pay letter does not match the seller on the HUD. The borrower was a single woman who is now married. She and her new husband signed the closing documents without reference to her maiden name.

When questioned, the escrow officer’s response to the additional discrepancies were that she felt the short pay lender’s approval of the HUD was sufficient approval for the changes.

MORAL OF THE STORY

Taking the measures listed below will prevent the settlement agent and their Company from being banned from providing settlement services.

If the settlement agent is closing a second transaction on the same property, they should demand to see the short pay agreement and all other documents to ensure the property can be re–sold within the timeframe of the new contract.

  • If there is more money to be paid to a junior lienholder than the 1st lienholder, the transaction cannot close without an amended agreement from the short pay lender. An approval of the settlement statement does not constitute a change in terms of the agreement.
  • If the agreement states that no one in the transaction is to receive “proceeds or any funds” that means “refunds” too. No post–closing funds should be given to any party. Instead, the refunds should be sent to the short pay lender to apply toward their shortage – even if the borrower overpaid at closing.
  • The seller on the settlement statement and the borrower named on the short pay agreement must match. If the borrower on the short pay agreement was later married, the settlement statement should reference her maiden name as well as her married name. The seller on the settlement statement and the borrower named on the short pay agreement must match. If the borrower on the short pay agreement was later married, the settlement statement should reference her maiden name as well as her married name.

Bank of America Short Sale Letter Verification Hotline

short pay letter verified

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

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

Title & Escrow Officers and Original Borrowers May Use the Hotline

Bank of America Short Sale Customer Care Department

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

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

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

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

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

To verify an approval letter, select Option 1

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

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

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

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

Questions or comments?  Please share below!

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!

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!

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.