stolen payoff check

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

The Check Never Made it to the Lender

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

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

The Payoff is Covered

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

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

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

The Moral of the Story

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

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

A Duplicate Check was Created

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

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

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