volume 7 issue 1
January 2012
Do Not Accept An Assignment
Of Proceeds
Inside This Issue
By Lisa A. Tyler
National Escrow Administrator
Do Not Accept An Assignment Of Proceeds
Happy New Year! Our resolution for the New Year is this newsletter runs
out of material and ceases to exist. This edition does not provide much
hope for the abolishment of the newsletter any time soon, because two–
out–of–three articles discuss infractions of Company policies! Two stories
involve settlement agents who failed to follow the Company’s policies
and procedures and, as a result, put the company at risk. In the first
story entitled “Do Not Accept An Assignment Of Proceeds” the settlement
agent's bad practices cost the Company $248,000. In the second story,
entitled “Settlement Agent Assists Investor In Defrauding The IRS,” we
are not sure if the Company will suffer a loss…yet. Read it to learn about
the settlement agent’s bad practices.
Lastly, we have a hero in the story entitled “The Devil Is In The Details.”
Thank goodness for Maggie Vega, an escrow assistant for Chicago Title’s
New Communities office in Riverside, Calif. Her heroic story saved this
edition from being a complete downer! Her story will lift your spirits and
raise your eyebrows - as well as your confidence - in our associates’
ability to recognize fraud.
We have new industry-related information for our settlement agents
nationwide to improve performance and efficiencies. Be sure to follow
the directions provided below to view the calendar and register for
an upcoming EXCEPTIONAL Escrow Training event either in your area
or via Webcast:
Login to the Company’s Intranet at home.fnf.com
Select Business Tools
Select Escrow Administration
Select Training
Select Training Calendar
Then register or mark your calendar for an upcoming event!
Our Company decided years ago to take a stand
and stop accepting assignments of proceeds to
third parties. Our decision was spurred by too
many bad experiences. This story provides yet
another reason we should not accept assignment
of proceeds instructions.
Settlement
Agent
Defrauding The IRS
Assists
Investor
In
Foreclosures are just one of many challenges facing
our country in this economic crisis. People are not
only failing to pay their mortgages, but they have
also fallen short on many other obligations. Paying
taxes is one of them. It has become common for
an IRS lien to appear on a title report. The IRS,
however, is not in the business of owning real estate
so they regularly work with taxpayers to release
the property from the lien. They do not discharge
the lien altogether, but examine the transaction and
often release the property when they can determine
there will be no proceeds because the property is
over-encumbered. Read on to find out how one
settlement agent was duped into assisting a real
estate investor trying to defraud the IRS.
The Devil Is In the Details
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 assistant escrow officer
discovered the “devil in the details.”
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Fraud Insights is published
by Fidelity National Financial
We want your story ideas,
photos and suggestions
phone: 949.622.4425
e-mail: [email protected]
Editor:
Lisa A. Tyler
National Escrow Administrator
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settlement@
Do Not Accept An Assignment Of
Proceeds
Our Company decided years ago to take a stand and stop
accepting assignments of proceeds to third parties. Our decision
was spurred by too many bad experiences. This story provides
yet another reason we should not accept assignment of proceeds
instructions.
The transaction was a loan for a borrower who owned their
property free and clear. The property was located in the
state of Washington, but the borrower lived in California.
The transaction was being handled by an escrow officer in
Washington, who arranged for an approved notary to meet
with the borrowers in California to execute the loan documents.
Along with the executed loan documents, the borrower submitted
instructions to the escrow officer regarding where he wanted her
to wire his loan proceeds. The loan amount was $248,000 and
the borrower’s proceeds were for just over $209,000. The wire
instructions from the borrower instructed the escrow officer
to wire almost $90,000 to a small business and the balance of
$120,000 to another individual. The escrow officer complied with
his request and the loan closed.
as his property was free and clear, and that he did not sign
any loan papers with them. When the lender asked if he
lived in California he said no, that he lives at the property
address and had for years. The lender looked into the file and
discovered the borrower was an imposter. The lender has now
filed a claim under the title policy for forgery.
Upon notification of the claim, we attempted to recall the
outgoing wires and freeze the recipient’s two separate
bank accounts - both located at Chase Bank. Chase Bank
responded both accounts were drawn to a zero balance and
closed upon receipt of the wire transfers.
I cannot help but wonder if the escrow officer had stuck
to Company Policy and Procedure would she have closed
this fraudulent deal? None of the loan proceeds were made
payable to the actual borrower. If she had insisted on paying
the proceeds to the borrower what would he have done?
Would we still have the money? To add insult to injury,
the signing was set up with an approved notary and not
BancServ. The approved notary only carries $100,000 in
errors and omissions insurance which is the minimum amount
required by Our Company to be included on the approved
notary list. If it is proven the notary did not properly identify
the signer, the maximum amount which can be recouped
from them is $100,000. BancServ carries $15 million in
errors and omissions insurance. Had a BancServ notary been
used, instead of an approved notary, we would stand a better
chance of being reimbursed our losses.
Moral Of The Story
Company policy prohibits settlement agents from accepting
assignments of proceeds to unrelated third parties. Company
policy also prohibits splitting up proceeds. Instead, settlement
agents should make one disbursement. To add insult to
injury, neither of these disbursements appeared on the
closing statement and the lender knew nothing about them.
In this story, had the escrow officer followed policy she might
have been able to avoid a very expensive claim for fraud
and forgery.
The first payment date came and the borrower failed to pay. The
lender sent a notice of late payment, but instead of sending it to
the borrower’s mailing address in California, they sent the notice
to the property address in Washington. The owner contacted the
lender stating he did not have a mortgage with them or anyone,
volume 7 issue 1
January 2012
Settlement Agent Assists
Investor In Defrauding The IRS
Foreclosures are just one of many challenges facing our country
in this economic crisis. People are not only failing to pay their
mortgages, but they have also fallen short on many other
obligations. Paying taxes is one of them. It has become common
for an IRS lien to appear on a title report. The IRS, however, is
not in the business of owning real estate so they regularly work
with taxpayers to release the property from the lien. They do not
discharge the lien altogether, but examine the transaction and
often release the property when they can determine there will be
no proceeds because the property is over-encumbered. Read on
to find out how one settlement agent was duped into assisting a
real estate investor trying to defraud the IRS.
One of our Las Vegas offices opened a sale transaction. The
seller was a real estate investor who purchased the property only
a few months earlier. Title was held as John Doe, an unmarried
man. When the title report came in it showed the property was
encumbered by only one deed of trust along with a tax lien. The
tax lien was against a limited liability company (LLC) and its
members, one of whom was our seller Doe. The settlement agent,
Betty, contacted Doe to inform him she needed to order a demand
from the IRS.
He explained the lien was against the LLC, was not his personal
obligation and should therefore not affect his sale. Betty explained
she could not close without a release of lien for this property
from the IRS. She asked Doe if she should proceed with ordering
a demand from the IRS or if he would be contacting them to
negotiate a release of the property only. Doe told her he would
take care of it.
A couple of weeks later Doe asked Betty to update the title
report, as there should be a second deed of trust of record.
He also requested a HUD-1 Settlement Statement showing a
payoff of both loans resulting in no proceeds to him. He planned
on submitting the HUD-1 to the IRS to induce them to release
the property from the tax lien. Betty thought this was odd and
contacted management.
Unbeknownst to Betty - Jane, another settlement agent within the
Company, handled the initial purchase of this property for Doe.
Jane contacted management about the IRS lien, as she had heard
the property was under contract and now in escrow with another
settlement agent within the Company. Jane was curious about the
IRS lien since it was against the LLC and not Doe individually, and
did not appear on her title report when Doe acquired the property.
Since both calls came at the same time, management reviewed
the updated title report and documents. The second deed of trust
had been prepared by someone in the Company and notarized by
Jane. Management noticed the document was dated two months
earlier, when Doe purchased the property, yet it was recorded only
a few days ago. When management inquired about the document,
Jane explained Doe had come into her office and said he forgot to
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have her prepare and record a deed of trust in favor of his
investor on the purchase. He asked her to help him out, and
she allowed Doe to back-date the deed of trust and she backdated the notarial certificate. Jane gave the original to Doe
who promptly recorded it.
Doe was contacted by management who told him they would
not be providing him with an updated title report reflecting
this fraudulent deed of trust. They made it clear to Doe Our
Company would not assist in defrauding the IRS. Fortunately
they were able to convince Doe he was headed down the
wrong course and he did not proceed.
Settlement agents are considered the last honest people
in a real estate transaction. The IRS certainly counts on
it. When the IRS agrees to provide a release in order to
allow a taxpayer to sell their over-encumbered property,
their approval is conditional. It is conditioned upon receipt
of a HUD-1 Settlement Statement confirming the seller
received no proceeds. The IRS knows, per Title 18 U.S. Code
Section 1001 and 1010, “It is a crime to knowingly make
false statements to the United States on this or any other
similar form. Penalties upon conviction can include a fine and
imprisonment.” Upon confirmation from the settlement agent
the IRS prepares and records their release.
Moral Of The Story
Jane’s
behavior
is
inexcusable.
Settlement
agents
should never allow a document to be back-dated in their
presence. Settlement agents who are also commissioned
notaries should never participate in back-dating a notarial
certificate. Lastly, settlement agents should never prepare
courtesy documents.
The Devil Is In the Details
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 assistant escrow officer discovered the “devil
in the details.”
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.
After preparing numerous estimated settlement statements and
providing a preliminary report, Chicago Title’s 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.
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.
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.
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. For her
heroic performance, she has been rewarded $1,000 and given
a letter of recognition from the Company.
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.
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