Real Estate is an important asset and is often the subject of fraud and forgery.
The public land records relied upon in conducting title examinations are far from perfect.
Fraud and forgery associated with documents recorded in the land records, are sometimes difficult to detect. Therefore title insurance is needed. In recent years all Title insurance companies have experienced an increase in title claim losses.Â
Factors contributing to fraud and forgery:Â
Increase in fraudulent Real Estate schemes.
Relaxation of underwriting standards caused by the frenzy in refinance activity.
The general depreciation of Real Estate prices.
Most claims, including fraud and forgery claims are preventable. Red flags in the land records or at closing should increase the Real Estate professional's level of scrutiny.Â Â
Mary was a young, single mother in desperate need for quick cash to help with day-to-day living expenses. John, a good friend of Maryâ€™s brother, coincidentally appeared in Maryâ€™s time of need and represented himself as an experienced financier. Because for Johnâ€™s high-level contacts in the lending industry, Mary was reassured that her lack of employment and bank account would not be a negative influence on her ability to obtain a loan secured by a mortgage on the home her parents had left her. John introduced Mary to a friend of his who was employed with a local lender and assisted with the loan application process. The lender, obviously anxious to assist Mary with a 12 percent interest rate and a 21 point loan began the process.
A title search revealed the fact that the last conveyance of record was to Maryâ€™s mother and father. The title company required deeds from the parents to Mary. The plot becomes confused when it was discovered that Maryâ€™s mother had died a year earlier, her father had been deceased for nearly four years. Nevertheless, Mary, with the assistance of John, was able to produce a warranty deed from the mother and a quitclaim deed from the father. The deeds contained a recent notary acknowledgement even though both deeds were dated in 1995. Both deeds were recorded (eight years after the alleged execution), the loan funded, and the title insurance policy issued. Mary soon defaulted on the loan. Prior to the foreclosure, Maryâ€™s siblings (who were the heirs to the property) filed an action challenging the validity of the deeds and the mortgage. The assignee of the mortgage, as successor under the title policy, tendered the defense of the litigation to the title company and counsel was retained. Lenderâ€™s counsel filed a third party action against the notary who witnessed the signatures on the deeds.
Eight-years old deeds from the parents.
Intra-family transfers ( including transfers between spouses)
Quit-claim deed ( as oppoused to warranty deed )
Individual who appears with original documents signed by others.
Each individual involved in the Real Estate closing process needs to develop a sixth sense to look beyond the obvious and take issue with the more subtle "red flags" that arise.
Some common facts patterns:
The absentee property owner
Unimproved property owned by nonresidents
The absentee spouse, Where one spouse â€œvolunteersâ€ to obtain the signature of the other spouse, significant red flags are raised
The unseen party
The unusually rushed closing
Techniques to protect against fraud and forgery in real estate transactions.
Real estate professionals should be vigilant to any â€œred flagsâ€ raised in closing situations. Being called paranoid should be considered a compliment! Use a critical eye and develop an inquiring mind! Use common sense!
Real estate professionals should not hesitate to investigate signatures with witnesses and notaries. Honest witnesses and notaries will not mind!
In these days of the Internet, it is often possible to check names, addresses and telephone numbers of parties instantaneously.
Real Estate professionals should not hesitate to ask questions of lenders, mortgage brokers and others involved in closings.
Everyone involved in a closing (with the exception of the â€œbad guysâ€) should be interested in eliminating fraud and forgery and should cooperate when questions are raised.
A technique that is sometimes used is to mail a letter to the address of the property involved or to the address where the tax notices are mailed. The real property owner may be alerted to a scheme involving his or her property.
Real Estate professionals should not let any partyâ€™s demand for haste result in a failure to examine the â€œred flagsâ€
Notaries should be encouraged to secure their seals.
Notaries should be encouraged never to acknowledge signatures by telephone.
Real Estate professionals should involve and cooperate with law enforcement authorities.
Powers of attorney are often suspect. The use of a power of attorney, alone, should raise a red flag.
Signatures on closing documents should be compared with signatures in the chain of title. (A current seller has most likely signed a prior mortgage. These signatures can be compared.) Pay attention to â€œshakyâ€ signatures of aged persons and persons of failing health, particularly if later signatures are more youthful.
Pay attention to spelling. Forgers often misspell their victimsâ€™ names or sign them differently, like with or without middle initials, with or without designations such as â€œSr.â€, â€œJr.â€, â€œM.D.â€.
Original documents should be examined. Examining photocopies is no substitute. Examining originals makes it easier to tell whether the signature was done smoothly, by the experienced hand of the true signatory or, instead, in a series of movements with the pen being lifted or the pressure being reduced as each stroke is accomplished. Tracings are also easier detected by examining originals.
Mortgage satisfactions of record by institutional lenders should be compared to suspect mortgage satisfactions that appear at closings. Institutional lender often stick to the same forms and same signatories. Variations should raise red flags.
Mortgages satisfied outside closings may raise red flags. Although individuals often pay off mortgages in the normal course, according to a normal payment year mortgage is paid every month for years and then is suddenly satisfied, not in connection with a closing, the real estate professional should pay particular attention to the satisfaction.
Make telephone calls to signatories to ask if they have actually signed documents.
Another short story
Sam Wheeler is a seller of mobile home and land packages. He markets mostly to firsttime buyers, and he advertises the lowest up-front costs in the industry. Sam tells closing attorneys that buyers have made down payments prior to closings, ranging from $3,000 to $5,000. Sam asks the closing attorneys to show theamount the borrowers paid in his office on line 303 of the HUD-1 Settlement Statement as â€œcash from borrowerâ€. The problem was that the funds were never paid. The seller, buyer and lawyer signed the HUD-1 as if it was factually correct. These individuals face federal charges.
Two closings in one day . . .Steve Tyler buys a house for $55,000 from an elderly widow, Susan Jones, and sells it to a young couple, David and Myra Smith, for $80,000. David and Myra obtain a loan from ABC Funding. There are two sets of HUDs and two deeds. We try to teach our attorneys not to handle flip transactions Typically, the clients expect the proceeds from the second transaction to be used to fund the first transaction. Often, the borrowers qualify for the loans with forged appraisals, employment verifications, and credit reports.
Bottom line. . .
â€¢ There are many, many ways closing attorneys and others involved in real estate transactions can get into trouble with fraud and forgery situations. We must be vigilant!
Angel Calzadilla, Real Estate consultantÂ