James Kevin Hughes, 53, of Crownsville, Maryland, a former part owner and president of a title company has been sentenced to 18 months in prison followed by three years of supervised release for crimes he committed in that role. Hughes defrauded lenders and his underwriter of approximately $3.1 million.
Hughes pled guilty to a federal wire fraud charge last year, along with former business partner Steven Troese and escrow accountant Brenda Lukenich. Troese has already been sentenced on similar charges and Lukenich is scheduled to be sentenced next month.
Hughes was a part-owner and operator of Troese/Hughes Title, a title and settlement company in Greenbelt, Maryland. Troese/Hughes shared an escrow account with another title company owned by Steven Troese, Troese Title Services. Although Hughes was unaware of the fact that the escrow account was shared, he was aware that there were shortages in the account. Sometime in 2006, Troese/Hughes opened a new escrow account, and the escrow accountant, co-defendant Brenda Lukenich, “assigned” a $1 million escrow shortage to the new Troese/Hughes escrow account.
In approximately 2006, the real estate industry started to slow. As business slowed down, it became the policy of Troese/Hughes to check with Lukenich as to when mortgage pay-off checks could be sent out, so that she could confirm that there were sufficient funds in the escrow account to cover the check. At this time, the mortgage payoff checks were stored in Federal Express envelopes under the credenza in Hughes’s office.
Hughes made efforts to fill the escrow shortage at Troese/Hughes by re-financing his own home twice and not paying off the prior mortgage. In addition, after an employee of Troese/Hughes re-financed his home, Hughes caused the prior mortgage on that home to not be paid off so that the money could be used to fill the escrow shortage, causing a loss to Chicago Title of approximately $217,000.
In March 2008, Chicago Title terminated its agency relationship with Troese Title and Troese/Hughes. In response, Troese Title and Troese/Hughes operations were consolidated into a single title operation, Troese/Prestige. Hughes was not permitted to play an active role in the operation of Troese/Prestige at the specific instruction of Chicago Title. Hughes continued to market and bring in new settlement deals and performed settlements. Lukenich still acted as the escrow accountant. It was agreed amongst Hughes, Lukenich and others that funds from any new settlement conducted by Troese/Prestige would be used to cover the mortgage pay-offs that were still outstanding at Troese Title and Troese/Hughes, contrary to the HUD-1 settlement statement and in violation of the express direction of the lender. Eventually, there were not enough settlements to cover all of the shortages. Chicago Title received information that a mortgage had not been paid off and conducted a surprise audit of Troese/Prestige. The escrow account did not contain enough money to cover all of the outstanding mortgage pay-offs from Troese/Prestige. Chicago Title, as the title insurer, was forced to make the mortgage pay-offs, to pay off funds due to sellers from settlement, and to pay the recording fees.
In total, the loss to Chicago Title stemming from the Troese/Prestige pay-offs was approximately $1.7 million.
In addition to his prison sentence, Hughes must perform 300 hours of community service, pay restitution of $3,107,246, and forfeit his interest in a South Carolina condominium.