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Source of Title Blog : Ethics

A Suspicious Acknowledgment
by Robert Franco | 2009/04/13

In Ohio, documents used require both an acknowledgment by a notary and two witnesses.  There were a lot of cases where the witnesses weren't actually present when the documents were executed.  Often times, a notary signing agent would go to the borrowers' homes and the documents were returned to the office where someone there would add the witnesses signatures.  It didn't take long for the bankruptcy trustees to catch on and they were able to set aside mortgages that were not properly executed.

In response, the Ohio legislature changed the law - now, only the notary is required, no witnesses are needed.  This was probably the result of real estate, mortgage and title industry lobbying efforts.  But, I wonder now if even this lax standard is being properly followed.  I came across a document that set off warning bells.

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Categories: Attorneys, Ethics, Notaries Public, Title Industry

Source of Title Blog :: 2 comments ::

Someone Please Explain The Double Standard
by Robert Franco | 2008/12/08

As a title agent, I am required to keep client funds in a special Interest On Trust Account ("IOTA").  Funds in the IOTA account are kept segregated from our operating account.  The logic is simple - its not my money; it belongs to the clients.  Commingling client funds with company funds is expressly prohibited.  As a fiduciary, I owe the clients a duty to protect their money. 

Assume for the sake of argument that I get a hot stock tip, or Archie, at the local racetrack tells me that "Easy Money" in the fifth race is a "sure thing."  What do you assume would happen if I "borrowed" money from my IOTA account to make the investment, or place the para-mutual wager, and I lose it? (Would it even make a difference if I made money?)  I am guessing that I would not "pass go" and I would not collect $200 as I proceed straight to jail.

So, explain to me why a national underwriter, like LandAmerica, was allowed to put about $400 million of client money, held for 1031 exchange transactions, into commingled accounts that invested in auction-rate securities.  It sounds like LandAmerica was gambling with client funds.  When the securities became illiquid, the company collapsed and filed bankruptcy.  LandAmerica's agents could certainly never get away with commingling escrow funds - so why would LandAmerica do such a thing?

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Categories: Escrow/Funding, Ethics

Source of Title Blog :: 7 comments ::

Former NALTEA Member Planning An All Expenses Paid Federal Vacation
by Robert Franco | 2008/09/04

Nazarra Bernardo, a former charter-member of the National Association of Land Title Examiners and Abstractors (NALTEA), pleaded guilty to mortgage fraud in February.  Naz, which was how he introduced himself when I met him at one of the NALTEA conferences, portrayed himself as a "big shot" and a proponent of independent abstractors.  He definitely earned a reputation in the title industry - one which ran afoul of the NALTEA code of ethics.  He now faces up to five years of imprisonment and a fine of $250,000 or twice the gross gain or loss, whichever is greater.

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Categories: Crime, Ethics, Land Title Associations

Source of Title Blog :: 5 comments ::

The Punchline
by Robert Franco | 2008/02/20

I have long thought that RESPA has become a joke - now, HUD Secretary Alphonso Jackson has provided the punchline. Attorney Howard Lax recently wrote an article for RESPA News, HUD Violating RESPA?, that pointed out a clear Section 8 violation in a HUD sponsored program.

It is Oscar time. The award for Best Performance Sticking a Foot in Mouth goes to HUD Secretary Alphonso Jackson for his portrayal of a bona fide Cabinet Member.

According to a HUD press release:
First, individuals will be able to purchase a HUD Home with a $100 downpayment when they utilize an FHA-insured mortgage. Second, homebuyers can obtain a $2,500 sales allowance at closing when they use FHA financing, or a $1,000 sales allowance using other financing types. This incentive can be put towards closing costs, to make home repairs, or to pay down the mortgage. The $1,000 allowance for non-FHA financing must be used to pay closing costs. Finally, real estate brokers can obtain a $500 bonus when borrowers utilize FHA financing and a $250 bonus if borrowers use other financing options. The incentives are available through September 30, 2008.

As attorney Lax pointed out in the article, mortgage insurance is a settlement service, and HUD is not exempt from Section 8 of RESPA. For anyone who may not be familiar with RESPA, HUD explains Section 8 on their Web site quite clearly:

Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback or any thing of value in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed.

Hmmm... HUD's offer seems to provide an extra $250 bonus [kickback] for real estate brokers who direct their borrowers [referral of settlement service] to FHA financing [federally related mortgage loan]. I heard that the going rate for a referral in Florida was $300... I guess HUD is in the ball park.

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Categories: Ethics, RESPA

Source of Title Blog :: 2 comments ::

A Few Simple Rules
by Robert Franco | 2008/01/24

If there is one thing you can say about the criminals in the title industry, they are courteous (if not very bright). Take for example, Jarrell and Katherine Britts, formerly of Eagle Title and Abstract. They stole $7.7 million and just patiently waited at their home to be arrested. How nice of them.

Jarrell Britt, who was an officer with the Clearwater police department before entering the title business, started Eagle Title in 1993. At one time he employed 75 people and closed 100 transactions a day. But, like most criminals, that wasn't good enough. He wanted more.

He managed to steal $2.6 million from the company's escrow accounts before selling the company to First American for more than $3 million in 2004. He was retained as general manager after the sale and managed to skim off another $2.1 million. It wasn't until he violated his non-compete agreement with First American that he was placed on administrative leave, then resigned, and the audit was conducted that discovered the missing money.

He had managed to conceal his embezzlement by blaming short-falls on redundant, erroneous wire transfers. But, it was soon discovered that he had diverted the funds to other business interests and bought nice cars, a 37-foot boat, and a $1.6 million dollar home; a nice home, where they courteously waited to be arrested.

From this story, I thought it would be a good idea to review a few simple rules for owners' of title agencies:

RULE #1: DO NOT STEAL FROM YOUR ESCROW ACCOUNTS!! That money does not belong to you - it is your customers' money. This is really the most important rule, and if you follow it the rest of rules aren't really necessary.

So, do not steal from your escrow accounts, but if you do...

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Categories: Crime, Defalcations, Ethics, Small Agents, Title Industry

Source of Title Blog :: 5 comments ::

God On The Mortgage Crisis
by Robert Franco | 2008/01/02

When all else fails, pray! A recent Reuters article, Clergy Take on U.S. Mortgage Mess, examines the religious aspect of the mortgage crisis. Foreclosures have become a topic at church services around the country as many church-goers seek advice from their spiritual advisers. Below are a few snippets from the the article and my thoughts on the subject.

While the financial fallout of the mortgage meltdown has been well documented, the moral dimensions have not been widely discussed, religion experts say. They say they are particularly troubled on a moral level by the explosion of subprime mortgages, which allowed lower-income people with weak credit to buy homes based on attractive teaser interest rates that now are resetting to levels they cannot afford.

Though I am not a particularly religious person (at least compared to some), I did complete my undergraduate business degree at a Christian university. Embodied in most of our courses was an underlying theme of good Christian values and moral practices. I found them to be common sense ethical guidelines whether you choose to label them as Christian values, or not. Corporations, through their officers and boards of directors, have to answer to shareholders in their pursuit of profits but I always found it odd that so many people automatically assume that means higher stock prices and more dividends. Why don't they believe that shareholders expect their investment money to be used ethically? Perhaps that is a commentary on the decline of modern society. Do shareholders indirectly support unethical, immoral behavior through their investments? Furthermore, do they expect it?

Answering to shareholders should include strong moral and ethical leadership, as well as profits. Of course, profits are important for the success of a business - but they should not come at the price of integrity.

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Categories: Ethics, Mortgage Industry, Subprime Lending

Source of Title Blog :: 5 comments ::

The Ethically Challenged Targets Signing Agents
by Robert Franco | 2007/12/28

Back in September, I ranted about what I considered to be a very unethical practice - notifying vendors that their fees were being reduced via email and placing the burden on them to contact the company if the fee reduction was unacceptable. In my opinion, if you want to negotiate a fee reduction you should get an "approval" from the vendor.

Now the same company, First American, has struck again; this time targeting the signing agents. In a mass email to their vendors, First American Signature Services will be changing their electronic document fee.

Due to current market conditions, effective January 1st, 2008 we will be changing our electronic document fee to $25 per signing order. This electronic document fee notification supersedes any previous fee agreements from First American Signature Services. If this fee reduction is not agreeable and you would like to be removed from our list of signing agents for business, please email our vendor relations team at fass.vr@firstam.com. Thank you for your understanding in this sensitive matter.

This email was followed up with a clarification.

Please be advised, the earlier fee change notification pertains to the electronic printing of documents only. This document printing fee is in addition to the standard signing fee paid per order.

My first problem with this email is First American's perception of who's fee this is: "...we will be changing our electronic document fee..." It isn't their fee, it is the signing agents' fee. If they want to change, or renegotiate, a vendor's fee they should contact them and see if they can work something out. It never hurts to ask, right? But, why ask when you can be this arrogant and tell the vendor what they will charge? Would they ever dream of emailing their electric company and telling them that they are changing the amount the electric company charges?

From what I have heard, the signing agents are much more defensive of their fees, and better organized, than the abstractors. I wonder how this will go over with that crowd. There is a discussion on the Notary Rotary forums and it doesn't appear that the email was accepted graciously.

$25 is the fee for an electronic signing. I told them to outsource it to India where they outsource their title work. I'm not driving to a borrowers home for that.

Come on people, are you that hard up to accept this fee change. Some of you are and this will help throw you out of the signing business. You will get what you deserve.

In fairness, there seems to be some confusion over the fee that is being reduced. Which is likely why the clarification was sent out. But, regardless, this is a very poor way to work with vendors.

Once again - it is First American. What is up with this company? They continue to prove that they are deserving of the "ethically challenged" label I slapped them with back in September. They have no respect for other professionals in the industry - where would they be today without their abstractors and signing agents?

Robert A. Franco

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Categories: Ethics, Notaries Public

Source of Title Blog :: 11 comments ::

The Certified Copy Racket
by Robert Franco | 2007/12/06

Most of us have heard of National Deed Service. They are the outfit that sends very official looking letters to homeowners offering to provide them with a certified copy of their deed for around $70. A copy which is available from the county for just a few dollars.

Recently, David Bloys, founder of News for County Officials, sent me a copy of one of the letters that National Deed Service sends to homeowners.

Our records, obtained from public information, show that Property Deed Document #XXXXX recorded December 11, 2006 indicates your ownership interest in the property located at 123 Main St.

At the time you purchased your property, a deed was prepared that shows the title was transferred to you. This deed was recorded by the Lubbock County County Clerk.

The U.S. Government Federal Citizen Information Center website recommends that property owners should have an official or certified copy of their deed. If you don't already have this important document, you may obtain one now. This document provides evidence that your property was transferred to you.

To obtain a Certified Copy of your Deed, complete the order form below and return it in the enclosed postage paid envelope with your payment of $69.50 which includes location, retrieval, postage and handling or fill in the credit card information below and either mail or fax your order to XXX-XXX-XXXX.

Due to the large number of transactions, this will be your only notice of our service.

All orders will be handled promptly.

National Deed Service, Inc.

[below this, is a stub to tear off and mail in with payment.]

The problem I have with this type of service, is that it takes advantage of the elderly, and those who don't know that they can get this copy themselves for next to nothing. The other side of this, as some people see it, is that it is a convenience that may be worth the fee. However, they don't sell it that way; they don't let people know how to obtain it themselves for a few dollars and offer to provide the convenience. Instead they create a sense of need and hope that people will pay the fee out of a fear of what could happen if they don't.

Regardless, the scam seems to have caught on with another company that saw a way to make a fast buck. Florida Record Retrieval, Inc. is doing the same thing and officials in Florida have issued warnings.

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Categories: Ethics, Marketing, Public Records

Source of Title Blog :: 10 comments ::

The $6.4 Million Dollar Question
by Robert Franco | 2007/11/30

The Department of Housing and Urban Development (HUD) has reached an agreement with six home builders and First American under which the companies agreed to pay $6.4 million but deny that they committed any illegal acts. Typical HUD settlement. First American also agreed to shut down 84 "affiliated partnerships" formed in Florida with real estate brokers, mortgage brokers, banks and home builders.

According to an article on MercuryNews.com:

Officials said they existed primarily to steer lucrative title insurance business to First American, which split consumers' insurance premiums with participating partners.

In effect, according to the investigators, home builders, lenders and real estate firms could pocket part of buyers' closing costs without customers' knowledge. On paper, the partnership affiliates appeared to be ordinary title agencies, carrying names such as Security First Title, USA Title Partners, Discount Title Services and the like.

But investigators from the federal Department of Housing and Urban Development (HUD) and Florida insurance regulatory agencies found "all regular title services required to effect title insurance were performed by First American, not the limited partnership agency," which was essentially a shell entity constructed "to compensate (participants) for the referral of the business."

These types of settlements are usually covered in the press from the homeowner's perspective. They explain how consumers may be paying more for their settlement services because the party they trust to direct the settlement services is actually getting paid by the underwriter. Consumers, though receiving disclosures, do not understand the full implications of the "affiliated arrangement" so they tend not to shop around for a better deal.

But, why don't we look at it from another perspective - the local independent title agent's point of view. Thus, the $6.4 million dollar question is - How do these "affiliated partnerships" affect the local independent title agent?

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Categories: Competition, Ethics, RESPA, Small Agents

Source of Title Blog :: 5 comments ::

Mr. Smith Gets A Home
by Robert Franco | 2007/10/30

Let's take a walk through a fictional home purchase scenario and see if we can spot all the problems with the process. Mr. Smith, our fictional buyer, wants a to buy his first home so he calls Ricky, the Realtor. Ricky shows Mr. Smith a few homes until he finds one he wants to make an offer on. The listing price is $150,000. Mr. Smith then calls his local bank and is told that he will need at least 3% down, or $4,500, which Mr. Smith doesn't have. Ricky explains to Mr. Smith that he can still buy the home, but he needs to call Max, the mortgage broker.

Max, tells him that he can get him approved, but the 30-year fixed rate will be higher. "But, don't worry," explains Max. "Your payment won't go up because we will get you a variable rate." Because Mr. Smith doesn't have enough money for closing costs, Max and Ricky devise a plan to allow Mr. Smith to borrow more money than the actual purchase price.

Ricky talks Sam, the seller, into increasing the purchase price to $155,000 and paying up to $5,000 of Mr. Smith's closing costs. "But, don't worry Sam," explains Ricky. "We will still base your commission on the $150,000 so it won't really cost you anything."

Max calls his friend Andy, the appraiser, and tells him that they need the appraisal to come back at $170,000. That way, Mr. Smith will have some equity in the home and the down-payment can be avoided by running it through as a refinance. How does that work? Max and Ricky get Sam and Mr. Smith to back-date a phony land contract. Now instead of a purchase, this transaction has been miraculously transformed into a refinance of a land contract.

Tammy, the title agent, gets ready for the closing. She notices the land contract was never recorded, but doesn't say anything to the lender. At the closing, the interest rate and Mr. Smith's payment are a little higher than he expected. Fortunately, Max is there to help explain that. "I know it's a little higher than you expected Mr. Smith, but that is because you are buying this house with no money down and we couldn't verify enough income for the program we wanted to put you in." Rather than verify Mr. Smith's actual income, which was insufficient, Max put him in a stated-income program. "But, don't worry about it - you make your payments on-time for a year and we will refinance you into a lower fixed-rate mortgage."

"But, what about the prepayment penalty?" Asked Mr. Smith. The loan has a three year prepayment penalty. "Yes, but it's only 1%. It will be worth paying for the savings we are going to get you," says Max.

Then Mr. Smith notices another "funny" fee on the settlement statement. A "yield spread premium" of $2,325 to the broker marked as "POC" on the HUD-1. "The little 'l' after the amount indicates that the lender is paying that fee. You aren't paying it, so you don't have to worry about it." Nobody explains to Mr. Smith that the lender is willing to pay Max more than $2,000 because he sold Mr. Smith a loan with a higher rate than he could have gotten. This, of course, is in addition to the 1% Max had already charged him.

By this time, Mr. Smith is thinking he may be in over his head. Who is supposed to be looking out for his best interest? His Realtor, his mortgage broker, the title agent? Nope. Mr. Smith is realizing that he is unrepresented.

Tammy, in an effort to get Mr. Smith to close the loan, explains to him that because of the land contract, this is technically a refinance. "In a refinance transaction, you have a three day rescission period to think about the terms. And, if you don't like any of them, you can cancel the loan." But, nobody mentions to him that if he cancels the transaction he may be in breach of the sales contract. "You can even have your attorney review the documents during the next three days if you like," says Tammy.

Mr. Smith reluctantly signs and Ricky, Max and Tammy all cross their fingers and hope that the loan doesn't rescind so they can get their checks in three days. Ricky will get $9,000, Max will get about $4,000, and Tammy will make about $1,000 and has the potential of getting more business from Ricky and Max, who are impressed that she was able to convince Mr. Smith to close.

Fast forward one year... Mr. Smith's loan adjusts upward by 2% and his payment went from $1,031.22 to $1,247.17. Unfortunately, he cannot refinance into a lower fixed rate because he wasn't able to make all of his payments on-time and he still cannot verify enough income to qualify for a traditional mortgage.

Now that Mr. Smith's payments are even higher, he will be seeing an attorney about bankruptcy and foreclosure. Like millions of other homeowners who thought that their Realtor, mortgage broker, and title agent were looking out for them, Mr. Smith has learned a lesson the hard way. And, that is how Mr. Smith gets... and loses... his home.

Robert A. Franco

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Categories: Appraisals, Escrow/Funding, Ethics, Foreclosures, Mortgage Fraud, Title Industry

Source of Title Blog :: 8 comments ::

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Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco



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