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Source of Title Blog

Mortgage Fraud Cops
by Robert Franco | 2008/05/14 |

Whose job is it to stop mortgage fraud?  Should the title companies be responsible for detecting mortgage fraud? And, what if they fail to do so... do they become criminal co-conspirators?  A Boca Raton title agency, Fortune Title Services, has found itself at the center of a an alleged mortgage fraud scheme that has led to several indictments.  The fraud apparently involved at least two dozen homes and more than $6.5 million in kickbacks described on the mortgage applications as "assignment fees," according to an article in Palm Beach Post.  The attorney for Marni Belkin, the attorney-owner of Fortune Title, claims that she was duped by the fraudsters.  As criminals get more sophisticated, it becomes more difficult for title agents to detect fraud.  Still, that doesn't prevent them from being drawn into an FBI investigation.

Source of Title Blog ::

Berry Louidort and Ralph Michel have been indicted on several charges including conspiracy to commit bank fraud, falsifying credit applications, mail fraud and money laundering.  Lauren Jasky, a Boca Raton mortgage broker, was also charge with conspiracy to commit bank fraud, falsifying credit applications, and mail fraud.  The scam allegedly involved inflated appraisals, straw buyers/borrowers and phony loan applications.  After pocketing as much as $650,000 on one of the homes, several have now gone into foreclosure.

Attorneys' Title Insurance Fund, the underwriter for Fortune Title, is currently investigating Fortune Title, but they have not suspended the agency and will take no action until they learn more about the transactions.  Belkin, has not been charged in the fraud. 

"The title company in this case did not do anything wrong and was not part of the criminal fraud," [Belkin's attorney] said, adding that Belkin and her employees had no reason to question the deals. In fact, the scam was sophisticated enough that sham borrowers appeared to have hefty bank accounts at Bank of America and six-figure incomes from a Delray Beach insurance agency, federal investigators said.

The most interesting part of the article discussed comments from several people regarding the role that the title agent plays in a real estate transaction.  

"We would like to think that our agents are capable of spotting these things and reporting them," said Norwood Gay, general counsel of Attorneys' Title Insurance Fund. "But there are situations where the fraudsters are so sophisticated and so clever that our agents get scammed."

As title agents, we should be aware of certain warning signs and we should bring those to the attention of the lender.  But, ultimately, what responsibility do title agents have in policing mortgage fraud?  Certainly, the ultimate decision to close a mortgage is with the lender.  The lender relies on the appraisal and credit reports provided by third parties.  They also rely on their mortgage brokers to provide documentation of income and assets of the borrower.  When some, or all, of that information is falsified, how is the title agent in any better position to uncover a sophisticated scam than the lender?

Nurik, Belkin's attorney, said that's exactly what happened in this case. He said the closing agent's role is to act as a processor, not as a cop or whistle-blower, a position echoed by Chuck Kovaleski, head of Attorneys' Title.

"The deal itself is between the lender and the borrower," Kovaleski said. "Their (the title agent's) role is not to critique the deal."

Rachel Dollar, a California attorney who runs MortgageFraudBlog.com and co-authored a book about loan scams, said title companies typically see hundreds of deals. It's not their job to scrutinize borrowers but to make sure the proper paperwork is filed, she said.

But, there is another point of view. 

But Michael Sichenzia, a convicted mortgage scammer who now is a consultant in Deerfield Beach, said title agencies have a broader duty.  "The title closer is the policeman of all these transactions," Sichenzia said.

There are cases where title agents are involved in the scams, but it could be easy for a title agent to caught up in the middle of an FBI investigation with no knowledge of what went on.  As title agents we rarely see the appraisals, credit reports, pay stubs, bank statements, etc.  There is really very little a title agent can do to detect a complex scheme when even the lender is unaware.  If the paperwork is all in order, the borrower has sufficient identification for the notary, and the disbursements are all being made pursuant to the lender-approved settlement statement, what can the title agent do to protect themselves from becoming the focus of nightmarish investigations by underwriters and FBI agents? 

Mortgage fraud is definitely a huge problem because the losses can easily tally in the millions of dollars.  The answer, however, is not in making the title agent the mortgage fraud cops in the industry.  Just because the title agent is the last person to see all of the parties and documents come together is no reason to expect they would be any more aware than those who previously reviewed and approved the transaction.  Perhaps it is because it is the closing that is the final step in finalizing the transaction that it makes the title agent the easy scapegoat.  After all, if they signed the documents in the title agent's office and the title agent handed the check to the bad guy, they must be to blame for the fraud, right?  They should have known what was going on and they should not have let go of that money! 

In my opinion, the problem lies in the nature of the lending business these days.  Lending isn't handled locally by your friendly neighborhood banker anymore.  There are no personal relationships between all of the parties.  Large national lenders are faceless creatures who deal with, and trust, appraisers they have never met and mortgage brokers they do not know.  When you allow so much of the process of gathering the information used in mortgage underwriting to be handled by unknown third-parties it is inevitable that you will get some crooks involved.  It is way too easy to falsify documents that are faxed to toll-free fax numbers that wind up on someone's desk thousands of miles away. 

If the lenders can't trust their network of appraisers and mortgage brokers, they need to work on their internal controls.  They should be more selective with their choices.  The problem is, much like in the title industry, it's a numbers game.  The more loans they can close the more they make.  If allowing just anyone to process their loans is what they want to do to, they will need accept the losses caused by their liberal approach.  By all means, they should hold those who defraud them liable to the fullest extent of the law.  The FBI should investigate and prosecute those responsible and the legal system should see to it that they get punished severely.  Unfortunately, that all happens after the fact and with the amount of money that can be made through mortgage fraud it will not be a sufficient deterrent to prevent it from happening again. 

The role of the title agent is limited.  We can do our best to make sure that the documents are all executed properly and the lender obtains the proper security for their mortgage.  But, we can not prevent fraud that is caused by the lender's own negligence in setting up their internal controls and external networks of vendors. We are not mortgage fraud cops!

Robert A. Franco
SOURCE OF TITLE




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Categories: Mortgage Fraud, Title Industry

1776 words | 5076 views | 5 comments | log in or register to post a comment


I Have Some Questions About the Palm Beach Post Article!

Not to be picky, but I read that Palm Beach Post article and I came away confused (which is not unusual for me) so maybe you, Robert , and your readers can help.

First, I just can't seem to figure out how $6.5 million get get away on roughly 2 dozen deals without the seller and/or the lender and/or the title agent and/or the real estate agent being involved.  That amounts to an average of $270,833.00 per deal!  How would the seller not see that the purchase price is far in excess of what he is receiving?  If the properties sold for over the asking price, as the article suggests, the seller would certainly expect most of the payout.  If there were real estate agents, were their commissions based on the inflated sales prices?  That would create an even larger disparity between the purchase price and the seller's take.

Since the lender generates a loan application, somebody would have had to punch that number into the loan origination program at some point.  Not to mention that the application does not, to my knowledge, have a field to add in fees that are not already specified, only additional credits (section VII 1003). Maybe it did in 2006.  But even if it did, what would be the source of that money?  Is the lender agreeing to finance up to $650,000.00 (the highest cited in the article) to cover a 'assignment fee'?

A listing of some of the deals is shown in a shaded area to the left of the article.  In one of the deals, Marni Belkin is shown as the seller.  Is this one of the fraudulent deals in question?  If so, she would certainly be privy to the figures (assuming her agency closed the deal).  As a title agent, and an attorney, would she not see something askew on her own sale?

The article also points out that Marni Belkin is shown as the deed preparer for several of the transactions, including the one with the $650,000.00 kickback.  According to the article, her agency did not close that one.  One can only speculate about that one.

I must be missing something big here. 

 
by Patrick Scott | 2008/05/15 | log in or register to post a reply

Yeah... it is a little confusing

I wasn't entirely clear on this either.  I chalk that up to the reporter not fully understanding the complexities of real estate closings. 

But, I think that seller was in on it.  I believe that usually these scams usually involve a legitimate sale to one of the "insiders" and he then finds an appraiser willing to provide an inflated appraisal to support a sale well above his purchase price to another "insider."  The buyer doesn't really care what he pays because he is going to let the property go to foreclosure anyway.  The buyer and seller will split the proceeds and they both walk away with a lot of money.  With the fraudulent appraisal, the bank could have made an ordinary looking loan of 90% loan to value and thought nothing of it.

You are right about the amount of money involved in these deals.  $6.5 million on two dozen deals does seem incredible.  But, I just assumed that price of Florida real estate may just be high enough to get away with it.  Some of the properties mentioned in that side-bar were pretty pricey - $1.18 million, $840,000, $620,000, $510,000, $1.01 million, $910,000, etc.  And, there were several they didn't mention. 

The assignment fees really had me puzzled, though.  I'm not really clear on what those were.  I am assuming those were some bogus fees paid by the seller out of his proceeds, thus the lender might not have cared (seems a little hard to believe). Either way, I would think that would raise some suspicions.  If they were shown on the settlement statement, the lender should have been aware of them.  And, you would think that Atty. Belkin would have questioned them, too.  I can only assume that there was some reasonable explanation for those fees - since the lender didn't object and Atty. Belkin has not been charged and Attorneys' Title Ins. Fund has not taken any action (yet). 

The one that she was the seller on is certainly odd, as well.  But, again... she wasn't charged.  There was obviously more going on here than we know.  Maybe will learn more as the investigation continues.

But, the point of my blog was that a title agent "could" get blindsided by a scam.  Especially one as complicated as this one appears to have been.  Sometimes, the agent is just an innocent third party and it is too much to expect title agents to detect fraud that has gone unnoticed throughout the lender's underwriting process. 

Thanks for the comment, Scott.  You are right... the article does leave a lot of unanswered questions.

 

 
by Robert Franco | 2008/05/15 | log in or register to post a reply

FRAUD DETECTION IS NOT A TITLE CO'S JOB!

It is not a Title Companies responsibility or duty to detect fraud. A Title Agent is not equiped for fraud detection and was never meant to do so.

They could not be deemed as co-conspiritors for failing to detect things that are not part of their job profile. How many Title Co's have background checking and SS# matching as part of their regular routine? How many Title Officers are trained to pick out altered ID? How many state lisencing tests cover fraud detection? NONE.

Too many title people get side tracked into this because it excites them, instead of concentrating on thier own title responsibilities.

 

 
by D L | 2008/05/16 | log in or register to post a reply

Happened all the time

Seller has the property listed for $200k for 6 months with no takers.  Buyer shows up says I'll give you your full asking price, we just need to write the contract for $300k so I can get enough money from the lender to fix the place up.  The extra $100k is marked down on the settlement statement as an assignment of contract fee.  Like magic, $100k comes out of the closing.  Worked great while prices were climbing, everyone made money and no one cared.  Now that the music stopped everyone is scrambling for a chair.

 
by Peter Walther | 2008/05/19 | log in or register to post a reply

Fraud Detection

Playing dumb and taking the position of the three monkeys that see,hear and speak no evil, just doesn't cut it when closing multiple transactions or multiple properties involving the same purchaser who is doing 80/20 financing on "personal residence".

This is akin to the Monty Python routine of "wink,wink, nudge, nudge, 'you know what I mean'". You know or should know a scam when you see one. Unfortunately, in desperate times desperate people do desperate things and business is business. Get caught and its time to get in another business.

The above scenario is a co-conspirator and plan on loosing your license and spending time with investigators from the Attorney General's office. It's not worth it.

 
by Samuel Humpert | 2008/05/21 | log in or register to post a reply
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
SOURCE OF TITLE

 

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