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.
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