"Defalcation and theft are epidemic in the title industry because it's so profitable and so easy," according to Rafael Toledo, Jr., President of IDSnetwork, Inc. in Sanford, FL. An insurance fraud investigator for over 20 years, he says that escrow account fraud perpetrators are more likely to be owners than employees. "Sometimes it simply starts when an owner cuts their commission check before the deal closes or they need funds to make the payroll. Or maybe an employee has an overdue credit card bill."

One challenge is reconciling accounts often enough to recognize the theft or detect a pattern that would raise suspicion. The current standard is to reconcile escrow accounts monthly. All too often the person doing the reconciliation is the owner or a manager with the authority to disburse escrowed funds.

New York State, seeking to deter defalcations in the title industry recently formed a Mortgage and Title Unit within the State Insurance Department's Fraud Bureau. The move was spurred by the increase in defalcations including two cases under investigation where title company owners allegedly misappropriated more than $6.7 million.

According to the NY Mortgage and Title Unit there are several steps settlement agents can take to deter defalcations and theft:

• Don't insure behind a naked transaction.
• Submit accurate information on the HUD-1 form. Agents need to ensure that the HUD-1 form is accurate, truthful and in compliance with the lenders closing instructions.
• In purchase transactions, submit only the seller's proceeds. In refinance transactions, transmit only the borrower's loan proceeds.
• Send the payoff letter on the date of disbursement via certified mail or courier.
• Get an automated solution to monitor your escrow accounts through three-way and daily reconciliation of escrow accounts.

Looking for a solution?

More and more settlement companies are discovering the Rynoh solution.
Rynoh is a complete settlement industry escrow account management system that includes daily three-way escrow account reconciliation and reporting combined with positive pay banking options.
Rynoh helps to:

• Immediately identify and eliminate defalcation, embezzlement and check fraud
• Eliminate disbursing errors
• Maintain accounts at an "audit ready" level every day
• Track revenue daily to prevent losses and increase profitability

For more information and to talk with current Rynoh users contact Dick Reass at 877-467-9664 or e-mail dick.reass@rynoh.com. Visit Rynoh at www.rynoh.com.