As we have seen in the past week with the Core/Chelsea/Braafhart scandal, title insurance fraud is common enough to justify examining the causes and sources of difficulties in title transactions. One example occurs with "kickbacks." It has long been illegal for title insurance companies to provide "kickbacks" in exchange for business referrals. Despite this prohibition, this practice occurs regularly.
A new class action lawsuit in California makes "kickback" allegations against Fidelity National Title Insurance and six other major title insurance underwriters. The lawsuit alleges that real estate agents received payments from title insurance companies for selecting those insurance companies to close particular transactions. The real estate agents performed no additional work for those referrals.
Such referral fees are prohibited by the Real Estate Settlement Procedures Act (RESPA) in federally backed transactions. This lawsuit follows a $4.5 million settlement between HUD and Fidelity last year resulting from the same allegations.
Showing posts with label fraud. Show all posts
Showing posts with label fraud. Show all posts
Wednesday, June 13, 2012
Wednesday, June 6, 2012
Core Settlement Services; Chelsea Settlement Services; Jami Braafhart; Preliminary Injunction issued by Court; Stewart Title Guaranty Company;
A lawsuit is proceeding in Cumberland County that reveals the seamier side of the real estate business and the risks to innocent purchasers from settlements.
On June 1, 2012, the Cumberland County Court of Common Pleas issued a "Temporary Restraining Order and Special Injunction" against Core Settlement Services, Chelsea Settlement Services and Jami Braafhart. The lawsuit and Order are docketed at 12-3471. A hearing is scheduled for June 14, 2012. In the meantime, the Defendants are prohibited from engaging in real estate transactions or selling assets.
Core/Chelsea are settlement companies that issue title insurance and disburse funds in connection with real estate purchases and refinances. The companies are owned/managed by Jami Braafhart. The companies serve(d) as title agents for Stewart Title Guaranty Company. The Defendants were required to collect the proceeds from real estate settlements, pay the sellers and pay the liens, taxes and old mortgages and insure title to the properties in each transaction. These are the typical duties and functions of any title agency/settlement company.
Stewart has filed suit against all Defendants, alleging essentially that for a period of several years, they have failed to pay liens and mortgages from properties for which they conducted settlement. Stewart's lawsuit accuses the Defendants of keeping the settlement proceeds instead of paying liens and mortgages. The lawsuit claims that the agencies' escrow accounts have a negative balance in excess of one million dollars and have had a negative balance for some time. Stewart discovered this conduct in May 2012.
Escrow accounts are not supposed to have negative balances at all, as the accounts do not belong to the title agents, but exist solely to collect the sale proceeds and then pay the sellers, the old mortgages and liens, taxes, etc.
Paragraph 25 of Stewart's Complaint alleges that the Defendants' account balances have been negative since 2007. Paragraph 31 alleges that the shortage in the accounts exceeded 1.1 million dollars as of May 29, 2012. To the extent that these allegations are true, Stewart (as the underwriter) is ultimately responsible to pay off unsatisfied mortgages and other liens on numerous real estate transactions - even though Stewart committed no wrongdoing.
This matter is of concern to more than Stewart Title Guaranty Company and the Defendants. The Defendant companies operated at very high volume for a number of years. There are possibly numerous transactions and properties that now suffer from defective title because liens may not have been paid off. Indeed, paragraph 20 of the Complaint alleges that some customers have complained that prior mortgages have not been paid off. Those customers can seek redress through Stewart Title, but the story does not end there.
Customers that obtained title policies through Core/Chelsea/Braafhart will someday seek refinance through other agencies. It has been the policy of many title companies in recent years to search the title only so far back as the last mortgage, instead of searching the previous 60 years (as the practice used to be). The theory for this shortcut is that if a mortgage was placed on the property five years ago (for example), there must have been a title search at that time and the new title company can rely on the fact that someone did their job 5 years earlier and corrected any liens. But now that whole practice becomes suspect - especially in light of the large volume that Core/Chelsea handled. If Core/Chelsea failed to pay old liens (as they were required to do), other title companies should not rely on the fact that a settlement occurred in which Core/Chelsea was involved. Once a new title company insures title (defective or not) with a new purchaser, the old title company is off the hook, as the old title company did not insure that new purchaser.
Other title companies need to be concerned, as Core/Chelsea's high volume has created a potential nightmare scenario in which thousands of purchasers/owners unknowingly spread Core/Chelsea's problems to new title companies. Title companies should decide whether to stick with the recent policy of searching only back to the last mortgage or resuming the old policy of searching the previous sixty years.
The insurance commission may want to rethink the rate schedule, in which properties that have been insured within the last two or three years are eligible for deeper discounts. Due to situations such as Core/Chelsea's as well as the general real estate collapse of the past four years (with the resulting increase in short sales, foreclosures, tax sales, unpaid contractors, etc.) properties that have been sold or financed in the past two or three years involve greater risk than those that have seen no transactions for 10 or more years.
Property owners should be cautious also, especially those that used Core or Chelsea for their transaction. Even though a buyer is covered by the title insurance policy, there still exists a certain amount of aggravation and stress in dealing with an unpaid lien. Those who merely refinanced (instead of purchasing) through Core/Chelsea are at greater risk. In that scenario, only the mortgage company was insured and only the mortgage company can make a claim through the policy. As long as the owner is current on the mortgage, the mortgage company suffers no loss, even if an old mortgage remains unpaid or unsatisfied.
The bottom line is that buyers should not be comfortable with just any settlement company that a mortgage broker or Realtor sends them to for settlement on their purchase or refinance. Core and Chelsea were favorites for referrals among many Realtors and mortgage brokers. Those same Realtors and brokers will now begin sending unsuspecting buyers to other settlement companies, about whom the buyers know or understand little.
If you are a buyer or property owner, use your own attorney for settlement.
Update - here is a link to the Patriot News article from June 7, 2012.
On June 1, 2012, the Cumberland County Court of Common Pleas issued a "Temporary Restraining Order and Special Injunction" against Core Settlement Services, Chelsea Settlement Services and Jami Braafhart. The lawsuit and Order are docketed at 12-3471. A hearing is scheduled for June 14, 2012. In the meantime, the Defendants are prohibited from engaging in real estate transactions or selling assets.
Core/Chelsea are settlement companies that issue title insurance and disburse funds in connection with real estate purchases and refinances. The companies are owned/managed by Jami Braafhart. The companies serve(d) as title agents for Stewart Title Guaranty Company. The Defendants were required to collect the proceeds from real estate settlements, pay the sellers and pay the liens, taxes and old mortgages and insure title to the properties in each transaction. These are the typical duties and functions of any title agency/settlement company.
Stewart has filed suit against all Defendants, alleging essentially that for a period of several years, they have failed to pay liens and mortgages from properties for which they conducted settlement. Stewart's lawsuit accuses the Defendants of keeping the settlement proceeds instead of paying liens and mortgages. The lawsuit claims that the agencies' escrow accounts have a negative balance in excess of one million dollars and have had a negative balance for some time. Stewart discovered this conduct in May 2012.
Escrow accounts are not supposed to have negative balances at all, as the accounts do not belong to the title agents, but exist solely to collect the sale proceeds and then pay the sellers, the old mortgages and liens, taxes, etc.
Paragraph 25 of Stewart's Complaint alleges that the Defendants' account balances have been negative since 2007. Paragraph 31 alleges that the shortage in the accounts exceeded 1.1 million dollars as of May 29, 2012. To the extent that these allegations are true, Stewart (as the underwriter) is ultimately responsible to pay off unsatisfied mortgages and other liens on numerous real estate transactions - even though Stewart committed no wrongdoing.
This matter is of concern to more than Stewart Title Guaranty Company and the Defendants. The Defendant companies operated at very high volume for a number of years. There are possibly numerous transactions and properties that now suffer from defective title because liens may not have been paid off. Indeed, paragraph 20 of the Complaint alleges that some customers have complained that prior mortgages have not been paid off. Those customers can seek redress through Stewart Title, but the story does not end there.
Customers that obtained title policies through Core/Chelsea/Braafhart will someday seek refinance through other agencies. It has been the policy of many title companies in recent years to search the title only so far back as the last mortgage, instead of searching the previous 60 years (as the practice used to be). The theory for this shortcut is that if a mortgage was placed on the property five years ago (for example), there must have been a title search at that time and the new title company can rely on the fact that someone did their job 5 years earlier and corrected any liens. But now that whole practice becomes suspect - especially in light of the large volume that Core/Chelsea handled. If Core/Chelsea failed to pay old liens (as they were required to do), other title companies should not rely on the fact that a settlement occurred in which Core/Chelsea was involved. Once a new title company insures title (defective or not) with a new purchaser, the old title company is off the hook, as the old title company did not insure that new purchaser.
Other title companies need to be concerned, as Core/Chelsea's high volume has created a potential nightmare scenario in which thousands of purchasers/owners unknowingly spread Core/Chelsea's problems to new title companies. Title companies should decide whether to stick with the recent policy of searching only back to the last mortgage or resuming the old policy of searching the previous sixty years.
The insurance commission may want to rethink the rate schedule, in which properties that have been insured within the last two or three years are eligible for deeper discounts. Due to situations such as Core/Chelsea's as well as the general real estate collapse of the past four years (with the resulting increase in short sales, foreclosures, tax sales, unpaid contractors, etc.) properties that have been sold or financed in the past two or three years involve greater risk than those that have seen no transactions for 10 or more years.
Property owners should be cautious also, especially those that used Core or Chelsea for their transaction. Even though a buyer is covered by the title insurance policy, there still exists a certain amount of aggravation and stress in dealing with an unpaid lien. Those who merely refinanced (instead of purchasing) through Core/Chelsea are at greater risk. In that scenario, only the mortgage company was insured and only the mortgage company can make a claim through the policy. As long as the owner is current on the mortgage, the mortgage company suffers no loss, even if an old mortgage remains unpaid or unsatisfied.
The bottom line is that buyers should not be comfortable with just any settlement company that a mortgage broker or Realtor sends them to for settlement on their purchase or refinance. Core and Chelsea were favorites for referrals among many Realtors and mortgage brokers. Those same Realtors and brokers will now begin sending unsuspecting buyers to other settlement companies, about whom the buyers know or understand little.
If you are a buyer or property owner, use your own attorney for settlement.
Update - here is a link to the Patriot News article from June 7, 2012.
Wednesday, July 14, 2010
July Flooding in Central Pennsylvania; Real Estate Property Disclosure
Recent rains have brought minor flooding to parts of Pennsylvania from Bedford to various points to the east.
Property damage is minor and lives have not been in danger. But this flooding still should be disclosed if you are selling a property that suffered from any flooding.
Sales are very slow now, but new homeowners are this week seeing their first heavy rains in the properties that they just purchased this Spring as the tax credit incentive expired. Some of those new homeowners are undoubtedly pulling their Sellers' Disclosure form out of their packets and reviewing the part that should have disclosed flooding. Some of them might even be calling their Realtors (or lawyers) to inquire about the possibility of pursuing their sellers for not disclosing that the property floods during heavy rain.
If you are selling property now, keep this scenario in the back of your head as you fill out the disclosure. The more you disclose, the less justification the buyer will have for suing you later on.
If you are a buyer, look closely at your prospective properties today (or at some point when the heavy rain is falling). Sales are slow and sellers are desperate. Sellers will lie and conceal in order to move a property and get out from under a mortgage that they can no longer afford.
Property damage is minor and lives have not been in danger. But this flooding still should be disclosed if you are selling a property that suffered from any flooding.
Sales are very slow now, but new homeowners are this week seeing their first heavy rains in the properties that they just purchased this Spring as the tax credit incentive expired. Some of those new homeowners are undoubtedly pulling their Sellers' Disclosure form out of their packets and reviewing the part that should have disclosed flooding. Some of them might even be calling their Realtors (or lawyers) to inquire about the possibility of pursuing their sellers for not disclosing that the property floods during heavy rain.
If you are selling property now, keep this scenario in the back of your head as you fill out the disclosure. The more you disclose, the less justification the buyer will have for suing you later on.
If you are a buyer, look closely at your prospective properties today (or at some point when the heavy rain is falling). Sales are slow and sellers are desperate. Sellers will lie and conceal in order to move a property and get out from under a mortgage that they can no longer afford.
Tuesday, October 20, 2009
Seller's home inspections; seller-Realtor disputes.
I have written previously about the use of home inspections in real estate transactions, including the potential for sellers to hire their own inspectors prior to entering into a sale.
One advantage for the seller of hiring his own inspector is the ability to avoid conflicts with his own Realtors. Often when a buyer sues a seller (and the Realtors) over a defect discovered after the transaction is complete, the seller and the Realtors dispute among themselves whether such a defect was disclosed. The seller often claims to have reported the defect to the Realtor, thus blaming the Realtor for failing to disclose the defect to the buyer. The seller will also downplay the Seller's Property Disclosure Statement, claiming to have written only what the Realtor instructed him to write.
Sellers and Realtors fighting between themselves often make it easier for a buyer to prove fraud
A written inspection report can limit many of these seller/Realtor disputes. When a seller hires his own inspector and provides the written report to the listing agent, both the seller and the Realtors will be limited in what they can claim the other told them. It will be clear that the seller disclosed everything that is on his own inspection report (and probably nothing more).
There are always areas where problems slip through the cracks. The Realtors and the sellers must make sure that the Seller's Property Disclosure Statement is consistent with the inspection report and that the report is given to the buyers, no matter how negative. All parties must make sure that any inspection activities are not interfered with or influenced. If the seller takes steps to influence his own inspector or prevent the inspector from finding or reporting problems, the resulting disputes will be worse than if no inspection was arranged in the first place.
One advantage for the seller of hiring his own inspector is the ability to avoid conflicts with his own Realtors. Often when a buyer sues a seller (and the Realtors) over a defect discovered after the transaction is complete, the seller and the Realtors dispute among themselves whether such a defect was disclosed. The seller often claims to have reported the defect to the Realtor, thus blaming the Realtor for failing to disclose the defect to the buyer. The seller will also downplay the Seller's Property Disclosure Statement, claiming to have written only what the Realtor instructed him to write.
Sellers and Realtors fighting between themselves often make it easier for a buyer to prove fraudA written inspection report can limit many of these seller/Realtor disputes. When a seller hires his own inspector and provides the written report to the listing agent, both the seller and the Realtors will be limited in what they can claim the other told them. It will be clear that the seller disclosed everything that is on his own inspection report (and probably nothing more).
There are always areas where problems slip through the cracks. The Realtors and the sellers must make sure that the Seller's Property Disclosure Statement is consistent with the inspection report and that the report is given to the buyers, no matter how negative. All parties must make sure that any inspection activities are not interfered with or influenced. If the seller takes steps to influence his own inspector or prevent the inspector from finding or reporting problems, the resulting disputes will be worse than if no inspection was arranged in the first place.
Tuesday, October 13, 2009
Seller's home inspections.
Click here for a previous article on the use of home inspections.
I have written on the advantage to home buyers in using home inspections prior to closing on their house, but there is an advantage for sellers also. A seller can arrange and pay for his own inspection prior to listing the home for sale. The inspector will prepare a report that the seller can give to his realtor and to any potential buyer.
Many sellers resist having their own inspections done because they prefer not to know the defects in their house. They believe that if they are not told about a defect, they will not be responsible for it. But whether they know of any defects or not, they can still be sued over said defects later on. And they might lose any such lawsuit, depending on who the jury believes. It is easy for someone to say they are unaware of something. The jury is able to reach its own conclusion. If the seller provides a written inspection report at the start of the process, it is much more clear exactly what the seller knew.
There are pros and cons to this approach, which pros and cons I will address in a future post.
I have written on the advantage to home buyers in using home inspections prior to closing on their house, but there is an advantage for sellers also. A seller can arrange and pay for his own inspection prior to listing the home for sale. The inspector will prepare a report that the seller can give to his realtor and to any potential buyer.
Many sellers resist having their own inspections done because they prefer not to know the defects in their house. They believe that if they are not told about a defect, they will not be responsible for it. But whether they know of any defects or not, they can still be sued over said defects later on. And they might lose any such lawsuit, depending on who the jury believes. It is easy for someone to say they are unaware of something. The jury is able to reach its own conclusion. If the seller provides a written inspection report at the start of the process, it is much more clear exactly what the seller knew.
There are pros and cons to this approach, which pros and cons I will address in a future post.
Wednesday, October 7, 2009
Home Inspectors - the beginning of the story; hidden home defects;
I have written previously about the use of home inspectors for buyers seeking to avoid being defrauded on the purchase of real estate.
If you are a buyer, do not simply send a home inspector to the home you wish to purchase and expect that any issues will be discovered with no further effort on your part. Sellers have become good at hiding defects from inspectors. Sellers will frequently leave debris piled up against walls that otherwise would bear obvious signs of water leakage or other defects. Inspectors will not move any item in the house. If a defect is somehow concealed, chances are that the inspector will not find it. The inspector will identify all obstructed areas on his report. It is up to the buyer to demand that all obstructions be removed and arrange for followup inspections.
Talk to the inspector, ask him how difficult it would be to expose common areas. Ask him how common it is for defects to exist in the particular type of obstructed area in the home you are buying.
The inspector's report is only the beginning. A buyer must follow through and make sure that the report is as complete as it can be before the buyer closes on the deal.
previous - Mortgage foreclosures - a catalyst for real estate fraud?
If you are a buyer, do not simply send a home inspector to the home you wish to purchase and expect that any issues will be discovered with no further effort on your part. Sellers have become good at hiding defects from inspectors. Sellers will frequently leave debris piled up against walls that otherwise would bear obvious signs of water leakage or other defects. Inspectors will not move any item in the house. If a defect is somehow concealed, chances are that the inspector will not find it. The inspector will identify all obstructed areas on his report. It is up to the buyer to demand that all obstructions be removed and arrange for followup inspections.
Talk to the inspector, ask him how difficult it would be to expose common areas. Ask him how common it is for defects to exist in the particular type of obstructed area in the home you are buying.
The inspector's report is only the beginning. A buyer must follow through and make sure that the report is as complete as it can be before the buyer closes on the deal.
previous - Mortgage foreclosures - a catalyst for real estate fraud?
Monday, September 28, 2009
Home inspections as a remedy for real estate fraud.
I have written about the increased risk of misrepresentation by sellers of real estate in the current economic climate. As housing prices stagnate, sellers will resort increasingly to fraud in order to rescue their expected gains from the sale of their properties.
In order to protect themselves, buyers must increasingly use home inspectors in order to discover hidden defects in the houses they would purchase. A home inspection can reveal structural or other defects that might cost the buyer dearly once the transaction is complete.
But home inspections come with limitations. The home inspector will not look in obstructed areas of the house during his inspection. Sellers know this limitation and will find ways to obscure the various defects. Inspectors are not aggressive about seeking out defects or questioning sellers. Home inspections must be performed and presented to the seller within a certain time period. Sellers may dispute the results of a home inspection and attempt to retain the buyer's deposit if the buyer backs out of a deal because of a negative inspection report.
There are ways for a buyer to deal with all of these issues - ways that I will discuss in later posts.
-----------
update - home inspector organizations.
In order to protect themselves, buyers must increasingly use home inspectors in order to discover hidden defects in the houses they would purchase. A home inspection can reveal structural or other defects that might cost the buyer dearly once the transaction is complete.
But home inspections come with limitations. The home inspector will not look in obstructed areas of the house during his inspection. Sellers know this limitation and will find ways to obscure the various defects. Inspectors are not aggressive about seeking out defects or questioning sellers. Home inspections must be performed and presented to the seller within a certain time period. Sellers may dispute the results of a home inspection and attempt to retain the buyer's deposit if the buyer backs out of a deal because of a negative inspection report.
There are ways for a buyer to deal with all of these issues - ways that I will discuss in later posts.
-----------
update - home inspector organizations.
Sunday, September 27, 2009
Mortgage foreclosures - a catalyst for real estate fraud?
There are indications that a new wave of mortgage foreclosures may soon hit the already weak economy. The impact of those (and previous) foreclosures reaches far beyond the houses that are actually being foreclosed upon. As we have all learned, foreclosures tend to depress the price of all real estate, as lenders end up dumping large amounts of foreclosed real estate on the market in an attempt to cut their losses. The price effect of a few foreclosures spreads throughout the entire real estate market.
But prices fall slowly. Sellers are reluctant to lower the price of their house, as they harbor long held expectations of what their house is worth. Rather than lower the price of their house, many sellers will resort to misrepresentation and fraud in order to unload their property. There is hardly a characteristic of a house that a seller will not misrepresent. Fraud comes before price concessions.
We are told that the current real estate market is a “buyer’s market.” We are led to believe that buyers can obtain good deals by taking advantage of depressed prices. That theory is true only for those buyers who can withstand the gauntlet of misrepresentation that awaits anyone who attempts to obtain a bargain.
While specific cases of misrepresentation will have to await future posts, suffice it to say that buyers should assume that the road to a good bargain is paved with hidden costs. There are many ways for buyers to protect themselves, but they won't get this protection unless they assume the worst in each case. Stay tuned for details . . .
---------
update -
Home inspections as a possible solution.
But prices fall slowly. Sellers are reluctant to lower the price of their house, as they harbor long held expectations of what their house is worth. Rather than lower the price of their house, many sellers will resort to misrepresentation and fraud in order to unload their property. There is hardly a characteristic of a house that a seller will not misrepresent. Fraud comes before price concessions.
We are told that the current real estate market is a “buyer’s market.” We are led to believe that buyers can obtain good deals by taking advantage of depressed prices. That theory is true only for those buyers who can withstand the gauntlet of misrepresentation that awaits anyone who attempts to obtain a bargain.
While specific cases of misrepresentation will have to await future posts, suffice it to say that buyers should assume that the road to a good bargain is paved with hidden costs. There are many ways for buyers to protect themselves, but they won't get this protection unless they assume the worst in each case. Stay tuned for details . . .
---------
update -
Home inspections as a possible solution.
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