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Once Upon a Time in Montana
Excerpt from the July Fraud Insight Newsletter Courtesy of FNF
When an escrow officer finally made direct contact with a payoff
lender she had been trying to reach, she found out the short sale
negotiator was misrepresenting the transaction. The negotiator had
raised the sale price by $12,000, with $8,000 to be given back to the
buyer at closing and $4,000 to be paid to the negotiator as his fee.
Once upon a time in the Flathead Valley, short sales were just
beginning in the town of Kalispell, Mont. So, when a local escrow officer
Linda received her first short sale transaction, she
consulted her manager on the proper steps needed to close.
Her manager told her to obtain a Seller Authorization form and
payoff information. She was also instructed to order a title report
and prepare an estimated settlement statement for the payoff
lender. The seller had hired a Florida-based “negotiator,” named
Sam, who was going to be communicating with the lender (EMC) to
obtain the short sale approval.
The closer prepared the settlement statement, sent it to Sam and waited
for the title report so she could address any unknown liens. A couple
of weeks passed and the title report did not contain any surprises.
Linda waited for the “payoff approval letter.” During that time an
addendum was generated, increasing the sale price by $12,000.
According to the negotiator, the payoff lender requested the sale
price be increased. The buyers were eager to increase the price, as
they really wanted the house and thought they were getting a good
deal on the property.
The negotiator called to advise he would be collecting a $4,000
short sale fee at closing. Linda told him the fee needed a matching
invoice and would be reflected on the settlement statement she sent
for approval to the payoff lender. He provided the payee’s name and
amount and asked Linda to forward a settlement statement to him
for submittal, which she did.
Viola! Like magic, the payoff approval letter arrived in the next
couple of days and the parties were on track to close. Total amounts
due, closing costs and commissions were all accurate according
to the payoff letter – Linda just needed to have the settlement
statement approved by EMC.
Linda forwarded the settlement statement to EMC for approval with
a copy to Sam the negotiator. Within the hour, Sherry at EMC called
Linda back, asking where the “seller concession” was reflected on
the settlement statement. Linda replied that there was no seller
concession and proceeded to verify this with the listing and selling
agents to be sure she was not missing any addenda to the purchase
contract. The agents confirmed there was no seller concession to be
credited to the buyers at closing.
EMC was quite upset as the negotiator had advised them there
was an $8,000 seller concession to the buyer in exchange for the
increased sale price. Come to find out, the settlement statement
EMC had initially received when they provided payoff approval
reflected a seller credit. EMC had been faxing approvals and other
communication to the title company, but had been given
Sam’s phone and fax number. EMC professionals thought they
were communicating with Linda when all along it was really the
negotiator. Furthermore, they had not approved any type of short
sale negotiator fee to be paid. One of the terms and conditions of the
payoff letter was that EMC receive the settlement statement directly
from the escrow holder. So when EMC received the settlement
statement directly from Linda it was the first valid communication
they actually had with the title company.
EMC called both agents directly for verification of the purchase
contract, demanded that the parties reduce the sale price back to the
original offer and refused to allow Sam to receive any compensation
out of the transaction. The EMC representative told Linda they were
also turning Sam into the fraud division for investigation.
In the end, following our written instruction, internal policy and
“red flag” awareness really saved our Company, both agents and
the buyer and seller from being involved in fraud. Sam was never
heard from again. As a result of her diligence and for following the
payoff lenders’ written instructions, Linda has received a $1,000
reward from the Company, along with a letter of recognition.
Moral of the Story
Had Linda closed the transaction based on the terms provided by
the negotiator, instead of the terms in the payoff letter, we would
not have received a lien release from the payoff lender. Since we
insured free and clear marketable title to the new buyer, as well as
a first lien position to the buyer’s new lender, we would have been
forced to make EMC “whole” in order to clear the lien of record.
The terms and conditions of payoff letters on short sales can be
complex, but continuing to read and follow them is a duty we owe
to the Company and our customers.
www.fnf.com
Thursday, July 30, 2009
Tuesday, July 21, 2009
Monday, July 20, 2009
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