Bulletin: FL000058

Dear Associates:

We dodged a bullet.

Recently there was a mortgage fraud situation in South Florida involving forged quit claim deeds of recent vintage on vacant land into parties who then attempted to obtain mortgages. This is a classic mortgage fraud scenario with the only twist being that the parties used their own identities, not forged identification, since they planned on leaving the country immediately after completing the closings. Had all of the planned mortgage closings been completed, the title loss would have exceeded $3 million spread among at lease five underwriters.

The entire situation was discovered only after a diligent agent brought the facts to the attention of his underwriter and asked for instructions. There were multiple red flags.

1. The first red flat was that the properties were subject to conveyance by a quit claim deed. This office issued a bulletin several years ago advising agents not to insure titles with quit claim deeds in the recent chain of title, except in circumstances of dissolution or to clear an estate, without underwriting approval. Some thought this position too narrow, but the fact is that quit claim deeds appear far too frequently in fraud situations.

2. The second red flat was that all of the deeds in question were on vacant land in an expensive subdivision. The use of this type of property is a classic mortgage fraud situation. Vacant land is used so that inquiries are not made as to many aspects of a closing which apply only where there is a house on the premises and the fewer questions asked, the less likely the scheme be discovered. The lots in question were valuable enough to make the theft appear to be worth the risk to the parties.

3. The third red flag was that the deeds were not prepared by a title agent. Instead the indication was that they were prepared by and to be returned to the grantee. Therefore, there was no indication that there was a structured, supervised closing nor was the transaction covered by title insurance.

4. The fourth red flag was that the transaction was not subject to any financing. When a party buys property without any financing and shortly thereafter is attempting to finance that property, we question that transaction. It is not that this is an impossible situation, but it occurs in situations involving mortgage fraud.

5. The fifth red flag was that the transactions were being financed by equity lenders. Equity lender transactions should always be looked at carefully. When a person mortgages their property without demonstrating the ability to repay the same, as is required by conventional lenders, one must question their interest in the property.

6. The sixth red flag was that in all of these cases, the parties pressed for closing dates on short notice and at the end of the month. Some persons planning a fraud will make such demands so that they can do multiple closings to increase their take and to do so at the busiest time of the month so that you are more likely to miss something that you would otherwise catch in review of the transaction.

These parties were apprehended as a result of the work of a private investigator employed by Stewart and by various title insurance underwriters who initiated a sting operation with the assistance of Metro-Dade Police, Miami Police, Coral Gables Police, and FBI agents. Five persons have been arrested, one of whom is a title examiner, and they are being held on bail ranging from $1 million to $2.5 million. This is an illustration that the title insurance industry will do its best to prevent losses due to mortgage fraud and prosecute those responsible.

Be sure that each of your employees is given a copy of this bulletin to read. It is important that everybody employed in this industry be aware of the red flags itemized above and be alert to their circumstances.