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from Local Attorney, Michael H. Wasserman

Thursday, May 1, 2008

MORTGAGE FRAUD & MONEY LAUNDERING


I help a lot of buyers slog through stacks and stacks of mortgage loan documents at closings. Anyone who has sat through a closing with me has heard "the routine" my explanation of the various disclosures and certifications that lenders subject their customers to.

Buyers produce photo ID to the closer. A whole lot of trees give there lives to help the lenders and title companies verify borrower identities and to warn borrowers of the penalties for mortgage fraud. Multiple promises that the borrowers have told the truth. Affidavits attesting that the Buyer is using his/her true signature. Stern warnings that the lender is going to comply with the Patriot Act. Even the scary FBI notice over on the margin here. Cynical me. I tend to poke fun at a lot of these documents, and all the redundancies, and the silliness attendant to them.

Turns out, I may be wrong for making light of these issues. Inman news reports today that:

About one in five suspicious activity reports banks file with federal regulators over concerns about a residential real estate transaction show signs of money laundering or tax evasion, according to a new Treasury Department report.

The report found evidence of money laundering or "structuring" -- transactions involving incomplete or falsified records -- in 20 percent of suspicious activity reports involving residential real estate transactions between 1996 and 2006.

The Treasury Department's Financial Crimes Enforcement Network also detected a steep increase in the incidence of filings that might involve money laundering after 2004, to more than 50 percent.

The most interesting point in the article? Speculation that money laundering in residential real estate is probably an even bigger problem than as reported; Banks don't file complaints when the loans are being repaid - and most laundering operations use the laundered money to pay the loans.

The complete Financial Crimes Enforcement Network report, dated April, 2008 is available here


No closings for me until tomorrow morning. I'll still probably crack wise about the anti-terrorist and anti-fraud disclosures, but I'll probably have an eye on buyer too - just in case.

PLM Title Shuttered

Title insurance is a critically important part of any real estate transaction; or at least it should be. The title company guaranties the "quality" of an owners interest in the property - that there aren't any (unknown) liens or defects. No buyer that I work for will purchase a property without it.

Title insurance is only as good as the insurer. We want to know that the insurance company, like the Rock of Gibraltar, will always be there. We want to sleep easy at night, knowing that the client is protected.

That said, it was a bit distressing to see that PLM Title Company shut its doors, without any forewarning last week. Worse still, this morning's news is that there is a criminal investigation underway - and that we do not yet know why. Old timers like me shudder with memories of the great Intercounty Title debacle five years ago. Here's to hoping that this one is nothing like that one.

Set aside the problems involved trying to make a claim against a defunct title company. What about the banks and buyers (and sellers) that had money being held in escrow by that title company? Or had deeds and mortgages waiting to be recorded with local county recorders offices? Or who had escrow closings scheduled there to consummate their transactions? Big mess

Any good news in this for my clients? I suppose the "good news" is that, (a) I have had only two buyers in the last five years purchase title insurance from PLM; (b) their insurance was underwritten by Guaranty Title & Trust Company, still a viable and presumably well capitalized company, and (c) three years ago, I instituted an office policy that we will only accept title insurance from a short list of the strongest title companies, in order to problems of the sort presented when "the Rock" crumbles.

UPDATED: Nov. 20, 2008: I erroneously identified PLM's underwriter as Guaranty National when this message as originally posted. The correct entity, Guaranty Title & Trust Company was liquidated on October 27, 2008 by Ohio state regulators. All insurance policies, commitments and certificates of insurance issued by GTT, are cancelled, effective November 26, 2008. Inquiries regarding the GTT liquidation and requests for Proofs of Claim forms should be directed to: The Office of the Ohio Insurance Liquidator, Attn: GTT, 50 W. Town Street, Third Floor, Suite 350, Columbus, OH 43215. The telephone for that office is (614) 487-9200.

PLM's other underwriter Pacific Northwest Title Insurance, remains a viable entity.