Bulletin: SLS2011016

Date:
September 08, 2011
To:
All Issuing Offices
RE:
Fraudulent Release of Deed of Trust or Mortgage [Revised 09-12-11]

Dear Associates:  

Multiple schemes placing fraudulent releases of Deeds of Trust or Mortgages are occurring in many states.  The perpetrator’s goal is often to make it appear that a Deed of Trust or Mortgage is already paid off so they can receive all of the proceeds of a sale or refinance.  Scammers appear to be relying on modern title search methods using computer chain sheets to match up Deeds of Trust or Mortgages with releases without reviewing each document.

Illustrations of Fraud

Fraudulent Reconveyance

Forged Reconveyances of Deeds of Trust are being signed and recorded by people perpetrating fraud to induce others, chiefly the title and lending industries, to rely on bogus releases of loans.  In addition to Reconveyances, we’ve seen fraudulent Substitutions of Trustee, Assignments of Deed of Trust and Rescissions of Default recorded.

Example in chronological order descending:

  • A fraudulent conveyance deed is placed of record from Smith, as Grantor to Figment, LLC, as grantee.
  • Figment, LLC then executes a fraudulent Deed of Trust to a fictitious lender.
  • A month or so later, a fraudulent Substitution of Trustee and Deed of Reconveyance are recorded. This forgery appears to release Smith’s pre-existing loan.
  • Soon thereafter, Figment, LLC enters into a sale agreement with a legitimate buyer. This sale is often a short sale.
  • The title and escrow company handling this sale "pays off" Figment, LLC’s fictitious lender, but no payment is made to Smith’s lender because it appears their Deed of Trust was already reconveyed of record.
  • Smith’s lender commences foreclosure and records a Notice of Default. The current homeowner, facing a foreclosure by his seller’s lender, files a claim against his title policy.

Mortgage Elimination Company Schemes

As discussed in prior Bulletins SLS00200 and SLS00247, illegitimate companies exist that con homeowners into conveying their property into a trust. That trust then records a fraudulent Substitution of Trustee that substitutes the trust in as Trustee which in turn records a counterfeit Reconveyance of the Deed of Trust. These companies are typically either getting fees to assist homeowners fraudulently clearing their loans or are operating under the guise of rescuing a distressed borrower from a foreclosure. Multiple variations of this scam exist but the constant danger for our industry is relying on invalidly released loans.

Fraud Red Flags

Fraud and forgery are an omnipresent threat to Insurers. Following is a practical list of red flags that will help you spot a potentially fraudulent situation.

  • A Deed of Trust or Mortgage is released with no concurrent refinance loan or deed indicating a sale of the property placed of record. While some borrowers make a premature payment in full of their Deed of Trust or Mortgage or reach the end of the payments on their loans, it is a rare event.  In this case you must contact the lender to confirm payment.
  • Uninsured and un-escrowed Deeds of Trust or Mortgages are potentially suspicious as almost all legitimate lenders require title insurance. Look at the documents to see if they were recorded by a known title and escrow company. Even if they were, don’t rely on this factor alone as the perpetrators seem to be studying our business and may fake this information too.
  • Read the documents. Forgers make mistakes the actual companies would not.  A forgery doesn’t have to be very good if you rely solely on the computer chain sheet and never look at the document.

Examples: Bank of America is referred to as Bank of American. The Wells Fargo form of Reconveyance is not what you usually see.  The trustee of a Deed of Trust signing the Substitution of Trustee or the Reconveyance is not the trustee that was originally installed on the Deed of Trust. 

  • Most major lending institutions do not typically substitute a trustee before that trustee records a reconveyance.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
None
Related Bulletins:
SLS00200 Mortgage Avoidance Plan/Sham Releases
 
SLS00247 Fraudulent Release Schemes
Underwriting Manual:
4.20 Deeds Of Trust
 
12.28 Mortgages
Exceptions Manual:
None
Forms:
None