On December 4, 2020, an escrow was opened for Mr. and Mrs. Walker in the amount of $112,888 for the sale of a residential vacant lot to Mr. Dean.
On December 14, 2020, Mr. Dean sent via overnight delivery an official check in the amount of $150,000. The title company deposited the official check in its trust account knowing it would have time for the check to clear the bank prior to closing. The issuing bank honored the official check and transferred the $150,000 to the title company’s trust account.
On December 22, 2020, the transaction closed, the deed recorded and the Escrow Officer disbursed:
• $102,590.30 to Mr. and Mrs. Walker
• $9,031.04 in commission to the listing broker
• $36,794.48 to an unrelated limited liability company (LLC)
— supposedly owned by Mr. Dean
— representing a refund of the overpayment
Then, on January 7, 2021, the bank that issued the official check informed the title company’s bank the official check was counterfeit and demanded a return of the $150,000. Ultimately, the bank had to return the $150,000 leaving the trust account short. The title company had to immediately replace the funds using money from their operating account.
After an investigation, it was discovered Mr. Dean was using an alias. He bought the property sight unseen and was not represented by a real estate agent. The title company found out there was truly no way to formally unwind the transaction.
The title company has initiated an action against Mr. Dean for the court to determine ownership of the subject property in the name of the title company (since it ultimately paid the purchase price) in order to resell it in an attempt to recover a portion of its $150,000 loss.
Believe it or not, around the exact time of this crime, it was also being perpetrated in other states:
• In California, on a residential vacant lot sale with an $80,000 sale price and an $110,000 deposit.
• In Texas, with a $41,995 sale price and a $68,000 deposit.
The deposits were both official checks that were later recalled by the issuing bank as counterfeit.
Look for Red Flags
Generally, the high risk transactions comprise some or all of the following circumstances:
• Cash purchase
• Payment is made by official or cashier’s check
• Payment is for much more than the amount required to close
• Low sale price
• No earnest money deposited
• Quick close
• Buyer is from out of state and purchasing the property sight unseen
After the file has closed, the title company is notified the official or cashier’s check is invalid. The payment is reversed and deducted from the trust account leaving a shortage.
Based on the language in their banking agreements, banks have the ability to reverse any deposit credited to the trust account found to be fraudulent. This even applies to official and cashier’s checks disbursed against after waiting the recommended time. Here is a sample of the language in one banking agreement:
h) “Cleared” Checks and Cashier’s Check Fraud Warning -…Please be aware that fraud often occurs in relation to counterfeit cashier’s checks that are presented to you as legitimate, and the fraudulent party seeks to acquire the funds from you at the time the bank makes the funds available but before the fraudulent check is returned unpaid.
The title company generally discovers the buyer is an imposter making it impossible to simply unwind the deal to recoup any losses.
Article provided by contributing author: Lisa A. Tyler, National Escrow Administrator