If Something Doesn’t Smell Right, It’s Probably Not
It may seem like “Title Insurance 101” – but small mistakes can be signs of fraud or misuse of funds or outright intentional undoing of a clear road to closing on a real estate deal.
It may seem like “Title Insurance 101” – but small mistakes can be signs of fraud or misuse of funds or outright intentional undoing of a clear road to closing on a real estate deal.
Not everyone knows everything all of the time; a thousand items have to fall into place and “add up” in order to make the process smooth and completely unencumbered.
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A power of attorney showing up in the middle of a transaction (or at the end) should be scrutinized. So should cashier’s checks drawn from geographical areas that don’t coincide with the seller’s, buyer’s or property’s locale.
Take a look at the potential red flags below; being aware is half the battle.
Preliminary Title Report/Title Search
Red flags” involving the preliminary title report and title search may include:
- Ordered by, prepared for, or mailed to a party other than the lender.
- Property seller is not in title (possible purchase disguised as a refinance or improper property flip).
- Seller owned property for a short time with a cash-out on the sale.
- Notice of default is recorded (possible cash-out purchase with a straw buyer or foreclosure rescue).
- Report indicates delinquent property taxes.
- Report indicates modification agreement on existing loan(s).
- Title
documents show the borrower or Seller on a purchase is not the owner of record.
- For a purchase transaction, the seller should be the owner of record.
Escrow/Closing Instructions
“Red flags” involving escrow and closing instructions may include:
- “Fill in the blank” or generic escrow instructions.
- Change of sales prices to “fit” the appraisal.
- Odd amounts paid as a deposit/down payment.
- Significant or unusual buyer credits or fees.
- Unusual amendments to the original transaction.
- Seller on Closing Disclosure different than seller on preliminary title report.
- Evidence of “white-outs” or alterations without initials.
- Payoffs to third parties whose lien was not listed on the preliminary title report.
- Reference to another escrow.
- Down payment is paid into escrow upon opening.
- Cash is paid outside of escrow to property seller.
- Sale is “subject to” property seller acquiring title.
- Entity acting as the property seller is controlled by, affiliated with, or related to the applicant or another party to the transaction.
- Buyer is required to use a specific broker/lender.
- Sale of subject property is not subject to inspection.
- Power of attorney used with no explanation.
- Power of attorney is not properly documented/recorded.
“Red flags” involving funds to close may include:
- Remitter on cashier’s check or source of the wire is not the borrower.
- Cashier’s check issued from a bank that is inconsistent with the depository information on application.
- Cashier’s check issued from a bank branch that is out of the buyer’s geographic area.
- Dollar amount is incorrectly encoded on check.
- Sources of funds are questionable
Closing Disclosure/Settlement Statement
“Red flags” involving the closing disclosure or settlement statement may include:
- Names and addresses of property seller and buyer vary from other loan documentation.
- Seller’s mailing address is the same as another party to the transaction.
- Excessive real estate agent commissions paid.
- Real estate commission paid, but no realtors listed on the purchase contract.
- Sales price differs from sales contract.
- Reference is made to undisclosed secondary financing or double escrow.
- Rent prorated on owner-occupied transactions.
- Zero amount due to/from buyer.
- Closing Disclosure or escrow instructions contain unusual credits, disbursements, related parties, delinquent loans paid off, or multiple mortgages paid off.
- Payoffs for items not consistent with liens listed on title commitment.
- Excessive seller paid marketing, administrative, assignment or trust fees.
- Payouts to unknown parties.
- Terms of the closed mortgage differ from the terms approved by the underwriter.
- Date of settlement is delayed without explanation.
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Tags: email fraud, escrow fraud, escrow security, fraud, real estate