How Plain and Simple Beats Cheap and Easy
Why are Title Insurance Companies helping make fraud easier?
(Note: This bitching plus ‘solutioning’ post is geared to those in the title insurance and real estate business. The rest of you can read it for fun!
Background: Analysis of a typical real estate transaction where someone is selling their home and they have a current mortgage that must be paid off at closing. The responsible party for the payment is a Title Insurance Company (sometimes helped by escrow companies in some states).
As a responsible real estate (and mortgage) broker, I always request that the title insurance company that is INSURING the transaction for a buyer and the seller, gets the statement from the mortgage company directly on how much is due. The title company sends the funds to the lender after the transaction is finalized.
But for some reason that I can only attribute to saving money and enjoying being lazy, the title company say that I, as the real estate agent or the seller, should get it and send it to them.
Dumb. Dumber than dumb. How do they know that the payoff is really the payoff? Anyone with the necessary skills can take a payoff and redo it with any numbers they want.
Example: An evil conspiring seller and agent decide to make the payoff about $50,000 less. The title clerk takes the payoff, does not verify it with the bank and the bank never satisfies the mortgage because they are $50k short. Usually, the bank does not tell the title company because they just deposit the money and apply it to the balance.
The bank will start sending letters or emails to ask for the next month’s payment. Depending on the bank’s aggressiveness toward direct contact and foreclosure, it could be years for this to be discovered.
This effects the buyers, of course. If they try to refinance a year later and no one has caught the mistake at the title company, it will pop up on the new title and then they will deal with it legally and it will be messy.
Now, legal fees, time, bank fees, etc, can cost the insurer much more than the $50k. All to save a few bucks up front, and you didn’t have to work that hard.
I give kudos out to Grateful Abstract in the Philadelphia/South Jersey area who has been doing this for a long time and have had zero issues. I hope there are others that perform this practice.
I call first on the actual insurers of the policies, Stewart Title, North American, First American, etc, to make it a requirement of the local office to certify that the payoff came through them with a direct connection to the bank.
If not, I am sure in addition to the CFPB (if they have time left), the individual state insurance commissioners would like to fix this through administrative procedures or worse, a new law. And for those that love to bitch about too many government regulations, this is an easy way to stop one from happening. Police yourself. Save time and expense now.
It is reasonable and logical, and if it only stops one bad deal from happening, then it costs you nothing and you’ve stopped the actual loss. Your shareholders will love it too!
So today, I call for all title companies to get all payoffs and protect everyone from this criminal act. If they don’t, then smart real estate agents will start recomending companies that will do this. Since no title company can give any kickbacks to real estate agents, the agents should be more flexible with their choices of companies (mortgage has the same rule). But, if you have an agent that is pushing and pushing and they do not protect you as in the transaction I described, you have the right to use anyone you want. Do not be forced.
Plain and simple, opposed to cheap and easy.