Posting for

Monday, April 24, 2000

by: Jim Weston

jweston@firstam.com

and: Bert Rush

brush@firstam.com

FORGERY RINGS/FRAUD/FORGERIES/TITLE UNDERWRITING/ STREAMLINED PROCEDURES

Jim Weston (Warrenville/Chicagoland) writes:

We thought we would share with you an ongoing experience with fraud and forgery here in the Chicago marketplace that might just pop up in other urban markets.

Last week we attended a state title association meeting at which there was a presentation by another underwriter of a scenario that has developed out of two claims they experienced. At the outset, I should add that at least one other underwriter admitted to having multiple claims from the same or similar source. That underwriter, which maintains one of the principal title plants in the market, had posted names associated with the claims to their judgment index with a note to contact counsel. At least two agents in the market had been alerted by this means, resulting in canceled orders and closings.

The modus operandi of the scheme involved the assumption of a landowner's identity, forgery of a deed out to a participating entity or individual, and the subsequent deed or mortgage of the land. Most cases also involved the forging of releases or other clearance of such matters as municipal building code violations and tax sales.

So far, the known sites have the following common characteristics:

* located on the south side of Chicago;

* have some history of building code violations;

* abandoned or unoccupied

In viewing copies of the recorded documents that changed or cleared title, it is readily apparent that the originals were prepared by the cut/paste/whiteout method, inartfully at that. Some documents were so poorly done that they might not qualify as forgeries since they were blatantly invalid on their face (notary signs on line of grantor; grantor does not sign). The documents often are deficient in a variety of other ways, including failure to include a revenue declaration, the name of the person who prepared the document, etc.

These transactions have been done on a fairly large scale. The presenting underwriter had gone to the grantor/grantee index and had researched the various known names, discovering that blocks of documents had been recorded at various times over the last year or two. Copies of the documents were obtained and the local office of HUD was alerted. They immediately commenced an investigation and called in the FBI. Obviously, from that point, it was information "in" to the investigators and none "out."

What is intriguing is the organization apparently in place no matter how unsophisticated the execution. The identity of the properties and more importantly the names of the owners and lien holders might indicate access to the building department. Access to tax information and the use of tax data, including the use of old IBM computer punch cards with the cryptic legal descriptions as the legals for the deeds and other documents, might lead one to think that there was a access to the county tax records. No title company could ever hope to accomplish the recording of deeds and other documents in the cut/paste/whiteout format, especially when lacking signatures, document preparation information and most especially, transfer tax data. This makes one wonder how they got recorded. For the mortgages, appraisals had to be produced and we haven't seen any examples of that yet.

Once recorded, no matter what the document looked like, it shows up on title plant chain sheets. As the industry in this market has broadly adopted abbreviated examination techniques (streamlining), the chain is looked at but not the copies of documents.

My personal take (pure speculation) on all this is that it has the taste of a street gang. As those groups have evolved chains and switchblades (ala West Side Story) to more middle aged pursuits, maybe we better think about protecting our flanks. I suppose vigilance is the best approach as fortunately has happened here. As I said at the outset, folks in other big cities better be alert. And God help us if they ever figure out how to use scanners and computers and color printers.

We have posted the known names to our plants with a note to call the regional counsel's office if they are encountered. We don't say anything that would go public and potentially defame or libel anyone. This is a special concern as they have apparently stolen the identities of actual people who are in the real estate business as lawyer and notary public and who continue to do legitimate transactions.

Seems like our business gets stranger and stranger all the time. But never a dull moment.

Comment by Bert Rush: It's too bad we have to devote so much time, particularly of late, learning about frauds and trying to devise ways to stop 'em. Then again, protecting against fraud is a traditional example of "the value of title insurance."

Anyway, I think it's important to focus on two aspects of this scheme that seasoned Savants may call "red flags." First is the fact that the properties involved were "abandoned or unoccupied," which the scammers may have discerned from their histories of building code violations. We've also seen crooks alerted to vulnerable properties by foreclosure notices. One, here in Orange County, would approach homeowners in foreclosure who were hopelessly in arrears, buy them "out" with promises to clear their credit or perhaps with a small payment, then deed the property to a fictitious person (or entity), and begin the process of forging releases and giving new mortgages. Again, the red flag is abandoned or unoccupied property, or vacant land.

The second red flag is release or "clearance" of substantial liens, code violations or tax sales without a sale or new financing. (Jim's posting doesn't mention forged releases of mortgages, but such are typical.)

When you see releases without a sale or new financing, or a deed that appears to have been given for "no consideration," the recommended practice is to examine underlying documents. This is part of our "streamlined procedures." Unfortunately, we've seen some expensive claims lately where this recommended practice seems to have been overlooked in "streamlining."

While it may be assuming too much to suggest that anyone should have caught the Chicago schemes, I think it's worthwhile to examine each fraud claim to see whether, no matter how brilliant the scheme, the crook was aided by a breach of procedure on "our" part.

And, as Jim suspects, more and more these days it looks like them who used to steal hubcaps are learning to do real property frauds. And, make no mistake, they will have "scanners and computers and color printers." How hard is it to steal a computer?

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Following up on our posting for Monday, 4/24/00, Dennis Gonski (outside counsel/Fairfield, NJ) has written a note which can be viewed by clicking on the URL below.