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Widespread Land Records Fraud Scheme Targets Distressed Properties and Borrowers

Posted By USFN, Tuesday, October 10, 2017
Updated: Tuesday, October 3, 2017

October 10, 2017

by Sara Tussey and Brett Beehler
Rosenberg and Associates, LLC – USFN Member (District of Columbia)

Over the past summer, title insurers uncovered a large-scale fraudulent scheme targeting distressed properties and borrowers, which has been identified in at least twenty states. The scam involves fraudulent recorded instruments that can cause a cloud on title, thus complicating or preventing loss mitigation efforts and foreclosure.

The perpetrators obtain information about a loan that is in default or already in foreclosure, sometimes offering loss mitigation assistance to induce cooperation from borrowers. The wrongdoers then create and record fraudulent instruments related to the loan in the land records. These may include assignments, deeds, deeds of trust, appointments of substitute trustees, mortgages, and releases — among others. The fraudulent instruments may vest title into the perpetrators, thereby allowing them to attempt a refinance or sale of the property. Alternatively, the fraudulent instruments might name the perpetrators as beneficiaries of a deed of trust, so that they can enforce the instrument, obtain proceeds of a sale, or sell the loan to an unsuspecting investor.

The best way to avoid loss related to this scheme is to be able to spot fraudulent instruments — and protect the original documents related to each loan. Consider providing additional staff training to recognize fraudulent documents. Red flags include assignments or appointments signed by entities that your staff does not recognize, especially where the executing entity is also the grantee. In addition, consider naming a formal point person for escalated, fraud-related issues.

Assess further training options for your loss mitigation teams to better identify scams targeting borrowers. Have a formal, written action plan for when borrowers are victimized by a fraud scheme. Consider creating a watermark on original loan documents or using other clearly identifiable markings on copies before sending them to borrowers, in response to debt disputes or qualified written requests.

This newly identified racket has potentially serious implications for the mortgage industry and more variations are likely to follow. It is essential to enhance your staff’s knowledge and improve overall internal procedures to protect your company from loss. Discuss this matter with local foreclosure counsel for advice as to how the fraud scheme may affect foreclosures in particular jurisdictions and to request specific training for your teams.

© Copyright 2017 USFN and Rosenberg and Associates, LLC. All rights reserved.
October USFN e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

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