Fraud

Graceland Fraudster Does the Jailhouse Rock

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Riley Keough, inset, with Graceland

Lisa Findley, a woman from the Ozarks with a known history of petty crime, was sentenced to 57 months in federal prison last month after pleading guilty to mail fraud. The charge stemmed from a bizarre scheme in which she attempted to secure a $3 million payoff using a fake loan backed by a fraudulent mortgage on Graceland, the former home of Elvis Presley.

Using at least four different alter egos, Findley attempted to convince lawyers for the estate of the late Lisa Marie Pressley1 and of her daughter, actress Riley Keough2, that a non-existent company called Naussany Investments & Private Lending, LLC, had loaned Lisa Marie $3,800,000 secured by the iconic home.

Findley supported the scheme by forging the signatures of Lisa Marie and a real Florida notary on fake loan documents. She even went so far as to threaten foreclosure. While attorneys for the Presley estate grew suspicious minds, Findley escalated her efforts by filing a creditor’s claim against the estate in California and separately recording a fraudulent Note and Deed of Trust in Tennessee land records. Despite making little progress, she pressed the matter by publishing a Notice of Foreclosure Sale in the Memphis Commercial Appeal.

While the Pressley attorneys rushed to obtain an injunction to keep the Jungle Room in the family’s domain, reporters and law enforcement began to close in on what proved to be an easy web to unweave. Perhaps feeling caught in a trap, Findlay’s alter egos abruptly disclaimed any connection to the loan and directed attention to a third alter ego.  After some token resistance, this alter ego confessed in an email written in Spanish – don’t ask me why – to that he was really a Nigerian scam artist and that the authorities should seek him in that fine African nation. 

This final effort to by Findlay was … not successful. Despite asking the judge to don’t be cruel, she will now spend a blue Christmas in a federal penitentiary for the next several winters.

In all seriousness, this scheme highlights both the growing prevalence of “imposter” frauds and the lengths and doggedness which fraudsters will pursue them. While this imposter chose very poorly in her attempted fraud target, the methods used should be a warning to all real estate professionals of what kind of methods they might run across in a scam. You could see how a less ambitious scheme could have been a little more credible and come closer to success.  

[1] Daughter of the King of Rock and Roll, and wife to the King of Pop, Michael Jackson! Plus, her mom was on Dallas! Pure royalty. 

[2] Keough was great in the Amazon mini-series ‘Daisy Jones and the Six.’  Definitely worth the watch if you have not seen it.

[3] Foreclosures can proceed non-judicially in Tennessee, which means creditors may in many circumstances sell property without court oversight.  

SC Supreme Court disbars real estate lawyer for “robbing Peter to pay Paul”

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…and using title insurance as his tool

In the Matter of Bush* resulted in a disbarment of a dirt lawyer who used a common “robbing Peter to pay Paul” scheme to steal from clients. The case involved three disciplinary complaints.

The first complaint revolved around the failure to wire $334,000 to a lender to pay off a mortgage in a real estate closing. The lawyer eventually admitted he used the money to replace funds he misappropriated from another closing.

The second complaint arose when the lawyer issued a closing protection letter and a title insurance commitment despite the fact that his title insurance company had suspended him as an agent and his title insurance agency license had expired. The lawyer received funds for this closing but, again, failed to satisfy the prior mortgage. The lawyer eventually admitted he used the funds to pay off the underlying mortgage for the closing described in the first complaint.

After the lawyer was placed in interim suspension by the Supreme Court, he responded to a third client whose mortgage had not been satisfied that, “I am going to plow back in to this and let me talk with some colleagues about a way to get a better resolution quickly.”  The lawyer did not tell the third client that he had failed to satisfy her mortgage. Instead, he provided false information to the client regarding the status of the debt. The lawyer finally admitted that he had stolen the funds.

It’s amazing that a few bad apples continue to employ these deceptive techniques that eventually come to light. It is impossible to hide this type of scheme forever because the economy always ebbs and flows. Even a small economic downturn can result in the failure of the next closing to materialize. Without the funds from the next closing, the mortgage from the prior closing is never paid, and the house of cards falls quickly. In this case, the lawyer’s former title insurance company received a claim from one of the lenders who was not paid. A title insurance complaint will also cause the house of cards to fall quickly.

Lawyers, please read this case carefully as a model of what not to do! Be careful out there!

*South Carolina Supreme Court Opinion 28241 (November 6, 2024).

Secret Service issues new Advisory

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Real estate impersonation scams have “evolved”, it says

In September, the United States Secret Service issued an update to its “Real Estate Scam – Vacant Properties” Advisory (v. 1.1) The original Advisory was issued in Spring of 2022.

The current Advisory warns that the Secret Service has become aware of an increase of instances where criminals are impersonating title companies to steal real estate funds. Remember that “title companies” actually close transactions in many states. In South Carolina, the bad actors would impersonate law firms and banks.

Now more than ever, it is important for everyone involved in a real estate transaction to validate wires before they are sent. The last thing you need is for your law firm to have to provide funds to replace lost closing proceeds!

Often, the perpetrator impersonates the title holder and negotiates to sell unoccupied property to an unsuspecting buyer. Once the contract is signed, the criminal directs the buyer or realtor to the criminal’s account, impersonating a title company or law firm. The perpetrator impersonates the closing office by purchasing fake domains, similar to the closing office’s domain. (Such as me@lawfiirm.com vs. me@lawfirm.com.)

Red flags are identified by the Advisory:

  • Communications are primarily by email and communications contain poor grammar.  (This is from me, not the advisory. If you ever seen the word “kindly”, such as “kindly wire the funds to….” Remember we don’t typically talk that way! Any twisted language or bad grammar may indicate the communication is coming from someone and some place with a first language other than English. Always use common sense!)
  • Wiring instructions are sent over standard email instead of a secure email platform.
  • The listing is below market value and the “seller” is looking for a cash buyer or quick closing.
  • The “seller” wants to use its preferred closing office.
  • The closing office is outside of the area where the real estate is located.

The Advisory suggests the following avenues of prevention:

  • Conduct an online independent search of the entity to which the funds are to be wires.
  • With a known phone number (from a trusted website or previous contact) CALL and verify the wiring instructions and names on accounts.
  • If possible, visit a local branch of the entity to which the funds are to be wired.
  • Obtain a government issued ID from each party, and evaluate IDs for abnormalities.
  • Consider a form of multi-factor authentication with your clients. For example, send an overnight letter to the mailing address on the tax bill asking the property owner to call you with a one-time code embedded within the letter.

To read more, visit http://www.secretservice.gov. And be careful out there!

Representing elder clients can be tricky

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Dirt lawyers may be in the best position to protect elders in real estate transactions

Elderly persons should be treasured, not abused! And, as real estate lawyers, we may be in a particular position to guard against abuses.

Elder abuse often happens at the hands of family members or “friends” who, because of the vulnerabilities associated with age, such as mental impairment, are able to employ methods such as theft, fraud, forgery, extortion and the wrongful use of powers of attorney to separate an elderly person from property or funds.

Reflect upon the numbers of stories you have heard in your community about elderly persons falling prey to telephone scams. Those same individuals would not have succumbed in their prime. Even with all mental facilities in place, they don’t hear as well, they don’t keep up with changes in technology, and they are unable to keep up with fraud trends we all hear about every day.

Here are some signs of elder financial abuse that you may be able to detect in your office:

  • Sudden changes in an elderly person’s estate planning documents;
  • Changes made in the title to properties in favor of a “friend;
  • Home health aide, housekeeper or other person is added to the accounts of an elderly person or is receiving an assignment of proceeds;
  • Family members or trusted “friend” discourages or interferes with direct communications with an elderly person involved in a transaction;
  • The older person seems unable to comprehend the financial implications of the transaction;
  • The older person signs documents without seemingly knowing or understanding what is being signed;
  • A power of attorney is involved. I’ve told this story many times, but I know a wonderful claims attorney who called powers of attorney “instruments of the devil”. Powers of attorney are extremely useful tools in the real estate world, but we should always exercise caution when they are used, especially when an elderly person is involved;
  • Anyone seems to be forcing the elderly person to act;
  • Numerous unpaid bills may be a clue that someone is diverting the money designated for the daily living of the elderly person;
  • Promises of lifelong care in exchange for property;
  • The elderly person complains that he or she used to have money but doesn’t understand why the money is no longer available;
  • The caregiver is evasive about the specifics of the transaction in the presence of the elderly person;
  • The elderly person seems fearful or reticent to speak in front of a family member, friend, loan officer, real estate agent or anyone involved in the transaction.
  • The accompanying family member or caregiver attempts to prevent the elderly person from interacting with others.
  • The elderly person and the family member or caregiver give conflicting accounts of the transaction, the expenditures or the financial need.
  • The elderly person appears disheveled or without proper care even though he or she has adequate financial resources.

Be mindful of these common-sense suggestions when any of your real estate transactions involve elderly persons. Think of them as you would want someone to think of your parents or aunts and uncles. Be careful to protect their interests. Proceed with caution!

Elders may also be the victims of predatory lending. Elders who own their homes and have built up equity over time become targets of predatory loan originators who pressure them in to high-interest loans that they may not be able to repay. Older homeowners are often persuaded to borrow money through home equity loans for home repairs, debt consolidation or to pay health care costs. These loans may be sold as “miracle financial cures” and are often packed with excessive fees, costly mortgage insurance and balloon payments.

Always discuss transactions directly with your elderly clients. Ask them pointed questions to make sure they understand the transaction.

And, as always, employ your instincts and your common sense.

FinCEN’s proposed reporting rule targets residential real estate cash closings

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On February 7, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking for the stated purpose of combatting money laundering in residential real estate transactions. You can review the proposed rule and a related fact sheet here.

The proposed rule would require certain professionals, including attorneys, involved in real estate closings to report information to FinCEN about cash transfers of residential real estate to legal entities and trusts. The agency’s press release indicates the proposal is tailored to target transfers that are high-risk for money laundering. No reporting would be required for transfers to individuals.

The information to be reported would include:

  • Beneficial ownership information for the legal entity or trust receiving the property;
  • Information about individuals representing the transferee legal entity or transferee trust;
  • Information about the business filing the report;
  • Information about the real property being sold or transferred;
  • Information about the seller; and
  • Information about any payments made.

A Geographic Targeting Order program has been in place for several years requiring this type of reporting in certain high-priced locations. The new rule would replace the Geographic Targeting Order with nationwide reporting.

FinCEN recognizes that the beneficial ownership information required under this proposed rule is also collected under the new Corporate Transparency Act, but states that the information will serve two different purposes.

The proposed rule would require reporting on single-family houses, townhouses, condominiums and buildings designed for occupancy by one to four families. It would also require reporting on transfers on unimproved land that is zoned or permitted for occupancy by one to four families.

Transfers would be reportable regardless of price. Gifts and other transactions where no consideration is exchanged are reportable. Exempted transactions include easements, transfers resulting from the death of the property owner, transfers resulting from divorce, and transfers made to a bankruptcy estate.

The agency encourages written comments in response to the proposed rule for 60 days. Closing lawyers, I encourage you to read the information at the links above and to make comments.    

Unpublished Court of Appeals case is instructive in wire fraud arena

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I hate to report that any South Carolina law firm has fallen victim to fraud, but my friend and successor at Chicago Title, Jennifer Rubin, tells me that fraud is a daily challenge for closing attorneys in South Carolina. I am going to discuss this case delicately, because I believe this might happen to anyone who handles closings. I have sympathy for each closing law firm because they remain under constant pressure. But I also believe that everyone needs all the warnings we can collectively muster! This blog is yet another warning.

First, let me thank my friend, Bill Booth, Columbia attorney who keeps me posted on cases he follows. I appreciate being kept informed. This is an unpublished South Carolina Court of Appeals case* Bill brought to my attention. Bill said, “The fraudster was very clever in how he changed the seller’s email by a single letter.” Clever indeed! I stared at the real email address and the fraudulent email address for several minutes and failed to find the discrepancy. I handed the opinion to my husband and asked him to see if he could find it. He did, but it took him awhile.

Here are the two email addresses: mail4marvin@gmail.com vs. mail4rnarvin@gmail.com. Do you see it? The “m” in marvin was changed to “rn”. The Court of Appeals called this discrepancy “cunning”. I’ll say!

At trial, the seller was awarded a $10,306 verdict against the law firm, and the Court of Appeals affirmed. I assume the law firm will appeal to the South Carolina Supreme Court, and we may get further guidance.

Here are the facts. In 2016, Marvin Gipson contracted to sell his property to Clyde and Betty Williamson for $12,000. Gipson lived in Texas, and his local real estate agent recommended the closing firm, which represented both sides. Gipson testified that his only contact with the law firm was by mail, telephone, and email, mostly with an assistant.

Prior to closing, according to Gipson, the assistant told Gipson that she had received wiring instructions. Gipson testified he told her that he had never sent wiring instructions and expected to receive a check. He said he never received a phone call informing him that the closing had been completed and never received the check. He waited eleven days before contacting the law firm to report that he hadn’t received his seller’s proceeds.

Investigation revealed that the assistant had emailed the fraudulent address that the closing had taken place. By return email, she received fraudulent wiring instructions.

At trial, the law firm presented expert witness testimony to the effect that the law firm’s server was not hacked, and that the theft was facilitated by a “man in the middle attack”, wherein the thief was privy to information possibly obtained through a breach of Gipson’s or the real estate agent’s systems or by overhearing information. But the law firm was held liable at the trial level and by the Court of Appeals.

Lawyers, here is my advice. Please give your closing paralegals time. They need time to discover issues. They need time to investigate discrepancies. Please also give them training, not just once but weekly or even daily. They need to know about this case! No amount of training is too much. Talk to your title company. They have resources to assist! Use those resources! Stay up to date yourself! We spent three years in law school learning to spot issues. Apply those skills to your closing practices to spot those difficult issues.

Be very careful out there!

*South Carolina Court of Appeals Unpublished Opinion 2023-UP-324 (October 4, 2023)

Heads up real estate lawyers!

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The new Corporate Transparency Act will apply to you and your clients!

Please refer to the excellent September 2023 article in SC Lawyer entitled, “The Basic Ins and Outs of the Corporate Transparency Act” by Matthew B. Edwards and D. Parker Baker III.

This article provides an analysis of the basics of the Act, which is intended to help prevent money laundering, terrorist financing, corruption, tax fraud and other illicit activities. Many entities will be required to report information concerning beneficial owners to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), identifying their beneficial owners and providing certain information about them.

The act may apply to virtually every commercial real estate transaction because of the use of multi-tier entity structures to achieve business objectives. Lawyers will need to review clients’ organizational structure charts to determine entity by entity whether an exemption is applicable. If not, organizational documents, stockholder agreements, operating agreements will have to be reviewed to determine beneficial ownership.

Reporting information will include the name, address, state of jurisdiction and taxpayer identification number of every beneficial owner. Other information may be required, such as passports and driver’s licenses. Penalties for failure to comply will include civil penalties of no more than $500 per day, fines of no more than $10,000 and imprisonment for no more than two years. A safe harbor is included for voluntarily and promptly correcting an inaccurate report within 90 days. FinCEN will issue rules prior the effective date.

Don’t panic. We have time. The effective date is January 1, 2024. For companies formed prior to the effective date, the initial report is due January 1, 2025. For companies formed on or after the effective date, the first report is due thirty days following formation.

I think everyone’s initial advice as to new entities will be to refrain from forming those entities until the effects of the Act are analyzed. Existing entities will need to be analyzed pursuant to FinCEN’s rules during 2024.

Everyone will get through this together, and it’s likely that experts will emerge to help.

Pay attention to ALTA’s new seller impersonation memo

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American Land Title Association recently published a memorandum concerning seller impersonation fraud in real estate. You can read the memo in its entirety here.

We have always had to be on the lookout for fraudsters in real estate in South Carolina. Do you remember the infamous Matthew Cox who came to South Carolina after a fraud binge in Florida and Atlanta?

I’ll never forget the name, Matthew Cox, or the telephone call that tipped us off that we had a serious mortgage fraud situation here in Columbia. Long before the housing bubble popped, an attorney called to let us know what was going on that day in the Richland County ROD office. Representatives of several closing offices were recording mortgages describing the same two residential properties in Blythewood, as if the properties had been refinanced multiple times in the same day by different closing offices.

At first, we thought our company and our attorney agent were in the clear because our mortgage got to record first. South Carolina is a race notice state and getting to record first matters. Later, we learned that deeds to the so-called borrower were forged, so there was no safety for anyone involved in this seedy scenario. Thousands of dollars were lost.

Next, we learned about the two fraudsters who had moved to Columbia from Florida through Atlanta to work their mischief here. The two names were Matthew Cox and Rebecca Hauck. We heard that Cox had been in the mortgage lending business in Florida, where he got into trouble for faking loan documents. He had the guts to write a novel about his antics when he lost his brokerage license and needed funds, but the novel was never published. With funds running low, Cox and his girlfriend, Hauck, moved to Atlanta and then Columbia to continue their mortgage fraud efforts.

We didn’t hear more from the pair until several years later, when we heard they had thankfully been arrested and sent to federal prison.

The crimes perpetuated by Cox and Hauck were made easier by the housing bubble itself. Everything was inflated and values were hard to nail down. And closings were occurring at a lightening pace.

The new memo from ALTA says fraudsters are using owner’s Social Security and driver’s license numbers as well as notary credentials in these transactions. They, of course, use emails and text messages to mask their identity and commit fraud from any location.

The red flags remain the same:

  • Vacant real estate;
  • No outstanding mortgages;
  • For sale below market value;
  • Seller wants a quick sale;
  • Seller wants a cash buyer;
  • Seller refuses to attend the closing and claims to be out of the country;
  • Seller is difficult to reach by telephone;
  • Seller demands the proceeds be wired;
  • Seller refuses to complete multifactor authentication or identity verification;
  • Seller wants to use their own notary;

Be careful out there, dirt lawyers! Use your common sense and insist on verifications of identity.  ALTA’s memo has several useful tips.

FinCEN warns that Russian bad actors seek to invest in U.S. commercial real estate

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Financial institutions have reporting obligations under the Bank Secrecy Act, and Financial Crimes Enforcement Network (FinCEN) published an alert on January 25 warning financial institutions to be alert to potential investments in commercial real estate by sanctioned Russian elites, oligarchs, their family members, and the entities through which they act.  Commercial real estate lawyers should also be alert to these dangers.

You can read the Alert in its entirety here.

Use this link for a list of sanctioned Russian elites and their proxies.

Commercial real estate transactions are particularly vulnerable to exploitation by bad actors because of the complex financing methods and opaque ownership vehicles routinely employed. Because commercial properties are so high in value, buyers and sellers seek to use these methods and vehicles to limit their legal, tax and financial liability. In addition, foreign investors are common in commercial real estate.

The Alert points to the following types of transactions and vehicles that are so common that protection against invasion into them by bad actors would be difficult at best. The green, italicized words are mine:

  • The use of pooled investment vehicles, including offshore funds, to avoid due diligence and beneficial ownership protocols established by financial institutions. In other words, a bad actor may attempt to reduce its ownership percentage in a property to avoid normal due diligence for owners with higher percentages.
  • The use of shell companies and trusts to conceal ownership interests.
  • Involvement of third parties to invest in behalf of a criminal or corrupt actor.
  • Inconspicuous investments that provide stable returns. The properties may not be high end. They may be multi-family housing, retail, office, industrial or hotels in small and mid-size urban areas.

Thankfully, FinCEN’s Alert provides several red flags to assist in these difficult determinations.

  • The use of a private investment vehicle that is based offshore to purchase commercial real estate and that includes politically exposed persons or other foreign nationals (particularly family members or close associates of sanctioned Russian elites and their proxies) as investors. I had to Google the term “politically exposed person”. It means a person who has been entrusted with a prominent public function. These individuals generally represent a higher risk for potential involvement in bribery and corruption by virtue of their positions and influence.
  • When asked questions about the ultimate beneficial owners or controllers of a legal entity or arrangement, customers decline to provide information. In my former life in which I represented developers, when I asked questions about the identity of the beneficial owners, I got answers. It is a red flag if you are unable to obtain those answers.
  • Multiple limited liability companies, corporations, partnerships, or trusts are involved in a transaction with ties to sanctioned Russian elites and their proxies, and the entities have slight name variations.
  • The use of legal entities or arrangements, such as trusts, to purchase commercial real estate that involves friends, associates, family members, or others with close connection to sanctioned Russian elites and their proxies.
  • Ownership of commercial real estate through legal entities in multiple jurisdictions (often involving a trust based outside the United States) without a clear business purpose. Again, if you can’t get good answers to your questions, this is a red flag.
  • Transfers of assets from a politically exposed person or Russian elite to a family member, business associate, or associated trust in close temporal proximity to a legal event such as an arrest or an OFAC designation of that person. Remember that we check the OFAC (Office of Foreign Assets Control) list for individuals in our transactions using links provided by title companies. If you have questions about how to perform this function, call your friendly title insurance company underwriter. You can use this link.
  • Implementation of legal instruments that are intended to transfer an interest in commercial real estate from a politically exposed person or Russian elite to a family member, business associate or associated trust following a legal event such as an arrest or an OFAC designation of that person.
  • Private investment funds or other companies that submit revised ownership disclosures to financial institutions showing sanctioned individuals or politically exposed persons that previously owned more than 50 percent of a fund changing their ownership to less than 50 percent.
  • There is a limited discernable business value in the investment, or the investment is outside of the client’s normal business operations.

This is the fourth FinCEN alert on potential Russian illicit activity since Russia’s invasion of Ukraine. The Federal government is serious about policing these activities. I recommend that you contact your favorite title insurance underwriter any time you determine that sanctioned persons or their proxies involved in your transactions. Be careful out there!