Beaufort County offers fraud alert for property owners

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Allstate’s “Mayhem”

Do you know the name Dean Gerard Winters? He’s the actor who plays the character “Mayhem” in Allstate commercials. The character acts out cringe-worthy scenes involving car accidents, fires, falls and other calamities and advises us to buy insurance to protect against “Mayhem like me”.

I’ll never forget the name of a character who created mayhem in the midlands title world several years ago. That name is Matthew Cox.

A telephone call tipped us off that we had a serious mortgage fraud situation in Columbia. 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.

How do you protect against Mayhem like Matthew Cox? Beaufort County has found a way. My friend and excellent dirt lawyer, Sarah Robertson, who practices with Burr Forman in Bluffton recently sent out an article to her clients advising that Beaufort County has set up a program to allow property owners to register at no charge to receive alerts from the ROD regarding possible fraudulent activity involving their properties. Sarah’s article indicates some other counties are beginning to offer this service.

This is a great service for clients that could be championed by real estate lawyers in other locations to protect against Mayhem like Matthew Cox!

New fraud warning from Chicago Title

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It goes without saying that one of the most important partnerships for a real estate lawyer is a great title insurance company. I am biased, but in my opinion, there is no better title insurance company doing business in South Carolina than Chicago Title.

This week, a warning was issued from Chicago Title about a new and very specific fraud scheme that I want to share with all South Carolina practitioners.

Chicago Title received two reports last week of fraudsters apparently operating out of Houston. The fraudsters posed as owners of South Carolina properties and listed the properties for sale on Zillow. Mail away cash closings were scheduled with local real estate lawyers. In both cases, the fraudsters provided presumably fake identification and deeds to closing attorneys.

In the first case, the closing attorney very astutely foiled the scheme when he determined the signatures on the deed appeared suspicious. He contacted the New York notary who purportedly notarized the deed. She reported her seal had been stolen and used in at least one successful fraudulent scheme. The lawyer also learned from Federal Express that the deed had been sent from Houston rather than New York, where the seller was purportedly located. The transaction was stopped.

Unfortunately, the second transaction was not stopped.  This seller package also originated in Houston. The fraudster’s telephone number appears on Zillow listing for properties in multiple states. Houston law enforcement has been notified and is opening an investigation.

Any mail away closings should be particularly scrutinized. If you conduct a closing with an unfamiliar seller, you should be especially vigilant in confirming the identities of the parties. Use more than one set of eyes in your office! Anything that appears unusual should be examined carefully. Give your staff the flexibility to slow down and carefully examine each document. Tell them to bring any unusual document to you. Check behind your staff! A great real estate paralegal is invaluable, but we spent three years in law school learning to spot issues. Use those issue-spotting skills to foil these fraudsters!

Be careful and good luck out there!

Wire fraud continues to be a significant problem

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My preacher has suffered several email hacking schemes that prey on church members with kind hearts.

He has sent out a written notification and has announced from the pulpit more than once that church members have reported to him that they sent money because of his very touching email requests about persons in need…email requests that he never made. He assured his congregation that if he needs specific funds for specific needs, he will make phone calls. He shared that preacher friends of his have reported similar schemes. The fake emails always report that he is unavailable to take phone calls but that the need is urgent and immediate.

Phone calls may be the key to fraud prevention!

A lawyer friend of mine called me this week to ask an opinion on a potential client’s case. Help me answer the question: Does a closing attorney have a duty to make a telephone call to clients who may need to wire funds in connection with a closing to warn about the dangers of wire fraud and how to prevent the loss of closing funds?

I don’t know the answer to that question. My gut reaction is that the standard in our communities in South Carolina is that lawyers should provide very specific instructions on wiring instructions and engagement letters to prevent this type of fraud. I’ve seen several excellent examples of red-letter, bolded warnings.

Chicago Title in South Carolina continues to see a rise in the amount of fraud and attempted fraud in connection with real estate closings. The most recent memorandum was sent out to agents on February 2. Most of these incidents involve hacked emails where a party to the transaction fails to maintain strong computer or email security.

Unfortunately, law firms with significant security measures in place have also been victims of these schemes. The hackers typically submit altered payoff letters or wiring instructions to divert the funds. Like the emails that have plagued my preacher, the forged emails, wiring instructions and payoff letters look very similar to legitimate documents.

Here is the current advice on preventing these disasters in your law firms:

  1. Obtain payoff information and wiring instructions early in the transaction so that there is ample time to review them and confirm their authenticity.
  2. Review every payoff and wiring instruction to determine whether it appears authentic on its face. Many fraudsters are excellent at spoofing letterheads and logos, but sometimes, you may see tell-tale signs.
  3. Compare each payoff letter and wiring instruction to prior instructions to determine whether account numbers have been changed.
  4. If the wire is going to an entity to which you have previously sent wires, compare the new information with the prior transaction. If you save wiring instructions in your systems, make sure that repository is secure and cannot be easily shared.
  5. Verify every wiring instruction verbally using a known and trusted telephone number. Do not use telephone numbers provided in the instructions themselves unless you can verify its validity.
  6. If you cannot verify the instructions verbally or have doubts about the transaction, consider mailing, overnighting or even hand delivering a check to a confirmed address instead of using a wire.

Chicago Title has developed an excellent APP for your cell phone that contains the information you will need in the event your law firm or your clients become victims of fraud. As always, I highly recommend Chicago Title!

Secret Service Thwarts $21 million scam

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The United States Secret Service announced in a press release dated September 1 that on August 23, it was successful in thwarting a real estate related business email compromise (BEC) scheme that sought to defraud a purchaser of more than $21 million.

The scheme attempted to divert closing funds to a fraudulent bank account. After quick action by the Secret Service and its private sector partners, the funds were returned to the victim.

Please refer to this Underwriting Memorandum issued by Chicago Title’s South Carolina State Office on September 20 warning that fraudulent wiring instruction schemes are on the rise.

These schemes typically employ altered or fictitious payoff statements. The fraudster often impersonates a mortgage broker, lender, borrower, or an agent of the borrower to request a copy of the payoff statement. Alternatively, the fraudster may intercept the payoff statement by a hacking or phishing ploy.

Armed with the payoff statement, the fraudster will create and transmit a bogus “updated” payoff statement with wiring instructions intending to divert the funds to the fraudster. The statement may also alter contact information so that telephone calls to verify payoff information will be answered by the fraudsters.

Chicago Title’s memorandum advises closing attorneys to take the following proactive measures to minimize the risk that payoff funds will be diverted:

  • Obtain payoff statements early so they can be properly reviewed and verified.
  • Verify banking information and payoff amounts directly with the payee using known, trusted numbers rather than information from the payoff statement.
  • Refer to prior payoff statements from the same payee to confirm the banking information matches.
  • Maintain repetitive wire information within systems or databases to use for future wires. Lock this information to restrict alterations.
  • If it is impossible to make a verbal confirmation by a known trusted telephone number, consider sending overnighting a check.

Be careful out there, closing attorneys!

Is “title theft” a thing?

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Can and should a consumer buy protection against title theft?

Several years ago, a real estate lawyer asked whether title insurance companies should offer protection against “title theft”…the protection touted by the companies who routinely advertise their services on the radio. This question prompted us to research the services of those companies and analyze whether title insurance companies should offer the same service.

The advertisers who bombard the airwaves with warnings about title theft say thieves can steal homes by forging the names of homeowners on deeds, then reselling or mortgaging the property to hijack the equity. The thieves would purportedly pocket the proceeds, leaving the homeowner without title or with new mortgage payments. The companies promise to monitor title to protect against such devastating losses.

My understanding of the product being offered at that time was that the company would regularly check the land records to see whether the homeowner’s name appeared on any deed or mortgage. The homeowner would be notified of any “hits”. If the homeowner responded to the notification that the instrument in question was, in fact, a forgery, then the company would prepare and file in the land records a document to alert future buyers and lenders of the forgery. I was told that the product did not include attorneys’ fees for clearing titles.

But is “title theft” a thing? Does a forged deed convey real estate? No! Does a forged mortgage require the true owner of the real estate to make payments? No! But can a forger wreak havoc for a property owner? Yes, indeed!

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 beginning in late 2007, 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. Housing values were inflated and appraisals were hard to nail down. And closings were occurring at a lightening pace. The title companies who had issued commitments and closing protection letters for the lenders were definitely “on the hook”. And the important thing about title insurance is that coverage includes attorneys’ fees for defending titles. I don’t believe the property owners in this case had any coverage but clearing the mortgage issues eventually cleared their title problems.

Would the title theft products have been valuable to the homeowners in this situation? The companies may have notified the owners of the forged deeds and may have filed some kind of notice of the forgery in the land records, but that is all they would have done. Nothing would have prevented the forged mortgages. I am now informed that, under some circumstances, attorneys’ fees to clear title may be included with the title theft products, so perhaps today, the owners would have some protection with a title theft product. These products require “subscriptions” and periodic payments.

A far better alternative is the coverage provided by the ALTA Homeowners Policy of Title Insurance which requires a one-time payment at closing. This is the policy we commonly call “enhanced” coverage. The cost of this policy is twenty percent higher than the traditional owner’s policy, but it includes protection for several events that may occur post-closing. Forgery is one of those events. And, again, title insurance coverage includes attorneys’ fees.

Dirt lawyers who are asked about the title theft products should advise their clients that they can check the land records, most of which are online, to discover whether anyone has “stolen” their titles. And, better yet, they can buy title insurance coverage for peace of mind.

Wire fraud advice from industry insiders

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Dirt Lawyers: educate your clients!

Please take a look at this article by Bill Svoboda of CloseSimple entitled “Wire Fraud in the Wake of COVID-19”. The article quotes some industry insiders, including Rick Diamond of our company. Rick was one of our speakers for our recent seminar and often advises real estate lawyers on issues including how to protect client funds.

The article also quotes Tom Conkright of CertifID, one of our office’s solution partners. CertifID has a proven success rate on protecting client funds, including returning client funds that go missing. We highly recommend that you take a look at what CertifID has to offer. Reach out to your agency representative to ask for a demonstration.

But the main purpose of this blog is to remind you to continually educate your clients about wire fraud. Like the victim in this article, many of your clients are pulling up roots and moving to sunny South Carolina. Many of your clients are retirees. The earlier you can give new clients advice about protecting themselves against fraud, the better. Give them advice in bright red, bold print in your engagement letters. Add bright red, bold print warnings under your email signature lines. If you protect one aging consumer by these methods, the effort will be worth it!

Speaking of aging consumers, many of you have heard that I’m retiring in February. One thing that concerns me about retirement is not being able to keep current on industry advice about fraud. If you hear something next year that I should know, give me a call!

NC title agent fakes title insurance policies and gets fourteen month sentence

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insurance fraud binder scales

A North Carolina title agent was sentenced this month for selling fake title insurance policies. Ginger Lynn Cunningham owned Blue Ridge Title Company, a title insurance agency located in Buncombe County, North Carolina.

The title insurance company that had done business with Cunningham had canceled the agency in March of 2016, but Cunningham continued through October of 2017 to represent herself as being a title insurance agent. During this time, she purportedly sold falsified title insurance policies, retaining 100% of the premium.

The court records reflect that at least 973 counterfeit title insurance policies were sold to the tune of around $400,000 in bogus premiums. Cunningham pleaded guilty to wire fraud on October 28, 2019.

Cunningham was sentenced to fourteen months in prison and three years of court supervision. She was also ordered to pay restitution.

I would love to say this is a novel case and that these facts don’t make my skin crawl, but former attorney, Brian Davis, was disbarred in South Carolina in 2015 for the same activity.*

By way of background, the vast majority of real estate lawyers in South Carolina are also licensed as title insurance company agents.  In other parts of the country, lenders receive title insurance documents directly from title companies’ direct operations.  In South Carolina, title companies run agency operations, supporting their networks of agents, almost all of whom are South Carolina licensed attorneys.

Lenders require closing protection letters for closings involving agents.  Stated simply, these letters inform lenders that the insurer may be responsible in the event a closing is handled improperly by the closing attorney.

Title insurance company agents also produce title insurance policies and commitments, following the guidelines of their insurance underwriters, and using software programs designed to support the production of these documents.

Some closing attorneys are not agents but instead act as approved attorneys for title insurance companies. Approved attorneys can obtain closing protection letters from their title companies, but they are not able to issue their own title insurance documents. Instead, they certify title to a title insurance company or to a title company’s agent.

If an attorney cannot provide lenders with closing protection letters, that attorney generally cannot close mortgage loans in South Carolina.

In 2007, Mr. Davis was canceled as an agent by his title insurance company**.  After that cancellation, he was able to legitimately obtain title insurance commitments and policies through an agent. In 2011, however, Mr. Davis was canceled as an approved attorney.  He didn’t let that fact stop him though. He began to fraudulently produce title insurance documents, making it appear that the title insurance company was issuing closing protection letters, commitments and policies for his closings.  He also collected funds designated as title insurance premiums, but he never paid those premiums to the title insurance company.  He continued to handle closings using fraudulent title insurance documents until his actions were discovered and he was suspended from the practice of law by the South Carolina Supreme Court in 2013. In 2015, Mr. Davis was disbarred.

I supposed I should close by saying don’t do this!  Please!

 

* In the Matter of Davis, S.C. Supreme Court Opinion 27480 (January 21, 2015)

** In the interest of full disclosure, I work for that company.

SC lawyers connected to Hardwick receive admonitions

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Nat HardwickIn additional fallout from the Nat Hardwick fiasco in Atlanta, the South Carolina Supreme Court has anonymously admonished two bar members for failing to restrict access to South Carolina-based trust accounts containing client funds and failing to ensure proper monthly reconciliations of those accounts*.

This blog has discussed Nat Hardwick, a name familiar to many South Carolina real estate lawyers three times. He was convicted in 2018 of embezzling more than $25 million from his former companies, including his former law firm, Morris Hardwick Schneider. In February of 2019, he was sentenced to 15 years in prison. His co-conspirator and controller, Asha Maurya, was sentenced to seven years after she cooperated with the government. In May of 2019 Hardwick and Maura were ordered to pay $40 million in restitution.

Nathan E. Hardwick IV, described himself as the face of Morris Hardwick Schneider, an Atlanta residential real estate and foreclosure firm that grew into sixteen states, including South Carolina. The firm once had more than 800 employees and boasted of offices in Charleston, Hilton Head, Columbia and Greenville.

This story hits close to home. My company was one of the victims of the crimes and one of the parties awarded restitution because it funded the firm’s escrow accounts when the losses were discovered.

The prosecutor described an extravagant lifestyle that Hardwick enjoyed at the expense of others. The case was said to be particularly troubling because the illegal activity was orchestrated by a lawyer who swore an oath to uphold the law and represent his clients with integrity. The U.S. Attorney said he hoped the case sent the message that the FBI and the U.S. Attorney’s office will not tolerate this type of white-collar crime.

According to the evidence, from January 2011 through August 2014, Hardwick stole more than $26 million from his law firm’s accounts, including its trust accounts, to pay his personal debts and expenses. The firm’s audited financial statements showed that the firm’s net income from 2011 through 2013 was approximately $10 million. During that time, according to the evidence, Hardwick took more than $20 million from firm accounts.

Asha Maurya, who managed the firm’s accounting operations, reached an agreement last May with the U.S. Attorney’s office and pled guilty. She was expected to testify at the trial, but was unexpectedly not called as a witness. Her lawyer argued at the restitution hearing that she should be liable for only $900,000, the amount she admitted taking from the firm for her own benefit. She had agreed to pay restitution in that amount as a part of her plea bargain.

During the trial, Hardwick did take the stand in his defense and attempted to blame Maurya with the theft. He said that he trusted her to his detriment, that he was entitled to the funds, and that he was unaware that the funds were wired from trust accounts. Hardwick testified for more than a day and explained that he believed Maurya followed proper law firm procedures.

On the stand, Hardwick, described as the consummate salesman, said that he gave his cellphone number to almost everyone. He said he returned calls and messages within a few hours and instructed his employees to do the same. He apparently believed himself to be a master in marketing and customer service and prided himself in focusing on the firm’s expansion strategy. He hoped to expand to all fifty states and make money through a public stock offering.

With his ill-gotten gains, Hardwick bought expensive property, made a $186,000 deposit for a party on a private island, spent $635,000 to take his golfing friends to attend the British Open in 2014, paid off bookies, alimony obligations, and sent more than $5.9 million to various casinos, all according to trial evidence. Hardwick’s activities lead to the loss of his law license and the bankruptcy of his firm.

Hardwick’s former partners, Mark Wittstadt and his brother, Gerald Wittstadt, were each awarded $6 million in restitution, and Art Morris, a retired member of the firm, was awarded $5 million.  All claim damage to their reputations in addition to substantial monetary losses.

These two South Carolina disciplinary cases began in May of 2014 when SunTrust Bank reported it paid three wires that were presented against insufficient funds on one of the firm’s South Carolina IOLTA accounts, leaving the account overdrawn by more than $65,000. Approximately a month later, the bank reported the same account was overdrawn by more than $18,000. The ODC began its investigation about the same time the law firm and my company began investigating the problems in Atlanta.

In South Carolina, the misappropriations occurred primarily through online transfers between firm trust accounts. More than $9 million in transfers in and out of the South Carolina trust accounts occurred during 2014 alone. As a result of the investigations and the subsequent funding of the shortage by my company, no South Carolinians lost funds.

*In re Anonymous Member of the South Carolina Bar, SC Supreme Court case 27937 (May 27, 2020) and In re Anonymous Member of the South Carolina Bar, SC Supreme Court case 27974 (May 27, 2020).