Owner of Troese Title Companies Sentenced to Prison in $2.838 Million Mortgage Fraud Scheme
Press Release
| Targeted News Service |
BALTIMORE,Feb. 7– The U.S. Attorney for the District of Maryland issued the following news release:
U.S. District JudgeWilliam M. NickersonsentencedStephen J. Troese, Sr., age 72, ofDavidsonville, Maryland, today to a year and a day in prison followed by three years of supervised release for wire fraud arising from a scheme to defraud lenders and a title insurance company of$2,838,231.
The sentence was announced byUnited StatesAttorney for the District of Maryland Rod J. Rosensteinand Special Agent in Charge Richard A. McFeely of theFederal Bureau of Investigation.
According to his plea, Troese practiced as a title attorney and was variously an owner, part owner, or the controlling figure of a number of title companies that did business in theBaltimore,AnnapolisandWashington, D.C.metropolitan areas, includingTroese Title Services, Inc.(Troese Title), located inCamp Springs, Maryland;Troese/Hughes Title Services, Inc.(Troese/Hughes), located inGreenbelt, Maryland; andTroese/Prestige Title Services, Inc.(Troese/Prestige), located inEllicott City, Maryland. These companies performed title searches, provided title insurance, and conducted settlements. Troese Title, Troese/Hughes and Troese/Prestige each had an agency agreement with Chicago Title enabling them to provide title insurance, which meant that Chicago Title was liable for title defects to homeowners and lenders.
Troese Title and Troese/Hughes, which Troese formed in 1994 with co-defendantJames Kevin Hughes, shared a joint escrow account for the receipt and disbursement of funds in connection with real estate closings carried out by both title companies. Co-defendantBrenda Lukenichwas the escrow accountant for the joint escrow account as well as for most of Troese’s other title companies.
By 2005, the joint escrow account had developed a shortfall of more than$2 million, partly as a result of several major employee errors and embezzlements. Sometime in 2006, the joint escrow account was split into two new accounts and the existing balance from the joint account was divided between the new Troese Title and Troese/Hughes accounts, effectively assigning a$1 millionescrow shortage to each company.
In approximately 2006, the real estate industry started to slow, resulting in a steep decline in business for Troese Title and Troese/Hughes, further aggravating the problem of the shortfall in the escrow accounts.
In 1994, Troese had refinanced his home, claiming that the$655,000loan would be used to pay off the previous first and second mortgages. In fact, the mortgages were not paid off. InFebruary 2006, Troese again refinanced his home, representing that the loan of$964,533.26, would be used to pay off the two existing mortgages. Again, the mortgages were not paid off, but instead the funds were used to help cover the existing shortfall in the Troese Title escrow account. Troese concealed the fact that the mortgages were not paid off by continuing to make the monthly mortgage payments on all three loans. The resulting loss to Chicago Title was$937,183.47, which it was required to pay to satisfy the two previous mortgages and pass clear title to the new lender.
InMay 2008, Chicago Title terminated its agency agreements with Troese Title and Troese/Hughes, which had a significant number of mortgage pay-offs that had not been made because the escrow accounts were depleted as a result of theft, errors and omissions.
In the spring of 2008, Troese entered into new agency agreements with Chicago Title for three title companies, including Troese/Prestige. Thereafter, Troese/Prestige also served the clientele of Troese/Hughes and Troese Title. Troese/Prestige conducted settlements, but instead of using the lender money that was wired into Troese/Prestige’s escrow account as directed in the HUD-1 settlement statements, the money was transferred into escrow accounts at Troese/Hughes and Troese Title to cover the mortgage pay-off checks that were still outstanding for those entities.
In the summer of 2008, Chicago Title received information that a mortgage had not been paid off and audited Troese/Prestige. The escrow account did not contain enough money to cover the outstanding mortgage pay-offs. Chicago Title, as the title insurer, was forced to make the mortgage pay-offs, to pay off funds that had not been made by Troese/Prestige, and one mortgage that still had not been paid off by Troese Title. In total, the loss to Chicago Title stemming from the Troese/Prestige pay-offs was approximately$1.7 million.
The total loss attributed to Troese as a result of the above schemes was$2,838,231.
James Kevin Hughes, age 53, ofCrownsville, Maryland, andBrenda Lukenich, age 51, ofHughesville, Maryland, previously pleaded guilty to wire fraud and mail fraud, respectively. Hughes and Lukenich each face a maximum sentence of 20 years in prison at their sentencing, scheduled forFebruary 15, 2012andFebruary 28, 2012, respectively.
The Maryland Mortgage Fraud Task Forcewas established to unify the agencies that regulate and investigate mortgage fraud and promote the early detection, identification, prevention and prosecution of mortgage fraud schemes. This case, as well as other cases brought by members of the Task Force, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and promote the integrity of the credit markets. Information about mortgage fraud prosecutions is available at the Department of Justice.
Another Possible Defalcation with Troubled Title Company
The Daily Times, Farminton, NM
New Mexico Title Co. closed abruptly on Jan. 30 when it stopped accepting title work and interim manager Quentin Smith sent employees home. For days afterward, a phone message said that the business was closed. Customers began to stream in to inquire about their escrow accounts and the status of their real estate transactions.
Several New Mexico Title Co. customers told The Daily Times they had not received expected disbursements from escrow accounts, or that their payments to escrow accounts were not properly credited.
Edward Blinzler, a local businessman, filed a complaint with state regulators after an expected escrow disbursement did not appear. He has an escrow account with New Mexico Title for payments from a couple who bought a house from him. The homebuyers’ check has cleared their bank, he said.
State of Delaware Sues MERS
In a new twist, the State of Delaware is suing MERS under the Unlawful and Deceptive Trade Practices Act (UDTPA.) The suit claims that MERS has left for borrowers “no public trail by which anyone can identify the principals or verify the propriety of the (mortgage) transfer.” The private and obscure nature of their database makes it difficult for consumers “to know of or challenge inaccuracies in the MERS System” i.e. – who the heck holds the mortgage and who the heck has the right to foreclose? Read more at Delaware Online
Counties Look at Lawsuits Saying they were Cheated Out of Mortgage Fees
An article from Bloomberg says that Bank of America is among a group of lenders that may face a host of lawsuits claiming that counties were cheated out of millions of dollars by MERS, a system used for more than a decade to register mortgages.
Dallas County District Attorney Craig Watkins said state attorneys general and county officials across the U.S. have expressed interest in his lawsuit against Mortgage Electronic Registration Systems Inc. and Bank of America, filed in Texas state court on Sept. 21. Dallas County could be owed as much as $100 million in filing fees, he said. Counties across the U.S. are financially strapped, and this would help bridge the gap in much needed revenues.
Mamouth US Supreme Court Case for Title Insurers
From The Supreme Court Blog comes an interesting and important title case. The case began in Cleveland and is scheduled to be argued before the U.S. Supreme Court this fall. The outcome could determine whether lawyers can file a new sort of consumer lawsuit against title companies on behalf of those who haven’t actually suffered any actual title damages or even a financial loss .
The lawsuit, First American Financial Corp. v. Edwards involves a homeowner named Edwards, who bought a house in September 2006 and paid for a title insurance policy from First American Title. A few years before that, First American had paid the firm that closed the transaction $2 million for a minority stake in the company and they made an agreement to exclusively sell First American title policies according to reports at Forbes.com. First American claimed there were no financial damages to Edwards.
However, the case appeared to violate RESPA laws, which prohibit title insurers from paying kickbacks or anything of value for referrals. The Supreme Court will review the case and its decision could mean that any violation of the RESPA law, regardless of injury or financial damages, could subject title underwriters who have practiced co-ownership with agents to enormous class action lawsuits.
Owner of Three Title Companies Sentenced to Jail in $2.2 Million Federal Fraud Case
Because his businesses slumped badly during the economic downturn, Jonathan Boxman diverted clients’ title and recording fees to pay operating expenses and salaries at his firms. He said he sought to avoid layoffs and keep his companies afloat. Boxman said he also put more than $1 million of his own money into his businesses, which at one time employed 250 people.
However, instead of paying the required fees and safeguarding the escrow money, the defendant is said to have transferred the cash into accounts for his businesses, court papers said. Boxman paid his failing companies’ operating expenses with the funds and also covered prior thefts with them, prosecutors allege. He then directed employees to cover up the embezzlement. More at SILive
Comment: I have always said that I believe most embezzlement of funds in this difficult time for the title industry is caused by those who believe that “if I just borrow funds for a little while, the market will return, and I will pay it all back.” Moral of the story: embezzlement is still embezzlement.
Owners of Abstracts Unlimited Arraigned on Charges
Mary Ann Palladino-DeVito, 41, and her husband Joseph, 39, owners of the now-defunct Abstracts Unlimited, have been arraigned on charges that they embezzled more than $1 million from homeowners seeking to clear property titles. “As part of this mortgage fraud scheme, these defendants are alleged to have victimized new homeowners … by accepting payment for mortgage fees, mortgage taxes, customer fees, real property filing fees, and escrow account funds and then misappropriating the funds for their own purposes,” District Attorney Donovan said. More at SILive
County Recorder Says Merging Clerk and Recorder Offices a Bad Idea
A County Recorder, Rose Bogardus, who ran for office saying a merger of the Clerk’s office with the Register of Deed’s office was a good idea, has changed her mind. Apparently after working in the office and seeing the variety of duties, she feels a merger would hurt the County. Read more at MLive.com
Ms Bogardus stated she has studied merged clerk-register offices elsewhere in Michigan and fears her office would take a backseat in a consolidation even though it provides critical services recording deeds and mortgages.
She criticized commissioners for not pushing to reduce the number of board members when the county Reapportionment Commission was considering the issue last month and said she has no personal interest in what happens because she will not run for office again after this term.
Read more at MLive.com
State Takes up Question of Mortgage Inspection Reports
The Oklahoma State Board of Licensing for Professional Engineers and Land Surveyors is considering a position statement. The Board has been reviewing ways to alleviate the public misunderstanding and misuse of Mortgage Inspection Reports. The problem originates with homeowners who receive copies of these reports at closing and then rely on them to build improvements (even though there is disclaiming language on the drawing itself.) The report appears to mislead homeowners into thinking they can rely on the information shown thereon. Read more on this at The American Surveyor
MN Commerce Commissioner Wants to Send Message to Title Insurers
The Minnesota Department of Commerce has charged three title insurance companies and mortgage originators for alleged offenses ranging from misappropriating funds to charging fees for services not provided.
Albert Lea Abstract Company, sister companies Meredian Financial Corporation and Fortis Title Solutions Corporation, and New Millennium Title Group received enforcement actions last week that outlined alleged abuses and violations of Minnesota Law.
“We want to send a clear message today that companies doing business in our state must act responsibly and abide by our laws,” Commerce Commissioner Mike Rothman said in a statement. “These scams and swindles not only hurt consumers, but threaten healthy competition in the marketplace.” Read more at the Twin City Business Magazine
Home Closing 101: An Educational Initiative of the American Land Title Association
