1406: Fraud in the Real Estate and Title Business with Bill Himmelreich (Part 2)
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00:16
Welcome to Growing empires hosted by real estate entrepreneur and trusted Investment Advisor Jennifer de Jesus’ Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.
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Welcome to episode six of season 14 of the growing empire Show. Today I'm back with my special guest Bill Himmelreich from Stewart title, and we're going to continue our discussion regarding fraud in
real estate and title transactions. So stay tuned.
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Welcome to Growing Empires hosted by real estate entrepreneur and trusted Investment Advisor Jennifer de Jesus’ Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.
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Now, one of the things that we've also had some claims with is, let's say, one of my one of the craziest
claims ever handled was the bank, held a mortgage on the person's house, and also on a boat that he
helped. So the title company contacted the bank and said, Yeah, Mr. Smith is selling his property at 123 South Main Street, can you give us the payoff for what's the payoff on the mortgage? Well, the bank
looks it up, and gives the payoff on the boat. Oh, man, instead of so the house is worth 400,000, the
mortgage is 300,000, the boats worth 40,000, and the mortgage payoff is 20. So the bank sends the
payoff of 20,000 that you got, you can pay $20,000 will release the mortgage from the house. Well, the
the end texture whenever ever done a slideshow is now the guy has now been paid 100,000 for his
house, no mortgage. And now he owns his boat free clear too. And the picture of him driving off into the
sunset with his boat with a sack of doubts about it happens now, in this case, certainly the seller knew
that his mortgage was more than 20,000. But that's one of the things again, that you know, we have to
protect the you know, our insurance by this house, when they go wounded. And they realize that there's
now a $300,000 mortgage against the house they just bought. Now, they want to try to get a boat ride
with a guy who can do to free clear, but grab that grab a vote, right. But these are kinds of things that
happen. We've had situations where, again, seller is is preparing to sell his home is worth $400,000.
And if there's a $300,000 mortgage against the property, if the seller would go to his bank, and say,
Can you give me the payoff for my mortgage, and they would provide it for $300,000? Well, you can
alter that. And once again, technology and the quality of printers and everything else. So they could
change that payoff from 300,000. To 100,000. Title Company looks at those it looks like a legitimate
payoff. kind of check for $100,000 in bank seller was $300,000 in his pocket, off here she goes with an
extra 200,000 Only all because of changing one number on a document. And again, it's in our
business, it's it's we're pushing a lot of paperwork through and everything else about the letterhead
looks legitimate ABC mortgage company, ABC bank, everything looks absolutely legit. Except for one
number. Well, that number represents a $200,000 fraudulent taking. It happens. So what we try to do is
make sure that we as an industry are dealing directly with the mortgage company for payoffs. So that if
a seller thinks that they're going to do something evil, get them out of it happens. We've had situations
where when you pay off your mortgage, the bank files what's known as satisfaction. So in the
courthouse, it'll say your $300,000 mortgage has been paid in full. We've actually had people that went
out bought a documentation that said satisfaction piece filled in the information themselves. Father in
the courthouse, so when we do a search, and we were looking at 123 South Main Street, what's the
same work just not paid for? Where again, the bad guy the seller in this case, file a bogus satisfaction
piece took all the proceeds never be found again. Wow. Yeah. So again, these are the risks that we
run. Now, we try to take precaution when we're talking, when I, whenever I do my seminars, I try to
advise all my title agents to that it would be highly unusual that a $300,000 mortgage would just be paid
out of the blue, unless it was be financed. So if it's no mortgage just showing, do a little digging, and
see if we could find out what happened. But again, you know, the seller then takes that 300,000 off the
go, never to be seen. Sure it's been done. There was a time when the courthouses were not current
with their documentation. And we had somebody that mortgaged their home with six different backs, in
six days. property's worth 300,000, they went to three different six different banks and said, I just want
$100,000 line of credit. And there was a time where they may not have been getting title insurance. So
they gave him the 100,000, they had six different closings in six days, guys up to 600,000. So you
never so the stuff goes on,
06:26
and stuff goes on. I am I've had two other examples of things that they can just the creativity behind
people that are defrauding right there, the creativity never ceases to amaze me. So I remember sitting
at a settlement one time and an attorney's office, a local attorney that I use all the time for things and I
was sitting in his office for a secondary settlement. And I remember the title agent who was on handling
our settlement, but another title agent that was in the office talking about this check that she had
received. And here what what's happening in this transaction is everything. All the checks were paid by
certified check. Okay, bank checks, and the down payment, the escrow everything. And then the
closing check was also certified checks. All of those checks are fraudulent, just went out and
bought a stamp to certify it just to see that but on there, it says certified.
And I mean, that again, good thing, she caught it right. Good thing, she was diligent, but this person
could have come very close to acquiring a property for zero money. Yeah, because all of the checks
were fraudulent. And nobody had caught it until the very last minute, they're getting ready to go to
settlement. And she's questioning something. And and there we go.
So I mean, I'm not sure if you're, if you're going to buy a property, and are all foreclosed checks, that's
going to blow up pretty quickly, I got to realize that, no, you didn't buy the property, you have to pay the
cost of it. That seller may have received their proceeds, thinking they sold the property when they actually did not
Turns out, there was no fun. Yeah,
one of the things that we stress all the time involves lines of credit. So if you have a line of credit at the
bank, we have to make sure that when that that that line of credit actually gets closed out. So let's say
for example, that it's five days before closing, and the bank sends a statement that says, Oh, your line
of credit is $50,000. And we will, upon receipt of the 50,000. We will will resolve the the open line of
credit. Well, you can cut a check for $50,000. But it doesn't close the line of credit. So they could
actually move to another state still have the checks for the line of credit and write them unless that
account has been shut down. And I can't tell you every month we get a claim involving lines of credit,
some innocently they move out, they only use a checkbook. I wonder if I can still write checks, because
they don't realize that the collateral is used for the house that they just hold. But again, we we have
claims every month where lines of credit have been abused. And so I can't stress enough that that's
essential that we shut down the account and not just pay it down to zero. Because all that does is leave
the account out there. Okay. Baiser credit is a huge
issue. So why don't we change topics a little bit and talk about what are some of the things that we can
do to avoid claims. You had mentioned one earlier we said number one just making sure or some, you
know, you're only as good as your weakest link. And somewhere in the chain of communication, emails
become unsecured, right. So having a title company that is using secure transmission, for emails going
back and forth. That's obviously one way to prevent potential fraud issues. What are some of the other
ideas that you have as far as what a title agent can do, or even what a consumer can do, to try to avoid
being a victim of potential fraud.
10:32
Just so always have your card up, you just don't know. Until you've been a victim of fraud, or one of
these cyber crimes, you're kind of like, oh, that never happened to me. And it applies to your your
personal checking account outside the scope of buying a home or refinancing. You should reconcile
your bank accounts every month to make sure that that somebody hasn't hacked in there, they usually
start with $10. And then nobody says that it's $100. And then it's $1,000. So depending on how much
money you have in the bank, they could be tapping into your bank account. So it is important to
reconcile your accounts in our business. From the federal standpoint, we have a lot of money running
through there, that's essential for your protection. But if something does happen, you need to notify the
bank immediately. If you're not reconciling your accounts, and you wait 30 days until the statement
comes in. And you don't do it for another 10 days. So we're now 40 days out. And oh, I think my
account has been hacked. A bank might say you know what, you had your chance, don't, don't be
come back to me four days later and say, Oh, something happened here. So you need to match up
your accounts, often, to make sure that that everything that supposed to be in that account is now one
of the things is we have claims that arise from searching mistakes. You're only as good as the person
in the courthouse, who is taking information from the courthouse and providing it to the agent or the
underwriter. All the underwriters have strengthen their search and examination teams to try to eliminate
that. But there is still the human element that comes in to the title insurance that if someone misses it,
and sometimes documents are Miss recorded in the courthouse. Well, that creates all kinds of different
problems. But again, it starts with the search in the courthouse, and you're only going to be as good as
that searcher in that quality search. So they're, they're just when you're handling this kind of money,
just never assume always take the extra step to protect yourself. Because the sophistication of the
emails that come from the bad guys, I challenge almost anyone to see the difference because the bad
guys, if they're in the title agents system, they know every person, they know the address of the
property being sold. You know how much money is involved, they have full access to the transaction.
So their full time job is to convince somebody that they are that they're Jan or their shell or there's
somebody else chatting to the chair.
13:49
The episode will continue in just a moment.
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14:51
So how important is the title company that you work with in the context of a transaction?
14:56
Well, you know, from from the agent standpoint It's still a service industry. And you know, they have to
be responsive to issues, make sure that you get to closing in a timely fashion. All payoffs are made.
From the underwriter standpoint, the underwriter has to be financially strong enough to make sure that
if there ever is a major, major claim that they're able to pay it, Stuart can take on almost a billion dollars
in liability. Be nice, we had that transaction, but we're able to insure up to that amount without
reinsuring it. So from the underwriter standpoint, what do I mean jobs is that when we run into problems
in the chain of title, that we find solutions? So I think it's it's responsiveness to underwriting and
creativity to find a solution. So the deals can get close. Okay,
as a consumer looking for a title company, or, you know, to complete a real estate transaction, what
what should you be asking as a consumer, because I assume that you're going to agree in saying that
not all title agencies are created equal,
they certainly are. Now, one thing that is created equal is the pricing the way it's structured, at least in
Pennsylvania, our our rates are consistent across the board. There's, there's really not such a thing as
shopping for price. When it comes to title insurance. So it comes down to it comes down to service and
finding ways to get your deals closed, overcoming problems that may arise, finding solutions, not every
title is clean. And not every history of the title is is pristine. So you've got to be able to work your way
through the history and say, This is it, this is not a risk job, and we're willing to take it on. So it's it's
about service. It's about responsiveness, that view of the consumer. You're nervous, this is a big
purchase of checking mail, you may only purchase one house in your lifetime. I don't know the
statistics, maybe it's super three, but it's the biggest purchase that you will ever make. So you want it to
go smoothly. You want the agent, in this case, the quality of work that you guys, do, you find ways of
getting the deals close, and have an underwriter that stands behind it, that there is a claim that they're
gonna pay that claim and resolve it, and the complete quickly. Okay.
17:39
So anything else that you want to add regarding how to prevent or protect against fraud, or things to
watch out for?
17:50
Well, one of the things that, that bothers me sometimes in a transaction is let's say, you're buying a
home for $300,000. And you're getting a loan for 250,000. We'll get some consumers that will say, Well,
my lender demands that we get title insurance for their $250,000 mortgage. But I don't want to get what
we call owners coverage for the additional 50,000. That that extra $50,000 would only be a couple $100
in additional coverage. Why would you risk a $50,000 investment and not spend a couple $100 to make
sure that your title is clear. So you can waive it. But I can I can say, based on all the claims I've seen
over the years, it's money was fine. To do it. So the consumer doesn't realize how much fraud is going
on every day. And I mean, literally billions of dollars as lost every year through fraud, both through title,
but also in, in personal accounts and business accounts. Yeah. It's, it's, it's a full time job for somebody,
and they're faceless. They don't care. If it's only 20,000 or 20 million, they're going to try to get into your
account. So be aware of that it's happening all the time, just say oh, it's only little be this, I only have a
small amount in my account. This isn't a big house purchase. Doesn't matter to the exposure. So
alright. I
19:36
think that sometimes it has to do with just lack of education or lack of knowledge. It reminds me you
know, we talk about on the rental side of our business in the property management company, we talk
about renter's insurance, right? We see so many people that for the $10 a month that it cost to have a
renter's insurance policy to to not have that and potentially lose everything that you own right in the
event of a fire or something that is beyond your control. It's just craziness to me. And I feel the very
same about just title insurance in general, right? Whether it's whether you're a cash transaction,
whether you're a finance transaction, to not have that one time only protection, the amount of risk and
the amount of exposure that you're putting yourself through, is, is now worth it.
20:28
I can't agree more, I mean, both on the retros insurance, you say, Oh, I don't have that much. But wait
to try to replace that. Yeah, and it's cost 1000s and 1000s of dollars to replace it. Because, you know, a
fire constraint, you know, can can strike anywhere, a flood can strike anywhere. And the same is with
with title, you just don't know, when something's going to happen. I think as, as people, we have a
tendency to be trusting. And that's not a bad quality. But you've got to always think that the bad guys,
they're not worried about trust, they're worried about getting into your account. So it's a situation where
you pretty much always have to have your guard up to protect against that same, let's say, with your
credit card, or when you go to the ATM and all that stuff. I mean, the bad guys are always thinking
ahead about how they can basically steal money. So on step ahead, yeah. So you know, there's never
enough caution. You know, somebody might say, Oh, you're you're being silly about that. Well, they've
never been a victim of fraud or this kind of crime, because it could be in the 1000s and 1000s of dollars.
Sure.
21:48
Is there anything that I did not ask you that I should have asked you?
21:52
Know, I just can't stress of the benefit of having title insurance. And if even if the loan is a 90% of the
value, get yourself covered? It's a, you may only have to, you may never have to buy it again.
22:13
Yeah, well, and you may not even know that you have a problem until maybe you go to
sell the product. That's, that's correct. To Yeah. And again, that's where you want your title insurance
policy to stand up and allow yourself to go through.
22:27
Well, Bill, this has been very, very helpful. I think you have probably hours and hours of things that you
could share, but I really appreciate your time and your insight and your knowledge on the subject and
I'm sure our listeners will enjoy as well.
Another 40 years and I'll probably learn a little bit more.
So thank you for listening to this two part episode with my special guest Bill Himmelreich from Stewart
title. I hope you enjoyed all that these two episodes had to offer. And until next time, take care.