Monday, October 17, 2011

Phony Bank Reconciliations Dupe Title Insurer In Effort To Cover Up $3M R/E Escrow Shortage; Underwriter Left With $1.7M Tab For Unpaid Loan Payoffs

From the Office of the U.S. Attorney (Baltimore, Maryland):

  • Brenda Lukenich, age 60, of Hughesville, Maryland pleaded guilty [] to mail fraud arising from a scheme to defraud lenders and a title insurance company of $1.7 million. Two co-defendants are scheduled for trial on November 7, 2011.(1)


  • According to her plea agreement, Lukenich was the escrow accountant for title companies that did business in the Baltimore, Annapolis and Washington, D.C. metropolitan areas, including Troese Title Services, Inc. (Troese Title), located in Camp Springs, Maryland; Troese/Hughes Title Services, Inc. (Troese/Hughes), located in Greenbelt, Maryland; and Troese/Prestige Title Services, Inc. (Troese/Prestige), located in Ellicott City, Maryland. As the escrow accountant, Lukenich reconciled the escrow accounts and prepared monthly reconciliation reports for each escrow account.

  • Prior to 2005, Troese Title and Troese/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. By 2006, the joint escrow account had a $3 million shortage.

  • Lukenich’s reconciliation reports, which were sent monthly to the principal of the companies, clearly showed that there were significant shortages in the joint escrow account. Principals of the title companies re-financed their homes to attempt to cover some of the escrow shortages. Sometime in 2006, the joint escrow account was separated into separate escrow accounts and Lukenich allocated a $1.7 million escrow shortage to Troese Title and a $1.3 million escrow shortage to Troese/Hughes.

  • The Troese title companies had agency agreements with Chicago Title Company which enabled them to provide title insurance in conjunction with the settlement services they performed, and made Chicago Title liable for any title defects suffered by home owners and lenders.

  • Chicago Title performed audits at Troese Title and Troes/Hughes. Prior to each of the audits, Lukenich would alter the reconciliation reports to falsely show that there were not escrow shortages and that there were not outstanding mortgage payoffs that had not been made. After each audit, Lukenich would reverse the fraudulent adjustments.

  • In March 2008, Chicago Title terminated its agency relationship with Troese Title and Troese/Hughes. In response, Troese Title and Troese/Hughes operations were consolidated into a single title operation that would be part of Troese/Prestige. However, when Troese/Prestige conducted settlements, it used the new lender money to cover the mortgage pay-offs that were still outstanding at Troese Title and Troese/Prestige, instead of as instructed on the HUD-1 settlement statement, in violation of the express direction of the lender.

  • Eventually, there were not enough settlements to cover all of the shortages. Chicago Title received information that a mortgage had not been paid off and conducted a surprise audit of Troese/Prestige. The escrow account did not contain enough money to cover all of the outstanding mortgage pay-offs from Troese/Prestige.

  • Chicago Title, as the title insurer, was forced to make the mortgage pay-offs, and to pay off funds due to a seller from a settlement and pay to record the instruments that had not been recorded.

  • In total, the loss to Chicago Title stemming from the Troese/Prestige pay-offs was approximately $1.7 million.

For the U.S. Attorney press release, see Title Company Escrow Accountant Pleads Guilty In $1.7 Million Mortgage Fraud Scheme.

(1) Lukenich is the apparent winner of the 'race to the prosecutor's office' in this racket. What remains to be seen is how good of a deal she scores at sentencing for whatever cooperation she may provide the Feds with as she 'throws her cohorts under the bus':

  • "When a conspiracy is exposed by an arrest or execution of search warrants, soon-to-be defendants know that the first one to "belly up" and tell what he knows receives the best deal. The pressure is to bargain and bargain early, even if an indictment has not been filed." United States v. Moody, 206 F.3d 609, 617 (6th Cir. 2000) (Wiseman, J., concurring) (referring to the not-uncommon 'race to the courthouse' that breaks out among participants in an uncovered criminal conspiracy).

No comments: