Title Agent Gets 18 Months For Screwing Over Lenders, Insurance Underwriter Out Of $3.1M By Pocketing R/E Escrow Proceeds Meant For Mortgage Payoffs

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

• U.S. District Judge William N. Nickerson sentenced James Kevin Hughes, age 53, of Crownsville, Maryland [] to 18 months 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 approximately $3.1 million. Judge Nickerson also ordered Hughes to perform 300 hours of community service, pay restitution of $3,107,246, and forfeit his interest in a South Carolina condominium.

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• According to his plea agreement, Hughes and Stephen Troese owned Troese/Hughes, a title company in Greenbelt, Maryland. [...] In approximately 2006, the real estate industry started to slow. As business slowed down, it became the policy of Troese/Hughes to check with [escrow accountant and co-defendant Brenda] Lukenich as to when mortgage pay-off checks could be sent out, so that she could confirm that there were sufficient funds in the escrow account to cover the check. At this time, the mortgage payoff checks were stored in Federal Express envelopes under the credenza in Hughes’s office.



• Hughes made efforts to fill the escrow shortage at Troese/Hughes by re-financing his own home twice and not paying off the prior mortgage, causing a loss of over $1 million to [title insurance underwriter] Chicago Title.



• In addition, after an employee of Troese/Hughes re-financed his home, Hughes caused the prior mortgage on that home to not be paid off so that the money could be used to fill the escrow shortage, causing a loss to Chicago Title of approximately $217,000.

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• 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, to pay off funds due to sellers from settlement, and to pay the recording fees. In total, the loss to Chicago Title stemming from the Troese/Prestige pay-offs was approximately $1.7 million.(1)

For the U.S. Attorney press release, see Title Company Owner and President Sentenced to 18 Months in Prison In $3.1 Million Mortgage Fraud Scheme.

(1) Stephen J. Troese, Sr., age 72, of Davidsonville, Maryland, pleaded guilty and was sentenced to a year and a day in prison for his participation in the scheme. Brenda Lukenich, age 60, of Hughesville, Maryland pleaded guilty to mail fraud and is scheduled to be sentenced on April 10, 2012, at 9:30 a.m.