It may seem like 鈥淭itle Insurance 101鈥� 鈥� but small mistakes can be signs of fraud or misuse of funds or outright intentional undoing of a clear road to closing on a real estate deal.

It may seem like 鈥淭itle Insurance 101鈥� 鈥� but small mistakes can be signs of fraud or misuse of funds or outright intentional undoing of a clear road to closing on a real estate deal.

Not everyone knows everything all of the time; a thousand items have to fall into place and 鈥渁dd up鈥� in order to make the process smooth and completely unencumbered.

A power of attorney showing up in the middle of a transaction (or at the end) should be scrutinized. So should cashier鈥檚 checks drawn from geographical areas that don鈥檛 coincide with the seller鈥檚, buyer鈥檚 or property鈥檚 locale.

Take a look at the potential red flags below; being aware is half the battle.

Preliminary Title Report/Title Search

Red flags鈥� involving the preliminary title report and title search may include:

• Ordered by, prepared for, or mailed to a party other than the lender.
• Property seller is not in title (possible purchase disguised as a refinance or improper property flip).
• Seller owned property for a short time with a cash-out on the sale.
• Notice of default is recorded (possible cash-out purchase with a straw buyer or foreclosure rescue).
• Report indicates delinquent property taxes.
• Report indicates modification agreement on existing loan(s).
• Title documents show the borrower or Seller on a purchase is not the owner of record.
  • For a purchase transaction, the seller should be the owner of record.
  • For a refinance transaction, the borrower on the loan application should match the owner of record on the title documents.

Escrow/Closing Instructions

鈥淩ed flags鈥� involving escrow and closing instructions may include:

• 鈥淔ill in the blank鈥� or generic escrow instructions.
• Change of sales prices to 鈥渇it鈥� the appraisal.
• Odd amounts paid as a deposit/down payment.
• Significant or unusual buyer credits or fees.
• Unusual amendments to the original transaction.
• Seller on Closing Disclosure different than seller on preliminary title report.
• Evidence of 鈥渨hite-outs鈥� or alterations without initials.
• Payoffs to third parties whose lien was not listed on the preliminary title report.
• Reference to another escrow.
• Down payment is paid into escrow upon opening.
• Cash is paid outside of escrow to property seller.
• Sale is 鈥渟ubject to鈥� property seller acquiring title.
• Entity acting as the property seller is controlled by, affiliated with, or related to the applicant or another party to the transaction.
• Buyer is required to use a specific broker/lender.
• Sale of subject property is not subject to inspection.
• Power of attorney used with no explanation.
• Power of attorney is not properly documented/recorded.

Funds to Close

鈥淩ed flags鈥� involving funds to close may include:

• Remitter on cashier鈥檚 check or source of the wire is not the borrower.
• Cashier鈥檚 check issued from a bank that is inconsistent with the depository information on application.
• Cashier鈥檚 check issued from a bank branch that is out of the buyer鈥檚 geographic area.
• Dollar amount is incorrectly encoded on check.
• Sources of funds are questionable

Closing Disclosure/Settlement Statement

鈥淩ed flags鈥� involving the closing disclosure or settlement statement may include:

• Names and addresses of property seller and buyer vary from other loan documentation.
• Seller鈥檚 mailing address is the same as another party to the transaction.
• Excessive real estate agent commissions paid.
• Real estate commission paid, but no realtors listed on the purchase contract.
• Sales price differs from sales contract.
• Reference is made to undisclosed secondary financing or double escrow.
• Rent prorated on owner-occupied transactions.
• Zero amount due to/from buyer.
• Closing Disclosure or escrow instructions contain unusual credits, disbursements, related parties, delinquent loans paid off, or multiple mortgages paid off.
• Payoffs for items not consistent with liens listed on title commitment.
• Excessive seller paid marketing, administrative, assignment or trust fees.
• Payouts to unknown parties.
• Terms of the closed mortgage differ from the terms approved by the underwriter.
• Date of settlement is delayed without explanation.