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Real Estate
Law Article

Fraud In The Real Estate Industry

By: Steven Shiff

Jay Hollander, Esq. is the principal of Hollander and Company LLC, www.hollanderco.com, a New York City law firm concentrating its efforts in the protection and development of property interests relating to real property, intellectual property and commercial interests, as well as related litigation.

The content of this article is intended to provide general information relating to its subject matter. Providing it does not establish any attorney-client relationship and does not constitute legal advice. Personal advice in the context of a mutually agreed attorney-client relationship should be sought about your specific circumstances.


Given the right circumstances a person can be persuaded against their better judgment to abandon their normal behavior pattern and engage in criminal conduct that would be unthinkable under normal circumstances.

Consider the case of Holly H.  Holly is a homemaker who has been married to her husband Harry H. for seven years.  They have two small children who are five and three years old.  Harry is frustrated by what he believes to be a boring and dead end job.  He decides he can no longer cope and informs Holly that he needs his space and he is leaving her and the children.  Harry proceeds to move out but continues to pay the mortgage and minimal support.  Distraught, Holly files for divorce, seeks maintenance, child support and other ancillary relief.  A divorce is granted awarding Holly exclusive possession of the marital residence located in Bronx County (said exclusive possession being conditioned upon her continued occupancy with her infant children, and terminating upon the children reaching the age of majority or Holly's remarriage), custody of their children, maintenance and child support.  The judgment of divorce further provides that Holly and Harry are equal fee owners of the marital residence as tenants in common.

Harry, claiming that the maintenance and child support awards are excessive, quits his job and disappears.  Holly's liquid assets are insufficient to pay the mortgage and her current bills for more than a few months.  She begins praying for a man of better than moderate means who will rescue her from this nightmare.

Enter Frankie T., a small time forger, attracted by Holly's assets, both personal and financial.  He romances her, smiles at her kids and plants an idea in her head: a simple yet perfect way to acquire the money Harry owes her and then some, a little nest egg if you will.  Under ordinary circumstances Holly would never consider such a plan.

However, Holly is tired of watching herself and her children living on peanut butter and wearing hand-me-down clothing, succumbs to Frankie's plan, rationalizing that only banks or insurance companies, who can well afford it, will be affected.

Frankie sets to work doing what Frankie does best.  At the City Register's Office in Bronx County, he finds a satisfaction of mortgage which was recorded on another piece of property by the ABC Bank, which is the same bank which owns the mortgage on Holly and Harry's residence.  He types the information on a blank satisfaction of mortgage form.  He then forges the signature of ABC Bank's assistant vice president and also forges a purported notary public's signature and affixes the notary stamp thereon.  Frankie takes the forged mortgage satisfaction to the City Register's Office where it is duly recorded and returned by mail to Holly.

Now, Frankie and Holly find another bank.  They walk in, sit down and apply for a new mortgage.  Frankie, representing himself as Holly's husband, submits their joint tax returns filed for the years immediately preceding the divorce.  To keep ABC Bank unaware of their scheme, Holly continues to submit the monthly payments on the existing mortgage for which they have recorded the fraudulent satisfaction.  With the residence valued in excess of $175,000.00, they easily qualify for a $125,000.00 mortgage and take it.  After paying the closing expenses, they are $115,000.00 richer.

Immediately after the loan closing, they call a real estate broker.  Holly and Frankie claim that they want to leave the city for a warmer climate and better quality of life for the kids.  Hoping for a quick sale, they price the residence moderately and within two months find a buyer.  Of course, Frankie and Holly continue to make payments on both the new mortgage and the ABC Bank mortgage for which they recorded the fraudulent satisfaction of mortgage.

At the closing, they receive $175,000.00 for the sale of Holly and Harry's residence.  They pay off the new mortgage.  After paying the closing expenses and real estate commissions, they net a profit of roughly $35,000.00.  Adding the $115,000.00 from the first scam, they abscond with nearly $150,000.00.

Several months later, the new owners, who fortunately had purchased title insurance, receive a foreclosure notice from ABC Bank holding Holly and Harry's original mortgage.  The new owners immediately call their attorney who conducts a thorough investigation.  Counsel ascertains from ABC Bank that it never executed or recorded a satisfaction of mortgage pertaining to Holly's and Harry's residence.  A handwriting expert is engaged to examine the signatures of all documents of record pertaining to the residence from the date Holly and Harry purchased same to the present.  The handwriting expert confirms that the purported satisfaction of mortgage of ABC Bank's mortgage recorded with the City Register's Office is a forgery.  He further discovers that Harry's signature on ABC Bank's mortgage and that on the deed to the new owners do not match, the latter being a forgery.  Counsel is left with the unenviable task of informing his clients of the ramifications of the frauds committed by Holly and Frankie.

Counsel first informs his clients that had they not purchased title insurance the only remedy they would of had is against Holly and Frankie.  However, since people who commit fraud rarely stick around so that they can be held accountable for their actions for practical purposes they would have no remedy at all.  The buyers, although not contractually responsible to pay ABC Bank's mortgage, would be forced to pay said mortgage or lose the residence in the foreclosure action.  The new mortgage bank, notwithstanding the fact that the buyers elected not to purchase title insurance, would have purchased title insurance to protect its mortgage interest.  Title insurance policies insure the genuineness of recorded documents (mortgages are also protected), hence the title insurance company would purchase ABC Bank's mortgage notwithstanding the fraud, taking an assignment thereof.  The title insurance company would have to subordinate its newly acquired mortgage to the new bank's mortgage but would eventually foreclose unless the new buyers agreed to pay ABC Bank's mortgage.

Since the new buyers have purchased title insurance their outlook is somewhat brighter.  As previously stated, title insurance policies insure the genuineness of recorded documents, hence the title insurance company would pay ABC Bank's mortgage notwithstanding the fraud, probably taking a assignment thereof.

The forging of Harry's signature on the deed creates a much thornier problem.  Since the new buyers have only purchased Holly's interest in the residence (Holly being a tenant in common with Harry) the new buyers do not have a right of exclusive occupancy of the premises and are subject to the rights of Holly's ex-husband, Harry.

In order for the new buyers to obtain marketable title to the entire residence the title insurance company must first locate Harry.  If Harry can be found the title insurance company will negotiate with him in an attempt to get Harry to convey his interest in the residence to the new buyers.  This is complicated by two factors.  First, the title insurance company will not pay Harry an amount in excess of its title insurance limit (the amount of the title insurance policy less any amount previously paid, if the new buyers purchased additional coverage pursuant to Section 6409(c) of the Insurance Law, the market value of the residence at the time the defects were discovered less any amount previously paid) for Harry's interest in the residence.  Second, Harry cannot be compelled to sell his interest in the residence, even if the offer exceeds the value of his interest therein.  If Harry and the title insurance company can agree on a figure, Harry will execute a deed to the new buyers, the new buyers will have marketable title (plus some grey hairs).

If the title insurance company is unable to locate Harry or if Harry is located but is unwilling to execute a deed in favor of the new buyers, the only other possible way for the new buyers to obtain marketable title would be to commence a partition and sale action (assuming you could obtain jurisdiction over Harry) and hope that the title insurance company could purchased the residence at the sale for an amount within the title policy limits.  Otherwise, the title insurance company would be compelled to pay the new buyers pursuant to the terms of their title insurance policy, after conveying their interest in the residence to the title insurance company, hardly a desirable situation for either the new buyers or the title insurance company.

Frauds like this fictionalized account and their aftermath happen too frequently today.  Cutbacks and layoffs in government staffing are not helping.  Because those working in the recording offices and clerk's offices have been reduced, there exists a major backlog of recordings.  In Nassau County, where backlogs were occurring even in the best of times, a lawsuit has recently been concluded where the Nassau County Clerk has been ordered to record more timely.  (Bronx attorneys are not aware of backlogging because the City Register's Office really does a fine job.)  But outside New York City where local towns are not willing to supply adequate help, documents are taking weeks, sometimes months, to be recorded which gives people like Frankie ample opportunity to forge satisfactions of mortgages and perpetrate other types of fraud.  This may prompt title insurance companies to adopt similar requirements that presently exists when one seeks to sell o transfer stocks or bonds, and require signature guarantees from a commercial bank or brokerage house having a seat on the stock exchange, on all deeds and mortgages.

An owner of a property valued at $500,000.00 simultaneously refinances the property with five different lenders obtaining anywhere from $250,000.00 to $300,000.00 in loans from each lender.  When all the recordings were finally put on this $500,000.00 property, its net mortgage debt was now $1,300,000.00.  By this time, the owner has already disappeared with almost a million fraudulently obtained dollars.  The saddest part of all is that there is virtually nothing to prevent the replication of this scam.

As a representative and participant in the title insurance business, I am in a position to see and to hear of many frauds and thefts.  The industry is being wounded from the outside by frauds like the ones above.  Additionally, the industry is being hurt from within by unscrupulous title insurance executives and companies who have seen fit to breach the trust that we all must uphold with the public.

Fly-by-nights who did not care for their business, who did not do things in a workmanlike manner, but just brought in the fast dollar contributes to the troubles we are having today.

The industry has only now begun to take steps to solve its internal problems.  Audits, which were only a word in the past, have now become a procedure and practice conducted by the title insurance companies as a way of policing the title insurance industry.  Companies are presently licensed.  Licensing of agents will be perhaps the ultimate future for the industry.  The external problems can only be cured by reducing the economic desperation currently rampant in this country.


Mr. Schiff's company has contributed this article in the public interest. It is not intended as legal advice. Nor is any professional relationship intended or established with the reader by virtue of browsing this article. Nor Mr. Schiff is affiliated with Hollander and Company LLC. The information contained in the article is believed to be accurate but should not be relied on without independent advice of an appropriate professional.

Copyright © Jay Hollander, 1998. All Rights Reserved.