Closing Agent Duties and Fraud Prevention PDF

Let's start by talking about your duties as a closing agent. Did you know that the statute does not define a closing agent? That means we need to look at what is defined as closing services because, presumably, a closing agent performs closing services. Now, as a reminder upfront, closing services a...

Let's start by talking about your duties as a closing agent. Did you know that the statute does not define a closing agent? That means we need to look at what is defined as closing services because, presumably, a closing agent performs closing services. Now, as a reminder upfront, closing services are separate and distinct from title services. Here in Florida when you're performing those services, you are wearing two different hats. You're wearing the title hat and you're wearing the closing services hat. What does that include? What do closing services include? Things like preparing documents necessary to close, conducting the closing, and handling or dispersing funds are done in a transaction where the title insurance policy will be issued. Of course, you know that you do numerous other things, such as paying taxes and fees against the property, supervising the document execution, and recording all of the documents. Your legal and ethical duty is to conduct the closing. As that closing agent performing closing services, you must conduct the closing in a reasonably prudent manner. That's what the courts have said. That means you fail or breach that duty by failing to properly carry out your closing agent responsibilities. This is your standard of care. Let me give you a practical example from some case law. In this case, the real estate contract required a negative termite inspection. That's a non-title-related duty. That's a closing duty. However, termites were found on the property, remediated, and the buyer was provided a termite bond at closing. Remember, the contract required a negative termite inspection. What happened at closing was a termite bond after finding termites, infestation, and remediation. After closing, guess what happened? The termites came back, and the buyer sued. Because the contractual requirement of a negative termite inspection was not met by the closing agent, the agent failed this test. They did not meet their duty of care to their customer. Now that we understand your closing duties let's get practical and discuss how that applies to you when you're preparing and reviewing your closing and title documents. I'll start by talking about fraud, which we know is a hot topic these days. You have a duty to prevent fraud. Why? In addition to the closing duties we just walked through, fraud is also covered in the title policy. That is a huge benefit to an insured, an owner, or a lender purchasing a title policy. It is covered in the policy. It's covered in two ways. It's covered by Covered Risk 1, which insures against loss or damage sustained by the insured by reason of title being vested other than as stated in Schedule A. Let's walk through this: if you rely on a fraudulent deed, the title could be challenged as not passing from the true grantor or owner to the grantee, the buyer, whom you insured. That would be a claim because the title is not vested as you state it is, and that's a covered risk under Covered Risk 1. Also, Covered Risk 2A insures against loss or damage from defect in title caused specifically by, and Paragraph 1 says, fraud, forgery, undue influence, duress, incompetency, incapacity, and even impersonation. Then, Paragraph 2 states that it is covered and insures against loss or damage for failure of an entity to authorize the transfer or conveyance. An example would be someone who hijacked Sunbiz with a new signatory's fake appointment. If they are not the true signatory, they have no authority to sign the deed, which means, again, that the deed will be challenged as invalid, with no transfer from the grantor to our insured buyer or insured grantee. I'm sure you all know that fraud is on the rise. There was a recent ALTA Independent report, a study that found that fraud and forgery claims in our industry from 2013 to 2022, so almost 10 years, fraud claims represented one-fifth. That's 20% of the total dollars spent on all claims. That number has been increasing over the period as well. Also, consider this: the average cost of a regular claim is about $26,000. The average cost of a fraud or forgery claim is $143,000. What do you do with all of that information, which, quite frankly, can be a bit overwhelming? First up, our website, fnfflorida.com, contains a fraud prevention toolkit, has numerous resources to assist you in helping to prevent fraud and responding to an attack if you're faced with that unfortunate situation. A couple of quick points to make on that. Know the risky transactions and know to add scrutiny to those transactions, such as an absentee owner, vacant or unimproved mortgage, or a property that is free and clear, in other words, does not have an existing mortgage. Know the red flags in general. Your materials include a link to a list of the most commonly seen red flags. Remind yourself of those and be on the lookout for them. Of course, review and follow all of our updated underwriting guidelines. We try to keep you up to speed on the latest happenings in the industry so that you can take action to ensure the legitimacy of your transaction. One of the most important steps you can take is independent verification of the parties. Do not rely on contact information provided by the party in question. In other words, if you get a suspicious email, don't call the number in that email. We're even seeing it now in voicemail messages. Don't just call back the person where you received the call. Do an independent search to find a phone number that you can call. Use that independent means to find contact information. I know you all know how to use Google and other options on the internet. You can also contact other parties to the transaction to confirm. Talk to the realtor. Ask them if they've ever met in person with the party involved in the transaction. If they haven't, that's another red flag. Then, finally, you have to be willing to decline a risky deal. If all of the red flags become too much, decline the deal. Give your employees the authority to do that as well. As to your documents, remember to review the document in its entirety and review signatures. We don't expect you to become a forensic handwriting expert, although I've said this before: if you did, that would be cool, but we expect you to notice blatant differences. If you suspect some red flags and see blatant differences, you should, at a minimum, question those signatures. We've had agents who have thwarted fraud because they uncovered a forgery. Also, review the notarial certificates, notaries, and non-notaries out there. Let me ask you this: what is the main function of a notary? Why is it you do what you do? The answer is to prevent fraud and to ensure that our transactions are secure. If you're a notary especially, but even if you're not a notary examining and reviewing the documents, you need to know the notary's statutes. You need to independently confirm the notary's commission. I have some links in your study guide to go to the various states to confirm that the notary's commission is active. Even though it's not required in Florida, you can request a journal entry, and many notaries keep journal entries to protect themselves. Then, finally, I never want to underestimate your gut instinct. In this particular situation, never let your guard down when you're reviewing the notarial certificate because, again, many times, you are the last stop before a fraud occurs and can prevent it. We will conclude our time together with your duties to review the insured documents. Of course, the deed and mortgage are the foundation of your title policy. You may want to review UGuide's chapters on deeds and mortgages. They not only give you the requirements for insuring but also some very practical guidance when encountering problematic documents. For example, a section in the Deeds chapter highlights common problems such as a lack of a witness, a defective acknowledgment, and an invalid or incorrect grantee. What do you do in those situations? Well, check out the Deeds chapter in UGuide, and you'll get some details on that. Also, consider issues relating to our insured documents. Frequently, they pose challenges to our title agents as to the validity of the insured deed or mortgage. Here's my list for today. The first requirement on my list is that you must be sure that the deed and mortgage name are the proper grantor and grantee in the granting clause. Now, the granting clause is the clause at the top of your deed or mortgage with that legal language, something like hereby grants, conveys, transfers, mortgages, encumbers, or the like. A deed with an incorrect grantor or grantee may render that deed invalid or even void. Never assume that information is correct. Always double-check that information with your contract, loan instructions, and title commitment policy. All grantor or grantee names should be accurate and the same, and you should have all of the parties included in those clauses. If you're dealing with residential property, homestead should always be considered. A homestead's married owner can only convey or mortgage homestead property to a third person if his or her spouse signs the deed or mortgage. That's in our Florida Constitution. If a party with a homestead interest does not sign as a grantor or borrower, that deed or mortgage is considered defective, and its validity can be challenged. If you need a refresher on homestead, which is a huge topic, and what to watch out for on homestead, look at our chapter in UGuide. A deed and mortgage must contain a valid legal description to be valid and effective. Without it, a conveyance or mortgage is invalid. Title never passed from the grantor, and a mortgage will not attach to the property as a valid lien, which is exactly what we're insuring, so be sure to confirm that those legal descriptions are correct before closing. Finally, we experience numerous claims arising from the failure of the title and closing agent to check for the proper authority of the seller or the buyer or borrower to bind the title-holding entity for which they're signing. What do you look out for? Watch out for recent changes of authority on Sunbiz. They've changed the person who signs and who's authorized to sign on behalf of the entity. Especially be aware of changes made within, we like to say, about six months of your closing. If it's shorter than that, then yes, you need to ask questions. Again, confirm that independently because that is a strong indication of potential fraud. If the signer does not have the authority to sign on behalf of the entity, then that deed or mortgage may be challenged, and we don't want to be in that situation. Folks, now more than ever, your duties as a title agent are essential and valuable. What you do is important and valuable. In addition to knowing and following your legal, ethical, and underwriting guidelines, you must remember your limitations if you're not a licensed attorney. Understanding and balancing those interests will benefit your customers, your title agency, and the title industry at large.