Title Agency Owner Nailed For Attempt To Cover Escrow Shortage By Refinancing Home, Failing To Pay Off Existing Mtgs, Applying Proceeds To Shortfall

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

• James Kevin Hughes, age 53, of Crownsville, Maryland pleaded guilty [] to wire fraud arising from a scheme to defraud lenders and a title insurance company of approximately $3.1 million. A co-defendant is scheduled for trial on November 7, 2011.

***

• According to his plea agreement, Hughes was a part-owner, President, and oversaw the day-to-day activities of Troese/Hughes, a title company in Greenbelt, Maryland, that performed title searches, provided title insurance, and conducted settlements. Hughes was also a signatory on the escrow account. Troese/Hughes had an agency agreement with Chicago Title that enabled Troese/Hughes to provide title insurance, which meant that Chicago Title was liable for title defects to homeowners and lenders.



• Troese/Hughes shared an escrow account with another title company, Troese Title Services. Although Hughes was unaware of the fact that the escrow account was shared, he was aware that there were shortages in the account. Sometime in 2006, Troese/Hughes opened a new escrow account, and the escrow accountant, Brenda Lukenich, a co-defendant who previously pleaded guilty, “assigned” a $1 million escrow shortage to the new Troese/Hughes escrow account.



• In approximately 2006, the real estate industry started to slow. As business slowed down, it became the policy of Troese/Hughes to check with 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 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.

For the entire U.S. Attorney press release, see Title Company Owner and President Pleads Guilty In $3.1 Million Mortgage Fraud Scheme.