Wednesday, February 01, 2017

Single Asset LLCs: Prime Targets For Identity & Deed Theft?

From a recent commentary published in the South Florida Daily Business Review:
  • Surrounded by fun, sun, high rises and prime real estate, it seems like everyone wants to own a small part of South Florida for themselves. As such, we live in the epicenter of single-asset limited liability companies.

    Single-asset LLCs are typically an organizational structure where an LLC is formed to hold property as the entity's sole asset. Unfortunately, South Florida ranks as the nation's second most popular place to commit mortgage fraud.

    Single-asset LLCs are prime targets for identity theft, especially if the asset is unencumbered real estate. Why? Because single-asset LLCs rarely have more than a few members, take minimal effort to defraud and own valuable enough assets to make a fraud worthwhile.

    Criminals commit mortgage fraud against single-asset LLCs by stealing the LLC's corporate identity. An identity thief can easily identify real estate assets which are not encumbered by a mortgage through a public records search. If a real estate asset has no mortgage, an identity thief can ascertain whether the property has equity that can be stripped. Identity thieves attempt to strip equity from real estate assets by applying for and obtaining loans secured by mortgages on the property.

    In the case of a single-asset LLC, an identity thief will first attempt to amend corporate filings to put themselves in a position of authority. These changes will be reflected on the Florida Department of State website. Members of an LLC have the apparent authority to bind the LLC to obligations and liabilities. Identity thieves know the underwriter will independently check the Florida Department of State website to see if apparent authority exists. However, the underwriters do not actually verify a thief's relationship to the LLC.

    Red Flags

    The next step in the crime is to forge operating agreements and corporate resolutions authorizing the loan, if an underwriter requests. Alternatively, thieves can deed the property directly to themselves or an entity the thief controls. Once the property is deeded, the thief quickly applies for a mortgage backed loan. In most instances, identity thieves seek loans from private mortgage lenders because private lenders are less regulated than lenders subject to Federal Deposit Insurance Corp. regulations.

    Though less regulated than their institutional counterparts, private mortgage lenders are required by federal regulations to have systems in place to recognize possible identity theft. Florida law also allows for disciplinary action against a private mortgage lender, even where the lender lends funds based on forged corporate records.

    Some identity theft red flags are obvious. If the new manager ascended to a position of authority at or near the time of the request for a loan, this is suspicious. Thieves want to get in and get out as quickly as possible.

    The longer the mechanics of their fraud, e.g. deeds or corporate amendments are of record, the more likely their fraud can be identified and prevented. For this reason, thieves amend corporate or public records at or near the time they request loans.

    It is an easily identifiable red flag if the new manager uses an operating agreement that is in any way inconsistent with the articles of incorporation. Stated differently, if the offered operating agreement has members that are not included in the original articles of incorporation, there is a solid chance the new member isn't really a member.

    What to do? Owners of a single-asset LLC comprised of real estate must be diligent in checking their corporate filings. Additionally, a well-thought-out asset protection plan may alert the owner of the single-asset LLC of an application for a mortgage before it's too late.
Source: Avenue for Fraud: Identity Theft and the Single-Asset LLC (may require subscription; if no subscription, TRY HERE, then click the appropriate link for the story).

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