In the News

Mortgage Fraud on the Rise: How TitleVest’s UCCtracker™ Can Help

By Bill Baron

In these economically volatile times, mortgage and document recording fraud are on the rise. The Quarterly Fraud Report from Mortgage Asset Research Institute (MARI) revealed a 42% increase in mortgage fraud in Q1 2008 versus the prior year. Data from the FBI, HUD-OIG, FinCEN, MARI, Federal National Mortgage Association, and RealtyTrac Inc., place New York among the top 10 areas for mortgage fraud in the country.

A June 20, 2008 New York Times article “Government Crackdown on Mortgage Fraud” cited 406 indictments since March for charges of mortgage fraud. In addition, the F.B.I. has more than 40 task forces around the country working with other local, state and federal law enforcement agencies on mortgage fraud issues. Their case load has nearly doubled in the past three years, with 1,400 mortgage fraud cases currently pending, up from 721 in 2005. In a May 13, 2008 report for CNN, FBI spokesman Stephen Kodak revealed reports of mortgage fraud could reach a record breaking 70,000 this year.

What you need to know about UCCs

Like mortgages, Uniform Commercial Code (UCC) Financing Statements can be subject to fraudulent recording and termination. In New York City, UCCs, security agreements used by lenders to place a lien on personal property, are most commonly used in connection with institutional lending on cooperative apartments. In such cases, the lender records a UCC-1 on ACRIS to evidence its security interest in the borrower’s shares of stock in the cooperative corporation, which acts as collateral for the loan. A UCC-1 and coop addendum filed against a coop apartment are effective for 50 years from the date of filing, unless otherwise terminated.

UCC-1 Financing Statements are short, standardized forms, that can be created and filed without any particular expertise and do not require any authorizing signatures. Likewise, UCC-3s, which are used to terminate UCC-1s and thereby release the lien, are similarly easy to create and file. As such, they are prime candidates for fraud.

Newly developed technology monitors fraud

Fortunately, technology can help with the monitoring of document recording fraud. To enable lenders to monitor for potentially fraudulent UCC recordings, TitleVest developed UCCtracker™. UCCtracker™, offered exclusively through www.TitleVest.com , tracks the filing of UCC Financing Statements on the New York City Department of Finance’s ACRIS recording database and alerts its users whenever a subsequent UCC is filed that affects the original, tracked UCC. UCCtracker™ is available at no cost during the BETA period.

Before this technology, lenders were unaware of the subsequent UCC filings, unless they periodically ordered a lien search on the coop or checked the ACRIS system for subsequent recordings, which is both costly and time consuming. UCCTracker™ allows lenders to monitor their security instruments in a very streamlined (and during the BETA period, free) manner.

Recovering from fraud

When a UCC-1 is fraudulently terminated, the correction process is cumbersome. First, the secured party must record a new UCC-1 for the loan that was erroneously terminated. Once a UCC-1 is terminated, the New York City Department of Finance does not allow any subsequent amendments to the original filing. To regain the initial filing’s priority standing, any additional UCCs for that debtor should then be subordinated, giving consensual priority to the new UCC representing the old loan. Lastly, the secured party can file a UCC-5, referencing the City Record File Number (CRFN) of the wrongly filed termination and the initial UCC-1. This allows the filer to document that the termination was wrongly filed and direct examiners to the CRFN of the new UCC-1 filed to represent the old/original loan.

While UCCtracker™ does not eliminate the need for fraudulently terminate UCCs to be refiled, lenders can be alerted to the unsanctioned recording and take corrective measures in a timely manner. As document fraud increases, there is a growing need to monitor document recordings, such as UCCs. Through technology, lenders can monitor their recorded UCC-1s to ensure they are aware of any fraudulent activity and can take corrective measures to protect their security interests.

Bill Baron is president of TitleVest, a New York based title insurance company. Working as a real estate attorney for more than a decade, Baron opened TitleVest in 2000 aiming to revolutionize what he considered a technologically challenged title insurance industry. By developing free-to-use proprietary web-based tools, Baron’s company has helped streamline real estate transactions. Baron is also president of 1031Vest and InsureVest, TitleVest’s sister companies, offering 1031 tax deferred exchange services and providing business and personal insurance respectively. For more information, visit www.TitleVest.com or contact Bill Baron at 212-757-5800.