Thursday, June 29, 2006

Chicago Title Sues Issuing Agent Alleged to have Misappropriated Funds

Chicago Title Insurance Company filed a civil lawsuit in the Federal Court for the Eastern District of Pennsylvania against the following defendants:

Lexington & Concord Search and Abstract, LLC
Glenn Randall
Diane Smith
Lexicon Property Services, Inc.
White Stone Search & Abstract, Inc.

The complaint states that it seeks to enjoin the defendants from ‘continuing to harm Chicago Title and members of the public’ and also seeks to recover approximately $1,000,000 in damages allegedly suffered by Chicago Title as ‘a result of funds being misappropriated by the defendants from real estate related financing transactions and other actions and omissions by the defendants.’

The complaint alleges that Lexington was a non-exclusive policy issuing agent for Chicago Title in the Commonwealth of Pennsylvania and in the State of New Jersey.  Randall is alleged to have personally guaranteed the duties of Lexington under the relevant contracts.

Chicago Title discovered that Lexington committed ‘numerous substantial accounting irregularities’ according to the complaint, including, among other things, ‘misappropriation of funds intended to satisfy mortgages at closings, ‘ ‘making unauthorized disbursements’ or ‘disbursements in the wrong amounts or to the wrong payees,’ and ‘numerous improper actions and omissions in connection with the conduct of real estate closings.’ After investigating the alleged actions and omissions, according to the complaint, Chicago Title terminated Lexington‘s agency agreement.  The preliminary audit conducted by Chicago Title concluded that there was a cash shortfall in Lexington‘s settlement trust account in excess of $700,000 and Chicago Title has not yet been able to trace the disposition of the missing funds and Lexington has not been able to explain the absence of the funds, according to the complaint.  The complaint further alleges that Chicago Title learned during the preliminary audit that multiple Settlement Statements containing false and contradictory information as to disposition of funds were completed for a single real estate transaction, in one or more transactions.

The complaint also alleges that Lexicon and Lexington were the alter egos of one another and of Randall and Smith and that as of May 19, 2006, Lexington still held itself out as conducting business (the complaint was filed on May 23, 2006.) According to the complaint, investigation by Chicago Title revealed that, despite termination by Chicago Title, Lexington, Randall and Smith continued to operate a title insurance agency through Lexicon and White Stone.

Causes of action for injunctive relief, breach of contract, breach of fiduciary duty, conversion, negligence, accounting, conspiracy, fraud, unjust enrichment, negligent misrepresentation, interference with contracts, and claims under the personal guaranty and included in the complaint.

On June 22, 2006, the parties filed a stipulated order whereby the defendants agreed, among other things, to provide Chicago Title with access to the books and records of Lexington, Lexicon and White Stone and to freeze the Lexington accounts. 

mortgage fraud

1. The True Lexington and Concord Story

   Glenn Randall is currently a thirty-six year old attorney who had been employed by several title companies as a closer after he had graduated from law school. 
   In late fall of 2002, Glenn applied to and was accepted as an agent for Chicago Title Insurance Company.  He incorporated Lexington & Concord but did not begin closing loans until February of 2003,and he was closing two to three files a month. 
   Business increased to 10 loans a month and as a sole practioner, he was overwhelmed and desperately needed assistance.

   Glenn began to hire people who seemed to be willing and eager to learn, but had no title experience.  He trained each of them and eventually trusted three of these employees to do closings while Glenn himself did the HUDs and the disbursements.  Glenn trusted his closers to produce their own HUDs and eventually to do their own disbursements. 

   Until that time, June 2004, all of the reconciliations had been fine and no discrepancies had been noted.  A new reconciler had begun working for L-C in April 2004 at the suggestion of the Chicago Title representative and continued to work for L-C until she was fired in April 2005 when she openly informed him of the escrow problems.  During that year,Glenn was never made aware of the severe problems occurring in the escrow accounts.  When she was discharged, she told him that she had not discussed the missing deposits, the inconsistencies in the records or the checks that were made out to questionable companies because she believed Glenn knew about them and because was too busy and unreceptive to her when she did hint at problems.

   A new reconciler began in April 2005 and reported that some clients had been paid twice fictitious companies had been fraudulently added to HUDs, deposits had been recorded that were never received, money had not been collected at closings, forms were not signed, liens were not paid, payoffs were wrong, checks were written directly from the escrow account that were not recorded on the HUD, and files in general were almost unintelligible. 

   The employees responsible for most these frauds and thefts were to be fired, but before this could happen, they disappeared from L-C, taking laptop computers and proprietary files with them.  Subsequently, they opened a competing title company. Other closers were also fired for incompetence and gross negligence which also worsened the escrow discrepancies.

   In an attempt to rectify the problems, Glenn informed Chicago Title in June 2005 as to the seriousness of the situation and that he would put his own personal money into the escrow account.  They also initiated law suits against the clients who were recipients of unjust enrichment as well as against the closer who had done the most damage.  Glenn deposited about $75,000 and Diane his mother and her husband mortgaged a property for $200,000 and put all of it into the escrow account.

   On February 9, 2006, the team from Chicago Title came to L-C and reviewed some records, they returned on February 10, and unilaterally terminated their contract with L-C.  Because the cash flow to the escrow account abruptly stopped, the account went into default.  To stop the defalcation both Glenn and Diane again went to their own resources and put another $250,000 into the escrow account.  Unfortunately the size of the deficit went beyond even this amount and L-C went into default.

   At this time, there is no final determination of the default amount but estimates have gone as high as $1,000,000.  However, a more realistic figure is about $600,000.  Further, it is important to note that considerable reimbursement is being made to Chicago Title through L-C-initiated law suits that are either settled or pending, and that additional restitution will be made by Glenn Randall when the actual amount of the default is established.

   Glenn is acutely aware of his responsibility as the owner and manager of L-C, and knows that he lost control of the business when it began to grow at an unprecedented rate.  The change from three closings a month to 15 to 20 a week made Glenn rely on the trustworthiness and honesty of people who professed to be faithful and interested in the company. 

   At this point, the business has been totally reorganized and is functioning under the name of Lexicon Property Services which was incorporated in November 2005 and is owned by Glenn Randall.  Glenn is the signer on the escrow account.  Lexicon is a brand new company designed to provide services that include real estate sales, mortgages, title and legal services, it is not an alter-ego of anything (as claimed by Chicago Title) and is an attempt to restore Glenn�s ability to do business in the field he knows well.  Glenn is a victim of his own initial success, a willingness to trust others who claimed allegiance and commitment to him and the company.

   Posted by  on  07/07  at  05:35 AM

2. I had a good friend lose his house due to fraud.  I can’t believe how scary our market is right now. I try to keep a positive look on things while I am looking for Chicago real estate. I have found this site with a great google maps/mls mash-up that has saved me lots of my time.  I think even though our market is crazy - now is finally a good time to buy.

   Posted by  on  07/02  at  10:31 AM