Owner of Title Companies Admits Mortgage Fraud Scheme
Stephen J. Troese, Sr., 72, Davidsonville, Maryland, pleaded guilty to wire fraud arising from a scheme to defraud lenders and a title insurance company of at least $937,183. The government contends the loss is between $2.5 million and $7 million. The exact amount of the loss will be determined at sentencing.
According to his plea, Troese practiced as a title attorney and was variously an owner, part owner, or the controlling figure of a number of title companies that did business in the Baltimore, Annapolis, and Washington, D.C. metropolitan areas, including Troese Title Services, Inc. (Troese Title), Camp Springs, Maryland; Troese/Hughes Title Services, Inc. (Troese/Hughes), located in Greenbelt, Maryland; and Troese/Prestige Title Services, Inc. (Troese/Prestige), Ellicott City, Maryland. These companies performed title searches, provided title insurance, and conducted settlements. Troese Title, Troese/Hughes, and Troese/Prestige each had an agency agreement with Chicago Title that enabled Troese Title, Troese/Hughes, and Troese/Prestige to provide title insurance, which meant that Chicago Title was liable for title defects to homeowners and lenders.
Troese Title and Troese/Hughes, which Troese formed in 1994 with co-defendant James Kevin Hughes, shared a joint escrow account for the receipt and disbursement of funds in connection with real estate closings carried out by both title companies. Co-defendant Brenda Lukenich was the escrow accountant for the joint escrow account as well as for most of Troese's other title companies.
By 2005, the joint escrow account had developed a shortfall of more than $2 million, partly as a result of several major employee errors and embezzlements. Sometime in 2006, the joint escrow account was split into two new accounts and the existing balance from the joint account was divided between the new Troese Title and Troese/Hughes accounts, effectively assigning a $1 million escrow shortage to each company.
In approximately 2006, the real estate industry started to slow, resulting in a steep decline in business for Troese Title and Troese/Hughes, further aggravating the problem of the shortfall in the escrow accounts.
In 1994, Troese had refinanced his home, claiming that the $655,000 loan would be used to pay off the previous first and second mortgages. In fact, the mortgages were not paid off. In February 2006, Troese again refinanced his home, representing that the loan of $964,533.26, would be used to pay off the two existing mortgages. Again, the mortgages were not paid off, but instead the funds were used to help cover the existing shortfall in the Troese Title escrow account. Troese concealed the fact that the mortgages were not paid off by continuing to make the monthly mortgage payments on all three loans.
The resulting loss to Chicago Title was $937,183.47, which it was required to pay to satisfy the two previous mortgages and pass clear title to the new lender.
In March 2008, Chicago Title terminated its agency relationship with Troese Title and Troese/Hughes. In response, Troese Title and Troese/Hughes operations were consolidated into a single title operation, Troese/Prestige. Lukenich still acted as the escrow accountant.
The government alleges that Troese was part of the scheme agreed upon by Hughes and Lukenich that funds from any new settlement conducted by Troese/Prestige would be used to cover the mortgage pay-offs that were still outstanding at Troese Title and Troese/Hughes, contrary to the HUD-1 settlement statement and in violation of the express direction of the lender. Eventually, there were not enough settlements to cover all of the shortages. Chicago Title, as the title insurer, was forced to make the mortgage pay-offs, to pay off funds due to sellers from settlement, and to pay the recording fees. In total, the loss to Chicago Title stemming from the Troese/Prestige pay-offs was approximately $1.7 million.
The government will argue at sentencing that the total loss that can be attributed to Troese as a result of the scheme was between $2.5 million and $7 million.
Troese faces a maximum sentence of 20 years in prison and a fine of $250,000. U.S. District Judge William M. Nickerson has scheduled his sentencing for February 7, 2012 at 10:00 a.m.
James Kevin Hughes, 53, Crownsville, Maryland, and Brenda Lukenich, 60, Hughesville, Maryland, previously pleaded guilty to wire fraud and mail fraud, respectively. Hughes and Lukenich each face a maximum sentence of 20 years in prison at their sentencings, scheduled for February 15, 2012 and January 12, 2012, respectively, both at 9:30 a.m.
The plea agreement was announced by United States Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation.
The Maryland Mortgage Fraud Task Force was established to unify the agencies that regulate and investigate mortgage fraud and promote the early detection, identification, prevention, and prosecution of mortgage fraud schemes. This case, as well as other cases brought by members of the task force, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and promote the integrity of the credit markets. Information about mortgage fraud prosecutions is available www.justice.gov/usao/md/Mortgage-Fraud/index.html.
This law enforcement action is part of President Barack Obama's Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
United States Attorney Rod J. Rosenstein thanked Assistant U.S. Attorneys Tonya Kelly Kowitz and Gregory R. Bockin, who are prosecuting the case.
Courtesy Mortgage Fraud Blog