I wanted to let the community of active rain be aware of a "new" fraud alert that we, LandAmerica, have addressed and are making arrangements for, to keep this from becoming a possible issue on the part of the buyer, the Buyers agent as well as for the title company.  Please make sure your title company takes steps as well.

In today's market where every dollar counts to both the buyer and seller, some people have taken to desperate measures.  With the onslaught of the lending practices over the last few years (and coming to a head now) "open ended" mortgages or "revolving lines of credit" were in abundance, especially in "2^nd position" behind a first mortgage.  As a title company we would receive a payoff letter from the lender and then proceed to close the transaction and then send in the payoff letter asking for the mortgage to be discharged and the account to be closed... this is what has changed and why.

In some instances consumers would take a draw (using checks or a credit type of card) against the line of credit just at, or just after the closing of the transaction, after they new there had been an inquiry for payoff placed. The title company would send in what they thought to be the "payoff" and to have the account closed.  Sometimes the lender would accept this, but then find out later a "draw" was put against the account and it would remain open and therefore a valid lien on the property affecting not only the title company but also the new buyer as well.  In some cases they would reject the payoff and notify the title company days after the transaction.  If either occurs, it is hard to collect this from the seller and the title company has to satisfy this transaction as a claim. 

This is why you close at a title company, to ensure stuff like this is handled in a professional manner...but...claims affect everyone.  If too many claims happen it can cause title company to raise rates, closing fees, or worse go out of business, especially if an Agent.

We at LandAmerica have initiated a new policy that we are requiring the "open ended mortgage" to be closed or suspended at the time we request a payoff statement from the lender and must be returned to us 5 days prior to closing.  It requires some extra papers to be signed prior to closing but hampers this from happening after the transaction is completed. 

It is my suggestion that everyone urge their title company to do this, for the safety of your buyer, seller and your business.  Everyone is looking toward their current clients for referrals.  If this type of "fraud" happens and your buyer is affected in any way, the chance of referral goes down, especially if the title company you use doesn't take care of the problem in a timely manner.