Defalcations Are Coming

By on Dec 5, 2017 in Real Estate Investing | 1 comment

            I must confess that my mind works in some weird and mysterious ways. While driving home from a productive business meeting, my mind went over various scenarios that real estate investors shared with me as to how they are double closing certain types of real estate transactions. In reading between the lines, I suspect there is a growing number of title companies that are once again skirting some of the rules and playing fast and loose. It’s human nature that when you put enough people in front of enough money, somebody is going to misappropriate those funds despite having been trusted with them.

            That is a defalcation. We have seen it in previous episodes of the real estate cycle. Once the market begins to correct and cash flow gets tight at some of these title companies, those operating outside the bounds of legitimacy get caught. The unfortunate thing is that high-volume real estate investors who are innocent customers of these title companies get subject to a higher level of scrutiny once the Feds and insurance examiners show up and start going through the records of the failed title company.

            I know of more than one real estate investor who got caught up in an unpleasant legal mess because the title company they were using went belly-up after one of the principals stole a significant amount of money.

            Why am I sharing this with you? Because we are in a time in which the real estate market looks good and there is probably a growing amount of froth on the market. It’s a good time to make sure the title companies you are using are doing things legitimately and by the book.

            If you are double closing transactions because you have a high-volume, buy-and-sell business, please make sure each of those transactions are independent, stand-alone, separately-and-fully-funded transactions. In fact, if you are doing enough volume, you may want to have lunch with a representative of that title company and ask them about various title underwriting bulletins they may have received from their various underwriters about the policies and protocols they need to use for handling high-volume, quick-resale transactions.

            The most important thing I can say is trust your gut. If you feel like something is off, now is the time for you to shift your business to another more trustworthy title company.

            Some of you may see the message in this post as being alarmist. I don’t. I see it as someone warning you on a perfectly sunny day that you need to make sure your tornado shelter is well constructed, because you never know when the storms of life may strike your business.

    1 Comment

  1. Thank you for your advise and information. How could any of us know this? I know the last attorney I spoke with regarding double closings in Lake County, IL, she said they were not being done. Without someone like Jeff, I would be in the dark, at least I have a little more light. Thank you Jeff.

    Mary Stead

    December 5, 2017

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