Lynd?blamed K.E.L. Title's woes mostly on a South Florida-based title-agency worker whom he accused of stealing hundreds of thousands of dollars in escrow money while fabricating real estate sales documents. The title company was blindsided by the scam, he said, which took place more than three years ago but was discovered only this year during certain foreclosure litigation.
The company has paid more than $1.6 million in scam-related claims so far this year alone, according to Lynd, who said the insurer alerted state regulators about the problem.
"It was a systemic theft by this agency's employee," Lynd said. "These incidents took place in 2008 and 2009, but it takes a long time for title claims to surface related to this kind of fraud. We're not the only ones who've been victimized; a lot of title insurers have been impacted by these kinds of scams."
When asked why K.E.L.'s audits had not detected the theft, he insisted that conventional audits would not have turned up such a surprisingly sophisticated scam.
"It would have been impossible to know [sooner] about this kind of theft. I mean, there were fabricated documents that made the transactions look normal on paper," Lynd said. "And there's just not an opportunity for us to review every single closing for all our agents. To some extent, you have to trust they will follow the requirements of their license, to act responsibly and professionally."
K.E.L. Title's explanation drew criticism, however, from one long-time title insurance lawyer.
"If a single agency is able to create enough fraud to bring down an entire company, you've obviously got a huge internal problem," said Cliff Shepard, a veteran real estate lawyer who is also legal counsel for the city of Maitland. "It tells you there weren't adequate controls in place to red-flag this kind of thing in your audits; otherwise, they wouldn't be in this mess."
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