Prevent Mortgage Fraud and Other Claims

Preventing Mortgage Fraud – and the Subsequent Claims

In our Professional Liability department, we have seen the lasting impact the continued weakness of the real estate market has had on our many Title Industry Errors and Omissions clients. While there seems to be a light at the end of the tunnel (finally!), the long term impact on the underwriting of these policies will be felt for a long time. Many of our insured attorneys engaged in real estate law practice have also been impacted by the real estate “bubble” and subsequent “correction”. In recent years we have seen mortgage fraud as the primary cause of most professional liability claims against our insured attorneys.

Here are some preventative measures we suggest you watch out for (and avoid):

  1. Oddly structured transactions
  2. Transactions having extremely high fees or points
  3. High volume of business from unusual or unfamiliar sources
  4. Property “flips”
  5. “Payoffs” of strange or poorly documented liens at a closing
  6. Abrupt increases in property value due to alleged improvements to the real estate
  7. Suspicious borrowers – if your instincts tell you “something is wrong with this picture”, your gut feeling is probably correct

The last point brings up another root cause of many lawyers professional liability claims, and that is simply choosing the wrong client.

Choose the Right Client

At the risk of stating the obvious, here are some questions to consider before accepting a new client:

  1. Has the client gone through previous lawyers? Dissatisfaction with multiple attorneys may be the fault of the client. Perhaps they do not pay their bills, or they have unreasonable expectations. If the client brings suit, it probably will include all the lawyers in the chain. The last lawyer in sometimes becomes the primary target of the suit.
  2. Do they seem to be reasonable people? Unreasonable and unduly litigious individuals should be avoided. If your results for them are not to their liking, they will most likely pursue a suit against you.
  3. Do they require immediate action? Beware of taking on a client at the last minute. You are assuming significant risk by substituting in on the eve of a trial without proper time to prepare.
  4. Might they have some skeletons in the closet? Learn what you can about the clients background: financial issues, serious alcohol or drug problems, prior legal concerns, gambling problems, etc. Pay attention and ask questions about factors that could impact their stability.
  5. What does your gut tell you? Again, trust your instincts. If something does not feel right, it is simply best to not establish the attorney-client relationship in the first place.
Brian H. Merriam, CPCU, ARM, AAI
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