Wednesday, Feb 28, 2024

Back In My Day… The Complexities of Remote Closings in Real Estate Transactions

I don’t know whether to be proud or to be depressed by the fact that I am now at the point in my career when I can use phrases like: “When I started practicing law…”  or “When I learned how to do it, we always….” Causing every younger attorney within earshot to roll their eyes.   In any event, I was recently involved in a matter in which I was sorely tempted to start using those phrases.  Here’s the story, the facts have been greatly simplified and the names have been changed to protect the innocent: 

The story starts with a real estate agent, Betty Sellitnow.  Betty received an email, generated through a marketing website, from the owner of an undeveloped lot, Joe Lotowner.  Joe expressed an interest in selling his lot and, of course, Betty wanted to sell it, now. 

Even though the county tax and other records showed that Joe lived less than 5 miles from Betty’s office, Betty nonetheless elected to email the listing agreement to Joe to sign via DocuSign, rather than meet with him in person.  Betty also had Joe send her a copy of his driver’s license, just to be sure he was not a scammer. Joe e-signed the listing agreement and promptly returned it, along with the copy of the driver’s license, to Betty, all via email.  Betty jumped right on selling the property, now. 

Betty found a buyer, John and Alice Happycouple, who offered to buy the property for $400,000.00.  Betty promptly emailed the contract to both sides for execution.  Both sides signed the contract, once again via DocuSign.  All was right with the world. 

Betty referred the closing to Impregnable Title to handle closing, with the title insurance policy to be issued by Awesome Title, an agency in which Betty co-owned an interest along with the owners of Impregnable.   

Shortly before the scheduled closing date, Joe contacted Impregnable, by email,  to let them know that he would be on vacation in the Outer Banks on the day of closing.  He asked them to email the closing documents to him so that he could print them up, sign them, get the relevant documents notarized locally, and return them to Impregnable.  Joe remotely signed and returned the closing documents, including an original notarized deed.  Closing went down without incident.  Impregnable wired Joe’s proceeds to an account Joe had provided. 

Shortly after closing, Impregnable got a call from the local police.  The police had been monitoring the account in question because of past fraudulent activity.  They asked why Impregnable had wired such a large amount of money to the account.  Further investigation revealed that: 

  • The person claiming to be Joe (who had communicated with both Betty and Impregnable only via email and whom nobody had even met face-to-face) was not really Joe. 
  • The signature and notary’s acknowledgement on the deed were both forgeries.   
  • Even though Joe said that he was on vacation in the Outer Banks, the deed was allegedly notarized in Hanover County, Virginia and was overnighted to Impregnable from Norfolk, Virginia. 
  • The emailed driver’s license was a fake.  

Impregnable immediately contacted their bank to try to recall the wire.  Alas, it was too late, the money was gone. 

Impregnable, to their credit, immediately tracked down the real owner, Joe Lotowner, to notify him of the fraudulent transaction and advised John and Alice Happycouple to make a claim of their title insurance policy.  They also immediately notified their Errors and Omissions carrier of the potential claims. 

Impregnable’s Errors and Omissions carrier immediately denied coverage and filed suit in the U.S. District Court for declaratory judgment over the coverage issue.  Impregnable was on their own. 

The real Joe immediately filed suit against John and Alice Happycouple under a number of theories to rescind the deed or otherwise quiet title.  John and Alice responded with a third-party complaint against Betty and Impregnable for their failure to confirm that the Joe with which they were dealing was the real Joe.   

The title insurance underwriter, after a thorough investigation, confirmed that the deed and notarization were both forgeries.  Because of this, the title insurance underwriter paid policy limits of $400,000 to John and Alice, but that’s not the end of the story.  The title insurance underwriter then immediately filed suit against both Impregnable and Awesome Title under multiple theories, including breach of their agency agreements. 

John and Alice’s claim for damages was far in excess of the $400,000 purchase price for the property, because they claimed to have had expended quite a large amount of money designing and pursuing construction of the “home of their dreams”.  So, John and Alice were not done with Impregnable and Betty.   

The last I checked, and I do not plan on checking again, ever, Impregnable and Awesome had settled with the title insurance underwriter and had also settled with John and Alice.  Both settlements were funded directly by Impregnable.  John and Alice’s suit against Betty is still on-going, as far as I know. 

All of the title insurance underwriters now have standard operating procedures for remote closings.  However, even when a closing agent follows all of those procedures, a fraudulent seller can slip through the cracks.  When I started practicing law, we always made sure that both sides were physically at the closing table and that one of our own notaries took the steps necessary to confirm the identity of the parties.  While the world has changed, the basics have not.  The entire mess could have been avoided in its entirety if someone, anyone, involved in the transaction would have insisted on meeting the seller in person.  If that was not possible, many other steps could have been taken at any point in the process to confirm that Joe was really Joe or at least that the notary was really the notary.  Don’t let it happen to you. 

This article was written by firm Shareholder John Rinaldi.