Thursday, September 16, 2010

Should Mississippi Valley Title have been aware something was amiss?

For a collection of all posts on Evans case, click on Evans page in "JJ Special Coverage" section on the right.

One question to be asked in the Evans case is how much responsibility does Mississippi Valley Title Insurance Company bear? The Evans case is (allegedly) the largest real estate fraud case to ever take place in Mississippi. A multitude of lawsuits and exhibits allege Charles Evans used his position as an approved attorney for Mississippi Valley Title Insurance Company to issue phony title certificates and mislead over two dozen banks into issuing large commercial real estate loans on land the borrowers did not even own.

An approved attorney for a company such as Mississippi Valley Title is allowed to issue title certificates on land and little else. He is not a title insurance agent as most real estate closing attorneys are and collects no commissions on sales of policies. The lawsuit filed by G&B Investments against Mississippi Valley Title and its parent Old Republic raises the issue of whether Mississippi Valley Title was negligent in supervising and auditing Charles Evans. Complaint, Earlier post on G&B complaint

G&B pointed out in its complaint Mississippi Valley Title approved received title certificates and applications from Charles Evans with the signatures of both Charles and Chris Evans (A copy of the exhibit is posted below). The dates of the submissions and the Evans-owned companies are:

6-9-03 Highland Development Group
2-9-05 Snowden Grove Investors
2-8-06 Highland of Ridgeland
10-27-06 Old Agency Business Park
11-15-06 Madison Avenue Development Company
12-19-06 Madison Avenue Development Company
11-7-07 463 Development Co.
11-30-07 Parkway Crossing
1-10-08 CE Development
7-8-08 Cedar Lake Investors
7-8-08 Snowden Lane Investments

JJ obtained a copy of another similar submissions: 9-17-08, White Oaks Investment. Ironically White Oaks is one of the defendants in the G&B lawsuit.

The exhibits all run in similar fashion. The first page is a request for final title endorsement application and attorney's final title certificate. The second page is the final certificate (of title) and always has the signature of Charles Evans. Attached to each application are two exhibits submitted by Charles. The exhibits are various forms of property descriptions and in most case have the signature of Chris Evans at the bottom of one of the page (His initials are signed at the bottom of one description.). Mississippi Valley Title thus received a dozen applications with the signatures of both Charles and Chris Evans.

A basic rule of underwriting, any type of lending or insurance underwriting, is the transaction must be at arms-length so as to prevent any fraud from taking place. Arms-length means the parties must not be related. Most fraud cases have several common characteristics. The most common of the common is probably parties related to each other. Whether it is same names on purchase agreements, appraisals, loan applications, and title insurance policies, the rule remains the same at most financial institutions: all transactions should be conducted at arms-length and if the parties are related, the underwriter must explain in writing why the transaction is allowed to proceed. Whether or not that is the practice at Old Republic remains to be seen but it is the practice in the industry.

Mississippi Valley Title strongly opposed turning over to several banks its policy manuals in a hearing earlier this year (Earlier post). It claimed the information was proprietary in nature and could be used by its competitors. The question must be asked if Mississippi Valley Title was resisting so fiercely because its underwriting practices in this case might deviate from its established policies and procedures on arms-length transactions. If such is indeed the case, then one can easily imagine several other parties will be very interested in pursuing similar action against Mississippi Valley Title. What is clear is a pattern developed: Charles Evans submitted a series of applications to Mississippi Valley Title over a period of five years containing the signatures of both Charles and Chris Evans. The question raised by the lawsuit is whether the applications constituted sufficient notice to the title insurance company fraud took place.

Synopsis of Evans case:
Charles Evans, Jr. was an attorney approved by Mississippi Valley Title Insurance Company to provide title certificates to MVT and lenders showing a borrower had clear title to property. MVT filed a lawsuit in September accusing his brother of using over 30 LLC's to obtain fraudulent loans from over 30 banks in Mississippi. Chris Evans would allegedly use one company to purchase a large tract of prime commercial real estate in Madison and Desoto Counties. Another company owned by Evans would obtain a commercial real estate mortgage on a smaller section of the tract yet that borrowing company never obtained a deed showing ownership of the land from the other company. Thus the smaller tract was actually non-existed as the larger tract was never actually subdivided. Charles would allegedly provide a title certificate however showing the borrowing company owned the land even though it didn't.

Over 80 loans for nearly $50 million were issued by Mississippi banks to companies owned by Chris Evans for lands those companies either did not own. MVT has testified federal authorities are currently investigating the case. Chris Evans filed Chapter 7 bankruptcy on October 26, which stopped the Mississippi Valley Title's lawsuit against him as federal bankruptcy law stays most state civil court proceedings once a bankruptcy petition is filed. Mississippi Valley Title testified 65 title insurance claims for approximately $41 million have been filed by banks affected by the Evans case


Anonymous said...

"Approved Attorneys" don't get audited while Agents do get audited. Perhaps this is why Evans didn't want to be an Agent.

Anonymous said...

"Approved Attorneys" don't get audited while Agents do get audited. Perhaps this is why Evans didn't want to be an Agent.

Anonymous said...

Every closing attorney would like to get an $80,000.00 fee for closing a real estate transaction, especially since there were 2 very expensive title examinations done on this one, according to the HUD - one by an MVT competitor (First American) and the other by a company where the closing attorney's brother is a principal/officer (First Guaranty).

With 2 title exams on the property, it would be pretty hard to make a mistake on title (unless that was what was intended). Very unusual that the closing attorney did not issue the policy on this one. That is usually the way it works. Many many unanswered questions with this one.

KaptKangaroo said...

Evans brothers are obviously involved in the largest fraud ever to reach the hills of MS and the Title Co. is unable to see it over a period of five years?

Don't buy it.

Anonymous said...

Agree with 9:28 and 10:14. There are so many red flags in this mess that a deaf, blind and senile underwriter should have caught it.

I wonder if MVT still does everything manually as far as issuance of title certs, binders and policies. Other major title companies nationwide require agents to submit titlework immediately to underwriting on policies about a set amount, troubleshooting for errors before a binder or policy is ever issued. (Very much like the bank's software that I believe detected this whole can of rotten worms in the first place.) The title company is just more in your business. This has also weeded out attorneys who don't want to deal with more underwriting procedures, leaving real estate law hopefully to more serious practicioners. The incidence of title claims/losses in the last decade nationwide has required the industry to scrutinize what they are insuring just a little closer.

Frankly, in decades past, MVT has relied alot on the good old boy word of mouth method of discerning attorney's with a propensity for fraud and unapproved business practices. That fact and complacency on their part has finally led to once helluva crash and burn.

Anonymous said...

Interesting. But didn't the banks get all this information, too? It seems to me that the Evans brothers screwed everybody in this deal.

Kingfish said...

The banks didn't get the title certificate and endorsement apps I posted.

Good question though. What SHOULD happen is the bank's quality control department should catch it but that is usually done post-closing. I suspect most small banks have very small QC departments. If it had been Citi or Chase and more than one loan was issued, this probably would've been caught.

The remedy for the banks is to scrutinize their QC.

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