Tim and Kim Canning of Parker did what tens of thousands of other Coloradans do each year: They refinanced their home, showed up at the closing, signed the papers, and that was that.
So they thought.
But the $277,000 that was to be sent from the bank that refinanced the Cannings’ home to pay off the old mortgage was stolen along its electronic journey, the target of organized cybercriminals out of Eastern Europe or perhaps Russia, according to people familiar with the case who refused to be identified because of the ongoing investigation.
What seemed an innocuous transaction got twisted into a two-year nightmare that’s all but ruined the couple’s credit, unnerved their patience and has them staring at the possible foreclosure of their dream home without ever having missed a single mortgage payment.
Worse still, what’s happening to the Cannings could happen to anyone — and it has. The Colorado Division of Insurance, which regulates the title industry, said in a report to the legislature this month that “recently there has been an uptick in reported thefts,” though it did not quantify the trend.
And the title company that handled the closing — Classic Title Agency in Aurora — isn’t insured for the theft because state law doesn’t require it, even though title companies handle billions of dollars in real estate transactions yearly.
“Sure, we can go after the title company for the money, but that’s like squeezing a turnip,” Kim Canning said. “And for the banks, $277,000 is like nickels, but for us it’s a world turned upside down.”
Classic Title’s president, Ryan Rodenbeck, did not return calls seeking comment.
Though the couple paid for a title policy as part of the refinancing process in 2009 — most consumers do this and don’t even know it doesn’t actually cover them — the bank that loaned them the funds is the one protected, not the Cannings.
When the money was stolen, the original holder of their mortgage wasn’t paid off — in this case Bank of America — so the Cannings suddenly found themselves with two mortgages on the same house.
And both banks wanted to be paid, though the Cannings thought they only had one mortgage, the new one, so that’s the one they paid.
It wasn’t long before Bank of America’s late-payment notices showed up in the mail, the telephone calls started and the foreclosure notices appeared on the front door.
“We just thought it was a paperwork problem,” Kim Canning said, having explained to Bank of America that they’d refinanced the note and the papers must be hung up in the mail. “We were getting delinquent notices and I was shredding them. That’s how clueless I was.”
Then came the news: Their money — actually it was MetLife’s money, the holder of their new mortgage — had been stolen from Classic Title’s escrow account at Chase Bank, along with nearly $1 million in the account that made up eight other real estate deals.
“You just assume the big banks and the title companies have this all set up properly,” said Stephen Block, whose $367,400 earmarked to refinance his Greenwood Village home disappeared from Classic Title’s account as well.
Classic Title is deemed an insurance producer, which means they write the policy, but the backer, known as the underwriter, is typically an insurance company that specializes in title policies.
“All of a sudden you’re faced with losing your home out of no fault of your own,” Block said. “Who gives that a thought? You only see how easy it is to refinance.”
Though Block initially received foreclosure threats, that subsided because his refinancing was handled by the same bank. That bank, Chase, is suing the insurance company that underwrote the title policy, Dakota Homestead, for not ponying up.
How organized crime came to find and swipe the money is unclear, but land title experts say it’s a rarity.
“It’s just not likely to happen and there’s enough insurance in the title industry to protect all the parties,” said Christopher Condie, president of the Land Title Association of Colorado, a trade group.
Condie is also president of Attorneys Title Guarantee Fund in Colorado, which underwrote the title policy to protect the Cannings’ refinancing.
The issue, Condie said, is that everyone in the Cannings’ scenario is the victim — the banks on each side and the Cannings in the middle — and no side is yet willing to pay up and no lawsuits are filed.
Though title insurance is to protect banks involved in a transaction, Condie said the profit or equity a homeowner is to pull from a sale or refinance is actually most vulnerable.
Unless a homeowner hires a special licensed company whose job is to hold the proceeds of a sale — known as a “qualified intermediary” or a “1031 exchange” firm — and who must be bonded and insured, the proceeds are not protected.
Just ask Walter Spring. He watched as $121,000 disappeared when he sold his lifelong home near City Park, a turn-of-the-century house his parents purchased in 1940.
The closing agent — Kimberly Anderson, then an employee of Classic Title — allegedly diverted the money to an accomplice. They allegedly did this on at least one other deal around town, according to Denver district court records.
Spring has never seen any of the money even though he remembers paying $2,000 for a title policy. The bank has since resold the house from foreclosure.
“What gets me is that I didn’t do a thing wrong and everyone’s protected in this racket except for me,” Spring said.
Anderson was convicted of felony theft of unemployment benefits and sentenced to four years’ probation in June 2010. Felony theft charges connected to the closing on Spring’s house were dismissed as part of a plea agreement. Anderson was the closing agent for the Cannings at the time of the alleged crimes.
“You can’t imagine how upset I was when I heard that,” Kim Canning said. “We hand them all this money and there’s no guarantee that I’ll still have my house in the end.”
Whether it’s a loophole or a massive gap in regulations, title companies at a minimum should be required to have a bond and crime insurance, said industry advocate Garry Wolff, owner of TI Services.
At the moment, companies and their agents merely need to be licensed — pay a fee and pass a test — and prove a $10,000 net worth.
“That’s it,” said Wolff, who has pressed for the insurance coverage for years without success. “With so much money on the table, consumers need to know they’re protected.”
David Migoya: 303-954-1506 or dmigoya@denverpost.com
How to protect yourself:
Buyers or refinancers: Ask for a closing protection letter from the title agency. Banks often get them but consumers don’t know they can, too.
Sellers: Use a registered qualified intermediary company to hold the proceeds. They are required to be insured.
This article has been corrected in this online archive. Originally, due to a reporting error, the story contained incorrect information about Kimberly
Anderson, a former employee of Classic Title Agency. Theft charges
involving the diversion of money to an accomplice were dismissed as
part of an agreement for her guilty plea to felony theft of
unemployment benefits.
