For Immediate Release: May 3, 2011
Check Kiting, Operating a Bait-and-Switch Scheme and Paying Illegal Rebates, Kickbacks Among List of Charges
(ST. PAUL, MN) The Minnesota Department of Commerce is continuing its crackdown on title insurance companies and mortgage originators in the state for allegedly misappropriating funds, charging fees for services not rendered, paying illegal rebates and misleading both lenders and borrowers in order to drum up business.
Commerce Commissioner Mike Rothman last week signed three separate enforcement actions against mortgage originators and title agencies for alleged abuses and violations of Minnesota law.
"We want to send a clear message today that companies doing business in our state must act responsibly and abide by our laws," Rothman said. "These scams and swindles not only hurt consumers, but threaten healthy competition in the marketplace."
The Department charged Linda Tuttle-Olson, owner of Albert Lea Abstract Co. (aka Freeborn County Abstract Co.), with allegedly misappropriating about $1.5 million in client funds. Tuttle-Olson allegedly used a portion of the misappropriated funds for her own use, spending large amounts gambling at the casino.
The department's investigation, which began in May 2010, found that in at least 37 cases, Tuttle-Olson misappropriated funds from escrow accounts and moved them to other bank accounts and to herself by "kiting" checks and issuing checks on accounts without sufficient funds. Check kiting is a systematic pattern of depositing non-sufficient funds (NSF) checks between two or more banks, resulting in the books and records of those banks showing inflated balances that allow NSF checks to be honored rather than returned unpaid. Examples of Tuttle-Olson's check kiting scheme can be found in the department's statement of charges.
A prehearing conference will be held Thursday, June 16 at the Office of Administrative Hearings in St. Paul. Tuttle-Olson and her company may be subject to a fine of up to $10,000 per violation. Tuttle Olson pleaded guilty to wire fraud last week in U.S. District Court. She faces up to 20 years in federal prison. The federal case was built on the Department of Commerce's investigation.
The department also ordered Costa Mesa, Calif.-based Meredian Financial Corp. and Fortis Title Solutions Corp., their current owner Paul Ferris, and former owner James Assali to stop marketing themselves as residential mortgage originators and servicers in Minnesota until they meet certain conditions. The department also ordered the companies and owners to stop violating any laws, rules and orders relating to residential mortgage origination and servicing in Minnesota.
According to the department's investigation, Costa Mesa, Calif.-based Meredian Financial Corp. and Fortis Title Solutions Corp., their current owner Paul Ferris, and former owner James Assali, allegedly operated a bait-and-switch scheme through which they induced Minnesota homeowners to pay "rate lock" fees from $500 to more than $6,000 in order to refinance the homeowners' home loans. While Meredian allegedly told homeowners the fee was refundable in limited circumstances, the company also assured customers that the probability of securing a loan with favorable terms was a near certainty. However, according to the department's investigation, only 53 of more than 1,300 Minnesota consumers who submitted an application between September 2008 and September 2010 actually received a mortgage loan. At an absolute minimum, the department alleged, the companies and their current and former owners impermissibly collected and failed to refund more than $30,000 in advance fees from 12 Minnesota consumers.
Examples of the bait-and-switch scheme can be found in the department's statement of charges. In addition, the department is charging Fortis and Meredian and their owners with violating the Real Estate Settlement Procedures Act (RESPA), which is designed, in part, to eliminate kickbacks and referral fees that tend to increase the costs of certain settlement services. Meredian, though once licensed in Minnesota, no longer holds an active license in the state. Fortis is not licensed in Minnesota in any capacity.
Meredian, Fortis, Ferris and Assali have been the subjects of enforcement actions in other states, including California and Georgia. In March, Minnesota Attorney General Lori Swanson filed a lawsuit against Meredian.
The department is charging New Millennium Title Group of Bloomington with failing to properly supervise a partner title company, Real Source Title of Mahtomedi. Real Source was the subject of a previous action by the department that resulted in a $100,000 fine, the revocation of the company's license and the licenses of its officers.
New Millennium also allegedly made false statements to drum up business, paid illegal rebates to the tune of more than $480,000 and offered other items of value to lenders and their agents in order to induce business. New Millennium and Real Source made numerous misrepresentations and false statements to induce lenders and borrowers to close real estate transactions, the department alleges. In addition, New Millennium allegedly skimmed escrow funds via a sweep account, which is prohibited by Minnesota law.
A prehearing conference on the case will be held on Thursday, June 9 at the Office of Administrative Hearings. New Millennium may be subject to a fine of up to $10,000 per violation.