Dan Antion

Operation Opportunistic Observation

Korean Dogwood

A funny thing happened on my way to talking about WordPress technical support – I told a story about a mortgage company I worked at while I was a consultant. A couple of weeks ago, I told you about how a crude flow diagram helped me “figure out” where the problems were – hint, they were everywhere. Today, I want to share a story about one of the things we discovered after we started working our way through that diagram. Warning: some of you expressed a bit of outrage over the way people with fiduciary responsibilities were handling the money of Mr. and Mrs. Joe Average – you guys better buckle up.

If you’ve ever bought a house that involved taking out a mortgage, you’re familiar with the frantic pace at which things start to happen in the days before the closing. One of the essential things is that your lawyer, perhaps your real estate agent, or perhaps some trusted fellow at the bank is given the money for the mortgage amount. This amount, along with your down payment amount is held in escrow until the closing is complete, when the trusted third-party presents a cashier’s check to the seller.

As you might expect, if anything fouls-up along the way, the closing is postponed, and the amounts being held in escrow are returned to the various parties…unless they aren’t.

Our process flow documented the flow of funds to “Third-Party Escrow Agents” as well as the potential flow of those same funds back to the bank. This little data flow represented a portion of the “pipeline” that the bank was using as an excuse for losing track of $93 million. Our team needed to figure out how much money was in this portion of the pipeline, since the mortgage company wasn’t paying attention. Considering the volume of mortgages each day throughout the system and the average mortgage amount, two to three days of funds in escrow was a sizable amount of money. Even a small portion of it was sizable, at least to an enterprising attorney.

You see, in addition to not paying attention to how much money was “out for escrow,” no one in the mortgage company was responsible for notifying the bank to call the funds back when a closing was cancelled. Instead, they relied on the third-party agent holding the funds to return the money.

The keen but sleazy attorney forgot to return the funds one day, after a closing had to be cancelled. Then he noticed that no one ever asked for the money. The money was sitting in a money market account at the parent bank of the mortgage company. And, in 1985, that money market account was paying slightly over 7% interest – a nice little benefit for the trusted third party, albeit only for a few days.

When the attorney made his observation, he put his own process in place. Whenever one of his clients told him they were applying for a mortgage, he offered them this apparent bit of sage wisdom:

“When you apply for the mortgage, we’ll schedule the closing for a month before you really want to close. That place is so screwed-up, they never have the paperwork ready on time. I’ll take care of notifying them that there’s been a delay, and everything will be ready the day you really want to close.”

At least part of that wasn’t a lie – the bank was screwed-up.

The lawyer was involved with 10-to-12 closings each month, for an average mortgage amount of over $100,000. This amounted to a rolling bank balance of between 1.25 and 1.5 million dollars – of the bank’s money – sitting in a money market account – where the bank was paying the attorney 7%. I know you don’t like to do math on Mondays, but that works out to about $95,000 a year in interest.

I don’t want to aggravate your math anxiety but suffice it to say it was worse for the bank. Not only were they paying the attorney interest, but because it was their money, they were losing the interest they could have made in the overnight investment opportunities available to them.

In case you’re wondering, it was determined that no crime had been committed. The attorney was careful not to ask his clients for their down payment amount until just before the real closing. Since the bank had, in fact, been late on several closings, he retained a plausible excuse for his action – he was looking out for his clients and the bank should have asked for the money to be returned. And, in case you’re wondering further, he wasn’t the only attorney along the East Coast who had noticed this opportunity.

I think MiMi left a wake up call for now. A little blurry, but.
“You woke me. Why did you wake me?”
We had a referendum in town on Wednesday. I voted at the high school. Maybe not age-appropriate, but I like it.
Early morning pretty.
The best part of the storm.
Beach sunset.
“Did you bring some peanuts? This guy is persistent.”
Poof!
Maddie had a bad weekend. Belly boo boos
Korean Dogwood
“I know I’m little, but could I have a peanut?”
“I have room for one more peanut in here.”
“Chippy is stuffing everything in his cheeks/”
Sammy (the gray ones are all Sammy, except this one might be Samantha.
Don’t forget the onion rings.
Lunch at the local diner.
The Korean Dogwood is in full bloom.
Maddie hasn’t been feeling well.

87 comments

  1. I can’t say I’m surprised. As a former auditor, these escrow and trust accounts were scrutinized forty ways to Sunday because they were so susceptible to fraudulent activity. What puzzles me though is that the interest on the escrow account is supposed to accrue to the client – not the trustee. Where’s the lawyer’s advantage … since you said it was determined he did nothing illegal.

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    • Maybe the consideration wasn’t correct at the time (lawyers and bankers were indicted years later). I’m not sure how they came to the conclusions they came to, but the bank was paying interest, and we were told the lawyer(s) were profiting by the practice. We established a communication process so the bank would be notified when a closing was postponed. The number of delays dropped immediately.

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  2. My last 2 closings were total chaos. As much as I would like to move, I don’t want to go through it again.
    Jeez, it’s been a long time since I’ve seen a chipmunk!!

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    • I can understand not wanting to go through that process again. As chaotic as this place was, their mortgage volume kept growing during the six months we were on site. It was so easy to see how these operations got into trouble in the late 80s and again in 2007-8.

      We’ve only been seeing chipmunks for the past 2-3 years. Cute, but destructive little creatures.

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    • Thanks Roberta. This bank ultimately failed, and I felt bad for the employees. As is often the case, companies chase higher and higher profits at the expense of stability. When things go wrong, the decision makers take a large bonus and move on. The employees look for other jobs. That’s a preview of the final post in this series (I think I have a couple more crazy stories to share first). Lunch was very good.

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  4. How do things like that even happen? Good grief, if my checkbook is off by $1.50 I’m upset.
    We’ve had a recent influx in chipmunks as well. Little buggers are taking seed from the feeders and burying it all in my garden beds.

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    • Until the auditors showed up, this bank didn’t know their “checkbook” was out of balance (by $93 million). Like some people, as long as the balance was positive, they kept going along without a care (that “ahem” you heard might have been The Editor). Checks and balances were largely missing from the process. Most of our work was finding and fixing the missing controls.

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    • Working in the banking industry for about 6 years taught me that lesson, so many time, Judy. Not only are they not looking out for your interests, many are looking for ways to move your money into their pockets. I have a couple more funny-ish stories before ending this saga, but it didn’t end well.

      Maddie seems to be feeling a little better. We did have to visit an emergency Vet on Saturday night/Sunday morning, but we’re optimistic that whatever was bothering her is now under control.

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  6. As I started reading this, I was tempted to buy some knitting needles. But, I get it. The bank was screwed up and that attorney was smart enough to make unethical monies that didn’t get him thrown in jail. x+y=$$$

    Poor, sweet Maddie. I hope she is feeling better today.

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    • Thanks Val. This mess was motivated by greed. As is often the case, incentivizing the wrong metric led to bad behavior.

      Thanks for your thoughts about Maddie. She seems a bit better.

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  8. We had one dealing with an attorney like that. Took our money and …….just took our money. Turns out everyone knew he was crooked but us! We eventually got everything straightened, but imagine the first letter you get from the mortgage company, a month after closing, is that you have missed a payment. That was pretty horrible.

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    • Ugh, I feel bad for you Lois. That these people can take people’s money without any regard for the anguish they cause is beyond my ability to understand. This bank ultimately failed, but not before causing financial harm to a lot of people.

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  10. Sorry Maddie’s not feeling well. Thanks for throwing in some photos to wash the bitter taste out of my mouth after reading your story. My husband’s always reading stories to me that he finds online and surprise, surprise, very few of them are positive. Sometimes I have to tell him I don’t want to hear any more. (Not that I didn’t finish your post, but you know what I mean.) I guess it’s like the saying “Nice women don’t make history.”

    Off for a bit of breakfast. I had my walk in the park and have a massage scheduled for later in the morning, so it’s going to be a good day. :-) Hope yours is, too.

    janet

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    • Thanks Janet. The bitter taste is understandable. These were greedy people (inside and out) who ultimately ruined the bank and the financial lives of many families. Until very late in the process of cleaning up this mess, we were not aware that something else was going on.

      We are optimistic that Maddie is feeling better.

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  11. Hi Dan – one of my lawyers a year after I moved got caught embezzling clients’ funds – just so glad they weren’t mine! $93 million is one lot of money … still it’s only black and white I suppose … and if you don’t know it should be there – who’d miss it … interesting and frightening story though.

    Good to know Maddie is better … all of you have good weeks – cheers Hilary

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    • Thanks Hilary. The story is more scary looking back than I knew at the time. We were plugging holes in a process that others were exploiting. It made it harder to cover up the fraudulent activity, but it didn’t stop it.

      Thanks for your thought re: Maddie.

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  12. Boy! That old saying, “What we don’t know won’t hurt us” just isn’t true, is it? Scary stuff Dan. Hard to stay on top of everything. How fortunate that you and your team were able to get it figured out.

    You really need to leave MiMi alone in the morning! That school bulletin board is appropriate for any age! Korean Dogwood is simply beautiful. We too are seeing more chipmunks. Cute as a button, but I don’t trust them not to damage something !

    I’m so happy to hear our Maddie is feeling better. Scary for our pets as well as us to have to bring them to an Emergency Vet Clinic. Now she needs some TLC. Hmmmmm, I wonder where she might find that? Lol. Definitely praying for the redhead to have a speedy and permanent recovery. Murphy sends kisses and tail wags, and says she’ll gladly share her toys with Maddie when she feels up to playing!!
    🐾Ginger 🐾

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    • Thanks Ginger. Maddie does seem to be getting better, but MiMi may have what Maddie had. Meds have been acquired for her as well. I hope these guys all get back to feeling better. It is stressful when they aren’t feeling well. You can trust us to dole out the TLC. Tell Murphy we appreciate the offer, but Maddie destroys most toys she comes in contact with – we should settle for the kisses and wags (much appreciated).

      The chipmunks do manage to do some damage. They have undermined several areas of our sidewalk in the back yard, and I don’t want to think about what they might be doing to the drain tile system.

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      • OH! Not to worry about the condition of Maddie’s toys! Murphy is the Toy Terminator! Apparently since she only has 3 legs, she’s convinced her stuffed animals can only have 3 legs! Yep, I kid you not. Squeakers are the next thing to go, Then it’s eyelashes but not the eyes (🙄), noses, and then she goes for the throat!

        Yikes! Reading what I just wrote sounds like I have a serial killer on my hands. Lol.

        I sew her toys “back to health”. Murphy sits up against my leg, drools on my knee, and watches E V E R Y stitch I make. The love we have for our hairy kids is amazing.

        And now sweet MiMi is under the weather. Watch out MuMu! You remember when Faith was in school and came home with every virus and ‘bug’ known to mankind. This is kinda like a walk down Memory Lane!!

        Sure hope both these sweet girls get well soon. So Murphy sends kisses and healing licks to MiMi and she hopes you and the Editor are generous with gentle belly rubs.

        Geez Dan, for once it’s not YOU under the weather or going to the ER!! 🤗🤗
        🐾Ginger 🐾

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        • That’s so funny about Murphy removing a leg. She does sound a bit dangerous.

          These days, Maddie goes for the tags first, then chews a small hole from which everything inside is removed, including the squeaker. She used to be more destructive. The Editor has sewn some back together, including Funky Monkey, whose face was chewed off. I think he’s down to part of one arm and part of one ear.

          Belly rubs, scritches and chin rubs are all flowing freely. As well as antibiotics and other medication. Plenty of rest and fluids. It is beginning to sound like those school days, Ginger.

          I hope I stay in the pink.

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  13. Our closing here in Autin went off without a hitch. I was amazed. Your story is horrifying, Dan. I hope you keep giving us updates because I am interested in where the $93 million went. Got a kick out of the chippie and his onesided peanut cache. I hope Maddie feels better.

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    • Thanks John. There are a couple more horror stories before what might be a 2-part conclusion to this horror story. Suffice it to say, lots of people were hurt and not enough went to jail.

      I’m glad your closing went well. I’d like to think that new regulations make it harder for fraud to enter the system, but I’m not that naive.

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  14. Dan, I am always amazed at how unscrupulous people can be. Doing something like that would haunt me forever. We had a trusted mortgage broker for all our closings and he did really watch out for us. The banks made a few ‘errors’ he had to jump in and fix.

    We have quite a few chipmunks. We saw tiny babies this year — 4 of them. They sure are cute with their cheeks stuffed full.

    Do Maddie and Mimi get along? They both look so peaceful. Sorry Maddie was under the weather. Hopefully the bug has passed by now.

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    • Thanks Maggie. We have spotted baby chipmunks this year, too, but we are a little worried about where and how much they are digging.

      In retrospect, I understand how these guys did what they did. Why they did it is clear – greed, but, like you, I can’t understand how they managed to live with themselves.

      Maddie and MiMi do not really get along. Maddie has some issues which cause her to attack/chase the cats without warning. They can be laying together one minutes and in an ugly chase the next.The cats usually keep a safe distance, but MiMi is more adventurous and tends to be chased more often.

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  15. Can I feign shock ? The whole Wells Fargo saga could be a Mell Brooks movie. Though I doubt even he could make it funny. We are so sorry we got caught now give us more of your money… Hope Maddie gets well soon.

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  17. I am in the beginning of a process to sell a house in AZ . I’m like a babe in the woods on real estate deals , but I go carefully as I can , and my wife is always there to hold the ‘I told you so’ threat over my head . It’ll all work out , though . Or not.

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  18. I was going to say the dandelion was my fave until I saw the food pics.  Oh my god, I am finally able to eat something, but this?  This is torture!😂

    Sent from Yahoo Mail for iPad

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  20. Opportunistic sleezeballs. Someone always eventually pays for those missing dollars and it ain’t ever the guys at the top. Sigh….PS that lunch looks mighty tasty, Sherlock. 😉

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  21. Disgusting. Greed is so rampant everywhere, Dan. The stories I could tell …. grrrrrrrr ….. One small one …. I ordered a shampoo and conditioner online. I only received the conditioner, yet my money was not refunded for the shampoo. When I called the company a week later, I was reassured the shampoo would be restocked. Three weeks later, the shampoo was not on the site at all. I called again. This time the representative told me the line had been discontinued. No one at any time from that company offered to refund my money. I had to request it. In short, they would have kept my money thinking I was not paying attention. They lost my business and I told them so. I am SHOCKED by how many are getting away with stealing. It is wrong and it is downright as I said, disgusting! LOVED your gallery, Dan. Thank goodness for critters who know nothing about greed!

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  22. I’m a day late, but scanned the comments for a Maddie update. I hope she is back to herself today. Wow, what a fan club she has here!
    Math, and mortgages, and banks oh my! I’d as soon deal with lions, tigers, and bears. Wishing everyone at your place well, Dan. Hugs.

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    • Thanks Teagan. No one is ever late here. Maddie seems to be doing better, thanks for asking. She does have her fans. I’d start a blog just for her, but I’m afraid I lose some folks ;)

      I’m sorry about the math and mortgages, but these guys went above and beyond the call to give me something interesting to write about.

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  24. Yikes! We’re closing the sale of my parents’ old house Monday and closing on our mountain house the following week. My head is spinning. Sorry Maddie had tummy boo boos. Those can be so mysterious.

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  25. I first got to hear the word escrow when I was working for eBay which also owns PayPal and I believe PayPal works with escrow.com site. Honestly, I’m really poor at understanding anything related with finance. I’m not a money person, Sarah is. For me, money is just a tool to resolve my current financial problems and to make happy moments and memories. Sarah has a different mindset (which balances our equation) when it comes to money and financial planning.

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  27. What an interesting story. Except the math smarts don’t have a conscience. I know, I know, that’s not the point. Just had to say it. The Korean dogwood is gorgeous. Hope Maddie’s boo-boo is better. We have a new gigantic bunny and a gigantic turtle visiting our yard. Must be all the May rain. Best to you, Dan.

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    • The people who take advantage of others are bad enough, Jennie, but these guys ultimately ruined the lives of a lot of people just so they could make more money.

      The Korean Dogwoods are still going strong with those blossoms. The keep getting brighter. Maddie seems to be getting better. MiMi seems to have got what Maddie had, and is slowly getting better, but we still worry about both of them.

      I hope you have a great week.

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      • So sad, Dan. And the lives they have ruined. Of course the teacher in me always thinks about what that person was like as a child. Really.

        I’m glad to hear Maddie and Mimi are better. Like you, I always had extra worry when our labs were older.

        Here’s to a spring that’s full of lush flowers! I’ll skip the yellow pollen comment… 🙂

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  28. I still don’t understand what escrow is really. I don’t feel that it’s my money yet I’m told I can use it. What!? It the money is mine, why can’t I have it in my bank account? If it isn’t mine, then why am I allowed to use it? The definition you give is probably standard yet it doesn’t help me out a bit.

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    • It can be complicated, especially when you have to pay into an escrow account with your mortgage holder and they forget to pay your property tax on time. Our mortgage was sold (a couple of times) and one of the banks didn’t pat the taxes on time. They paid them eventually, but not until we wasted hours on the phone with them. We started the process to “de-escrow” the account (making ourselves responsible for the taxes) but they sold the loan before processing that request.

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      • Well, that helped explain what escrow is all about. Thank you. We refinanced our house and went with [you won’t believe it] Quicken Loans. It was one of the best decisions we ever made.

        Sounds to me like that bank paid it fast because they knew they were in for legal trouble. Are you happy with who you have now?

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  29. Turns my stomach. The whole process is different depending on the state…..attorneys aren’t used in California and Colorado…the two states I was on the bank side of mortgage lending. Loved Colorado….everyone came to the table on closing day and passed papers for signing, then checks and keys….done. Loved it…..

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    • I spent most of my life in Colorado until the turn of the century. Yes, when I bought my townhouse there, the closing was done in person with everyone sitting at the table. Everyone was assured that everyone was in agreement and there was the shaking of the hands. The same thing happened when my husband and I bought our house in Ft. Lupton. I just wish Colorado wasn’t so darned expensive.

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  30. That’s so vile, the pretty pictures didn’t make up for it until I got to onion rings. Those look GOOD.
    I worked for a woman with suspicious trust account issues. Who then wrote me a bad check from a different, unknown-to-me trust account upon my termination. If I’d known then what I know now…
    Sometimes people are more crooked than a dog’s hind leg.

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