In a story that is not receiving any media attention yet, a local judge in Central Pennsylvania has ordered the shut down (pending a hearing) of a real estate settlement company. The company, Core Settlement Services, was collecting real estate settlement proceeds from buyers and pocketing the money instead of using the funds to pay off the prior mortgages and liens associated with the real estate. A pending lawsuit alleges that Core's escrow accounts had a negative balance exceeding 1.1 million dollars as of the end of May. The lawsuit further maintains that Core's escrow accounts have endured large negative balances continuously for five years. Details of this long-running fiasco can be found here.
Why should most people care if a settlement company gets shut down for misusing settlement funds? The reasons are numerous and far-reaching.
- When the company failed to apply the settlement proceeds to liens and mortgages, they screwed up the title to numerous properties. Numerous Pennsylvania homeowners that think they own real estate free and clear of liens actually are encumbered by old mortgages and other liens. The full extent of this problem is only beginning to be discovered.
- Even those who did not use this particular company may get stuck with this problem if they end up buying properties that originally settled through this company.
- Real estate fraud can be concealed indefinitely during a real estate bubble, but when the bubble bursts and revenue declines, there is not enough new money coming in to cover up bank account shortfalls.
- The real estate crash remains ongoing, as unemployment, fraud and litigation continue to spread in ever-widening circles.
- Even for homeowners that did not use this particular settlement company, title defects are spreading and will place larger numbers of buyers at risk.
- Home buyers have greater reason to protect themselves by insisting upon representation by legal counsel when they purchase a home.
Update - June 7 - 10:00 PM - The Harrisburg Patriot-News (Pennlive.com) has now covered this story and linked to my original post.