Questionable Titleserv transfers among $14 million Citibank claims missing

Largest allegation of lost funds involving title firm since April closure

TRD New York /
Aug.August 31, 2011 02:28 PM

Citibank increased the pressure on disgraced title firm Titleserv in a new court filing alleging that $14 million in the bank’s loan funds controlled by the title firm were missing, the largest such claim since the government opened an investigation in April.

At the same time, Citibank’s filing put other lending and title institutions on notice that it wanted its money back, opening a troubling stage in the litigation in which the aggrieved parties fight one another over recoverable assets.

Citibank’s petition, filed in New York State Supreme Court Aug. 19, is the largest single accusation of lost funds made in a New York court by a former Titleserv business partner since the story broke in April that the national title agency would close its doors. Later that month, the Federal Bureau of Investigation raided the company’s Woodbury, L.I. headquarters

“After the FBI raid, Citi discovered that approximately $14 million of CitiMortgage loan
funds that had been transmitted to the Titleserv escrow accounts were missing,” the petition, filed in New York State Supreme Court Aug. 19, says.

The missing funds are a crucial step in the residential mortgage loan settlement process, in which a lender places the money in an escrow account controlled by the title company, with the expectation that the title firm will then issue a check to pay off the old loans.

Instead, in several cases outlined in the petition, between March and April this year, $2.2 million was inappropriately transferred from a Titleserv account at Citibank to a Titleserv account at JPMorgan Chase, even though that money was supposed to have been sent to Citibank accounts to pay off mortgages.

In addition to making the accusation that Titleserv had misplaced millions of dollars in funds, Citibank and affiliate CitiMortgage are asking in the petition that nearly $1 million recently awarded to national residential mortgage lender — Prospect Mortgage — be turned over to Citibank instead.

Prospect Mortgage and Chase are not accused of any wrongdoing in the missing funds, instead they also claim to have lost money.

Citibank’s filing signals a new stage in the Titleserv collapse, as lenders begin to look to one another to recoup lost funds that were intended to pay off or refinance mortgages.

The civil litigation concerning Titleserv’s lost funds began in May, with California-based Prospect Mortgage’s lawsuit in New York State Supreme Court. That was quickly followed by underwriters New Jersey Title Insurance and WFG National Title Insurance filing separate suits in Nassau County Court. The combined claim from the three firms was $18 million.

Citibank’s petition is in response to Prospect Mortgage, which won an order holding $937,380 in a JPMorgan Chase account for itself, and then won a judgment Aug. 10, ordering Chase to turn the money over to the Sheriff of the City of New York. Chase objected, saying Titleserv owed it more than $6.45 million.

Now Citibank is claiming the $937,380 is actually its money, and wants a judge to halt the turnover and direct the money to Citibank. Failing that, the bank wants a judge to rule that the money belongs to Citibank and therefore cannot be used to pay off the Prospect Mortgage judgment.

Citibank declined to comment, citing pending legal issues, while Prospect and Titleserv did not respond to a request for comment.

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