Clever, other than the getting caught bit

[Arthur Rubin]

Are you saying that a title insurer could be held liable for not checking Sabo's lien releases independently of what they found at the recorder's offices?

Well, yes. If the lien wasn't released under state law, then the property may be given to the IRS, and the title insurer has to reimburse the "purchaser" (or at least the mortgagor).

[webhick]

Perhaps - lien releases are associated with the original lien certificate number and some other information that is part of the public record (now that SSNS/EINS are being omitted). You wouldn't get information about the affected property since that isn't something that appears on the normal lien notice (liens attach to everything that the taxpayer owns so there is no need for specifics). I have this nagging suspiscion that something about this procedure wouldn't work. I need to think about it more. One problem would be people understanding that a lien release recorded in New Jersey doesn't affect a lien recorded against the same taxpayer in Oklahoma.

I can't remember the last time I've seen a lien release, so I was just kind of throwing out three bits of identifying information that might be there and would not be confidential. Name, State recorded, maybe...lien amount and I was thinking of maybe one other bit of information. Does the original lien have an identifying number? That'd be a good piece of information for the lien release confirmation.

The ID # would of course have to be incremented, and given the amount of numbers that would be issued, prepending the number with year/month and resetting the increment at the beginning of each period would help it from becoming unmanageably long.

And I agree that it sounds too simple to actually work. There must be a major flaw in it that we're not really seeing.

Edit: Dooobeedooobeedo. I was thinking that it should really be prepended with year/month/day that way the system can automatically reject the lien release request for being too old (and saying such). What's too old? Well let's tack on x days to how long it typically takes the IRS to file the lien release themselves and call it stale after that date.

[Burzmali]

That's the federal government in a nutshell. Leave the door wide open and complain when people walk through

.

You falling back on quoting Stevesy? If not, that is a rather knee-jerk response to a situation with which you have had no practical experience. Since there are rules and laws in place to deal with forging and impersonating federal employees, the door was not "left open"; rather Sabo decided to participate in "breaking and entering" despite knowing that he was in the wrong.

When a secure facility can be entered with a coat hanger and a wash cloth, is it really breaking and entering

The point is that the technique this guy used wasn't overly technical and his situation was far from unique. Sure, they caught this guy, but how many others do you think have pulled this off? Big businesses and the federal government are far more likely to come down as hard as they can on the person who exploits a weakness in the system as this guy did, and just hoping the no one else finds the hole and if they do, that they will be too intimidated by what they did to this guy to use it.

[The Observer]

Are you saying that a title insurer could be held liable for not checking Sabo's lien releases independently of what they found at the recorder's offices?

Well, yes. If the lien wasn't released under state law, then the property may be given to the IRS, and the title insurer has to reimburse the "purchaser" (or at least the mortgagor).

But it would have appeared to the title company in Sabo's case (and apparently did, since he received monies) that the lien releases were valid. The point of my question is whether a title company is obligated under law to check other places than the recording office to confirm that the liens are officially released; is the title company held liable even though they were defrauded as well as the government and regardless of how painstaking their research is?

I suppose that the answer is "yes" since the point of the insurance policy is to protect the buyer or lender from losing the property. But then it would appear that title can never be issued without some doubt to the accuracy of the documents being reviewed, and that for all of the requirements of the UCC code, title insurance companies will always left holding the bag in the end (unless they are fortunate enough to secure judgement and collect from the perpetrator).

[The Observer]

When a secure facility can be entered with a coat hanger and a wash cloth, is it really breaking and entering

Yes, it is still breaking and entering.

The point is that the technique this guy used wasn't overly technical and his situation was far from unique.

Most cons and scams do not rely on technical expertise - but they are still against the law and the stupidty or gullibility of the victim doesn't secure a lesser sentence for the criminal.

Sure, they caught this guy, but how many others do you think have pulled this off?

And people write bad checks on banks and conduct check kiting schemes - are you ready to argue that because banks don't do more to rubber checks, they are leaving the doors to their vaults wide open?

Big businesses and the federal government are far more likely to come down as hard as they can on the person who exploits a weakness in the system as this guy did, and just hoping the no one else finds the hole and if they do, that they will be too intimidated by what they did to this guy to use it.

Welcome to the reality of enforcement. Compliance with laws is based on ensuring that people that get caught are made examples of and that the examples will impress others who might have considered trying the same thing. And then there are those who will never be dissuaded from trying themselves. The question then is this: how much does society spend to ensure that a crime be prevented and is that cost effective in terms of the asset being protected?

Your question about how many other times that Sabo's stunt has been pulled off before should
be answered definitely before we start leaping into spending excessive money in trying to prevent it.

[Burzmali]

The point is that the technique this guy used wasn't overly technical and his situation was far from unique.

Most cons and scams do not rely on technical expertise - but they are still against the law and the stupidty or gullibility of the victim doesn't secure a lesser sentence for the criminal.

I never said that he deserves a lesser sentence. I said that the government wouldn't take any steps to close this exploit. The plan to make a central lien recording location would prove me wrong, but I don't see people being too optimistic about its chances..

Sure, they caught this guy, but how many others do you think have pulled this off?

And people write bad checks on banks and conduct check kiting schemes - are you ready to argue that because banks don't do more to rubber checks, they are leaving the doors to their vaults wide open?

What percent of transactions are done on checks now as compared to 20 years ago? Getting rid of or reducing the source problem one method of dealing with a problem. Webhick's idea works along those lines.

Last time I checked, the penalty for writing a bad check was high enough to be annoying, but not enough to really hurt someone. I have a feeling that if the federal government was in charge of such a system, instead of introducing debit cards and electronic banking, they would have just kept increasing the penalties.

Welcome to the reality of enforcement. Compliance with laws is based on ensuring that people that get caught are made examples of and that the examples will impress others who might have considered trying the same thing. And then there are those who will never be dissuaded from trying themselves. The question then is this: how much does society spend to ensure that a crime be prevented and is that cost effective in terms of the asset being protected?

For reference, this one person cost the government over $90,000 on the lien, and a bunch more on the cost to procesute and imprison him. So, if the average is $250,000 spent per person to catch this after the fact, a system that cost $10 million a year would probably still save money.

Your question about how many other times that Sabo's stunt has been pulled off before should
be answered definitely before we start leaping into spending excessive money in trying to prevent it.

Interesting story, according to our customers our controls are 100% effective at preventing over shipments and under invoicing

[The Observer]

For reference, this one person cost the government over $90,000 on the lien, and a bunch more on the cost to procesute and imprison him. So, if the average is $250,000 spent per person to catch this after the fact, a system that cost $10 million a year would probably still save money.

Well. if the title insurance company is on the hook for this, then the government didn't lose $90,000.

Probably save money? Like I said, we have to know how many cases like this occur before you can start promising savings. If you only had 10 people a year committing this infraction, you wouldn't be saving any money on a stunt like this. But both of us can keep throwing imaginary numbers up all day. Get back to me when you have some real numbers. I'm not interested in trying to cost-account the unknown.

[Burzmali]

Given that it would take an organization a lot larger than ... well, me and my toddler daughter to make that determination, is the IRS stepping up to the plate? How about Congress? The DOJ maybe? Or are they all just figuring that if they hammer down enough people, there really isn't a problem?

[The Observer]

Given that it would take an organization a lot larger than ... well, me and my toddler daughter to make that determination, is the IRS stepping up to the plate? How about Congress? The DOJ maybe? Or are they all just figuring that if they hammer down enough people, there really isn't a problem?

Here is a simple exercise that you could do and without your toddler's assistance. And it will be somewhat entertaining as well. Go to the TIGTA Website at http://www.ustreas.gov/tigta and review their quarterly reports on arrests/convictions. See how many times incidents come up being reported for lien release forgeries from their archives from 2004 to 2008. (I realize that your objection will then be that the data doesn't represent all of the unknown instances where lien releases were forged without arrest, but we don't live in a perfect world). Get back to me if you can find more than one or two instances a year where that happened.

[Burzmali]

Well, yeah, I am going to take it with a grain of salt, because, as you pointed out only those that get caught are reported. Maybe I'm reading it wrong, but it seems like most of the reports on he TIGTA website are focusing on the "big" problems only. There doesn't seem to be a "we arrested x people for crime y with z convictions" section in any of the reports I could find. Like I said before, the government knows that the hole exists, and will just hope and pray that no one decides to say set up a business where they file the releases for you for a fraction of the cost of paying off your taxes.

[Demosthenes]

There is no loophole (you pull this crap and you go to jail just fine under current law.) Spending time and resources on this issue would be a waste.

Compare how how often this kind of case comes up to the number of fraudulent refund check cases and it's blindingly obvious where the spotlight should shine.

[Dezcad]

There is no loophole (you pull this crap and you go to jail just fine under current law.) Spending time and resources on this issue would be a waste.

Compare how how often this kind of case comes up to the number of fraudulent refund check cases and it's blindingly obvious where the spotlight should shine.

(bolding added)

I agree - just look at the LH Victories page, for example.

[Prof]

There is no loophole (you pull this crap and you go to jail just fine under current law.) Spending time and resources on this issue would be a waste.

Compare how how often this kind of case comes up to the number of fraudulent refund check cases and it's blindingly obvious where the spotlight should shine.

This is a more frequently encountered problem for private lien holders. The filing of false lien releases and false transfers of ownership (fake deeds, etc.) was a problem in south Florida a few years ago and has been a small but real problem in Texas. The usual pattern involved the release of a deed of trust/mortgage in conjunction with a lien free transfer in fee to a new buyer who then borrowed on his/her new home or other real estate and vanished with the cash, leaving a startled homeowner/title company/ lender to clean up the mess.

The problem stems, of course, from the very nature of real estate deed recordings, where the county recorder is expected to take documents at face and not expected to do any significant verification. Fortunately, more crooks have not discovered how easy it is to game this system.

[Demosthenes]

Prof, are you aware of widespread federal tax related abuses?

[Burzmali]

There is no loophole (you pull this crap and you go to jail just fine under current law.) Spending time and resources on this issue would be a waste.

It is not a loophole, this guy was just able to exploit a weakness in the system. Yes he broke the law, and yes he deserves to be punished, a loophole would suggest otherwise. The facts are that 1) he was able to get the lien released and 2) he was doing everything in his power to be caught. Had (2) not applied, how likely would it be that he would be detected before he could scoot? When did the IRS even catch on (indictment dated 8/27/2008, maybe sometime in 2007)? I mean, if this had shown up over on LH or SJ a few years ago, how many of them do you think would have tried it?

Compare how how often this kind of case comes up to the number of fraudulent refund check cases and it's blindingly obvious where the spotlight should shine.

I don't disagree that the focus should be elsewhere, but for the amount of money this one case will cost, couldn't someone commission a few folks to sit down once a week for a year and try to come up with a way to cheaply keep this from reoccurring?

[Demosthenes]

When did the IRS even catch on (indictment dated 8/27/2008, maybe sometime in 2007)?

A) I posted the third superceding indictment, and b) three years is the standard timeframe for any IRS prosecution. Heck, three years probably qualifies for fast-track status at the IRS.

If you have any evidence that this is a widescale scheme, please post it.

[Burzmali]

If you have any evidence that this is a widescale scheme, please post it.

I suppose it's a safe bet based on his record that he got the idea from someone else, though he looks to have gone quite between Nov 2001 and the filing of the releases starting in Aug 2004. I'd be willing to bet that he was still submitting junk to someone (either a court or the IRS) that would led to the guru that gave him the idea.

Edit: Actually, it does seem like an odd coincidence that the only case of this behavior I could easily lay hands on resulted in the offender being convicted in July 2004 and then this guy starts filing releases a month later...

[Burzmali]

Take a look at http://realtyinformationsystems.com

Aside from looking awful scammy, it is run by one Alvin Florida, Jr., a gentleman who was caught with his hand in the cooking jar in Ticor Title Ins. Co. v. Florida, 937 F.2d 447, 450 (9th Cir. 1991).

This is the type of situation (I'm not accusing Alvin Florida, Jr. specifically) where the exploit we are discussing would be tempting. A company deals in foreclosed property, if the broker can magically get a lien released long enough to flip the property, big profit. At least by my math.

[Quixote]

There are any number of ways that IRS could make it more difficult to file fake lien releases. Every one of them would almost certainly make it more difficult, expensive, and time consuming to file real lien releases.

For example, all lien releases would have to be printed on paper with a non-reproducible background. I've never priced such paper, but given the popularity of checks printed on it, I assume the cost is reasonable. But, that would mean no more lien releases faxed to title companies at closing or to loan officers. And credit reporting agencies would no longer rely on a copy provided by the taxpayer to update their records. It would probably even eliminate the issuance of lien releases by local IRS offices because the printing of releases would be centralized. For every fake release foiled, hundreds of real releases would be delayed, possibly for weeks.

[Gregg]

The solution is first, the title company is on the hook for the amount. Second, the perp is on the hook for the crime. Give Sabo 10 years or so (plus restitution and a fine) to think about how great his idea was and I'll venture he and anyone who hears about hi may reconsider next time. Let a few title companies get stuck paying $90K for an oversight, and you can bet they'll find a better way to verify lien releases. Perhaps they could start calling to verify any IRS lien release, or something else, but if they get stung a few times they'll find a way, trust me.