If we are not doing the search ourselves, we don't even put in an order until the bank issues a commitment. There is one lender that requires title work before they will issue the commitment, but that's rare, at least for now. That's a new policy for us - we have been burned too many times in the past year, when people end up not being able to get a commitment, despite having preapproval. They are not usually happy to pay our fees, even the low cost of a title search, when they have just learned they can't buy a home.

Another difference between our states - title companies never hold the deposits. But attorneys are title agents, so I suppose we hold deposits on behalf of the title company. I'm not sure if our company would even be willing to hold a deposit if we asked them to. We just put it in our IOLTA account if the real estate agent doesn't want to hold it.

Regardless of the differences between states, the general ideas are the same across the board. I just don't see how someone could get in a situation where they lose a $1 million deposit, unless they were really really stupid, or they were using a crooked real estate agent or attorney. And even $300K for due diligence seems high in this type of a situation - did someone order the search at the beginning, but never bother to look at it until the end of the process? If I were the attorney for the nonprofit, I'd be putting my malpractice carrier on notice the moment I sent out that bill.

The only issue I've seen here is subdivision builders insisting on receipt of the deposit at time of contract and being able to use the deposit for construction. That's usually spelled out in the contract but it still stinks because if the builder goes under, which has been known to happen once or twice, the deposits are not recoverable. I don't work in that market so I don't really worry about it but it is an issue at times.

We don't use escrow agents in CT in the same way people in CA and FL do. But the real estate agents or attorneys will act as escrow agents as far as holding on to the deposit. I wonder if one of the agents or attorneys was in on the scam - I've seen it happen a lot in residential closings, and there's no reason why it wouldn't happen in a deal of this magnitude as well. If they didn't use some kind of 3rd party agent, well, that doesn't make any sense and it's obscenely stupid.

One comment on the whole situation - ownership isn't usually searched at the time a deposit is made. It's a waste of time and money. BUT, I'm puzzled as to why an escrow agent of some sort wasn't used. Unless the escrow agent was in on the scam.

@xtc46 - thinksmarter on twitter: No kidding

@kingtimm:

Well, if you ever saw that show on TNT, with Timothy Hutton... can't remember the name, they tried pulling that same "scam" to help one of the team members father. They acted like they owned a building and tried to sell the entire thing for $10 million. That dude probably just watched that and the light bulb went on.

@Anachronism: It is agreed you can do it on your own. However, some records are complicated and you want to make sure there truly is clear title. Based on the recording statute etc there could be problems someone not experienced with this may not catch. When I say not experienced with this I mean doing title searches meaning even a lawyers who, in general, do not regularly look at the books could miss something. Further, if the property is worth a good deal of money you always are advised to get title insurance and they do the title search.

@PatrickIs2Smart: It is nice to see that Nigerians scam each other too. Not much difference then in them pulling rental scams on Craigslist...

@arguewithme: I read about the guy in a rural area of the Southeast who basically lived off of non-refundable earnest deposits on his beautiful "For Sale" lake house. Problem was that the huge "house" contained a single wide trailer buried inside of it and no mortgage company would touch funding its purchase since the house was not able to be recorded on a deed. People would put down the deposit and then lose their money when research showed the house did not exist.

@diasdiem: "Interactive" in the World Book were the sections of clear overlay pages for the human body internals and frog internals. And nothing else smelled the same as an out of date World Book and its yearly updates.

A major score for my parents was getting a free World Book set from someone moving away or overseas- all the better if it was from the same decade. We never had enough money to get a new set nor did the salespeople seem to hit the East Coast- maybe it was too easy to get to the library where we lived.

And if your parents somehow scored a free Encylcopedia Brittanica set then you were set for your entire high school years...

@billy: With scrap metal prices down, bridges are not selling like they used to so conventional real estate is a better target for scamming people...

What did Vargas think was going to happen? He didn't try to leave town after the first sale, and even took pictures in front of the property? Did Vargas not expect the developer to ever find out the truth?

Funny movie.

The $300K was not title search it was due diligence costs, probably for financial analysts to run scenarios, environmental assessment of the property (soil contamination tests and core samples) zoning change exploration, best use scenarios (consultants exploring whether the property is most profitable as retail, office, industrial, apartments) and attorney's fees for due diligence. It was not just money spent on a "title search."

Regardless, on a title search the owner would probably come up as an L.L.C. not a person's name. Further research has to be done to find out who the L.L.C. is made up of. People generally don't buy commercial property in their own name, for liability and legal reasons they set up a side company and put it in the company name, to protect their personal assets if the investment fails.

No need to do a title search, you can do it yourself. Ownership and deed transfers are public record, and about 85% of the counties in the US (and 99% of the ones that have actual urban areas with people in them)have deed information online on the recorder's office webpage, or the assesors office (which is usually the easier way to search if you are simply looking to see who owns the property).

For the few counties that aren't online, you can call the recorders/assesors office and they will almost ALWAYS tell you.

I investigate mortgage fraud (and garbage like this) for my day job, and free public records is one of my best tools.

www.netronline.com links to public records in every county in the US.

PT said there is one born every day.

[www.nydailynews.com]

I work in real estate, but luckily the research here never cost me more than $5000, even for land and buildings in major cities. Of course, when NYC has as many people as our whole republic, it should be "major" cities...

They put a deposit down and then have their 30-days to do this research (due diligence) and then back out if they find something during their research that makes the property much less profitable or problematic (like contaminated soil, underground tanks, if a building is on the property structural problems, etc.) Then they can either renegotiate their price or back out. Some, all or none of the deposit may be refundable, depending on the individual terms of the contract they have worked out.

This is how professional real estate investors conduct their business, however there are some "handshake guys" who just walk through the property and say "Looks good to me!" and give away their money. (They usually lose all their money when problems are discovered later on.)

If the property was currently owned by an L.L.C. a quick search with the city would not have alerted the buyer, he would have just assumed the scam artist one one of the people invested in the L.L.C. This is where further research comes in, too.

Most commercial properties are not owned by individuals in their own name, they set up corporations to purchase the property. This separates the business venture/real estate investment from their individual assets, protecting them and their personal assets in case the venture fails.

See, most general-practice law firms have someone on the payroll who is a Real-Estate attorney. Those attorneys handle closings for sales of homes, and as part of the required title insurance policy on those sales, the lawyer or his staff must perform check for all potential liens and claims regarding the property

This is a very popular Nigerian scam. You see buidlings with the sign "beware of 419. this propery is not for sale" all over Lagos. people have paid for buidlings only to find out the owners know nothing about the sale.

I just got an offer from some company in the midwest to do this at my local courthouse and send me a certified copy of my land records for $60.

It'll take me 20 minutes to drive to the courthouse, 10 minutes to complete the search, and $10 to get a copy myself.

Also, what happened to plummeting realestate prices?

"By May 2008, an independent developer agreed to buy Mr. Vargas's share for $4.8 million, giving him a $1 million down payment.

Five months later, New York Road Runners, the nonprofit organizer of the New York City Marathon, signed a contract to buy the same 60 percent share for $8.5 million"

@premek: you can see who pays a property tax for free in most counties here, and that is a pretty good indicator of the owner. no idea how this happened.

@lehrdude: I would have done it for 20k... oh well, maybe the next time.

When purchasing commercial buildings and development sites, people generally take 30 days due diligence time, to verify all the site plans, zoning information, title, searches, they have teams of people on due diligence and attorneys checking everything. They also investigate the history of the property, who has owned it, how it transferred before, who bought it previously, how much. They verify all information independently, not what is provided by the seller. City records are always gotten directly from the city - to be verified - never from the owner.

Road Runners club was doing the right thing - putting their deposit in escrow. They lost their out of pocket expenses on their due diligence. Attorney fees, consultants, etc. but their million dollar deposit was safe in escrow. They knew what they were doing, and would have discovered the ruse (if they are not the ones who discovered it) during their investigative period.

This other guy who got scammed, well, not too smart. Even if he did not have a team of employees to research the property, he should have at least had an attorney go over the paperwork and visited the city to get copies of the paperwork himself.

????

Ah, so THAT's where all our money went.

Seriously, walk into a title co cold and a search might cost $200. If you're doing much with them it's often free, and fast. Real estate/business attorneys just farm searches out to them anyway and bill for the pleasure.

Sounded interesting so I Googled. :)

Victor Lustig sold the Eiffel Tower twice.

George C. Parker "sold [The Brooklyn Bridge] twice a week for years."

@xtc46 - thinksmarter on twitter:

"The Road Runners ...wasted $300,000 in attorney and consultant fees."

They had the right idea...but you would think it should only cost $100,000 in consultants and attorneys to tell you who REALLY owns a building.

@kingtimm: Dirty Work. So many dead hookers!

Or did you just hand him a sack of cash in a bag with a dollar sign on the side?

This sucks, but it is very easy to verify a piece of property, I cant imagine buying anything with the word "million" in the price tag and not paying a lawyer to make damn sure its going to be mine in the end.

Movie anyone?