Paul Egan / The Detroit News

DETROIT -- A severe backlog at the Wayne County Register of Deeds office is helping make Detroit and Wayne County one of the nation's worst areas for mortgage and real estate fraud, experts say.

Deeds, mortgages and other real estate documents filed today at the Register of Deeds office in Greektown will not appear in the agency's computer system for two to six months, because the busy office is behind in recording such transactions.

The problem is compounded because Wayne County does not maintain an entry book -- a chronology of all real estate filings that is required by state law -- that can be used as a safeguard to check on transactions waiting to be entered into the computer.

Together, the backlog and lack of an entry book mean real estate buyers in Wayne County can't be sure they're getting clear legal ownership to the properties they purchase or that the properties don't come with hidden mortgages or other debts.

Stung by significant claim losses in Wayne County, title companies are beginning to react by increasing the cost of title insurance -- one company recently sought state approval for a $150-per-home increase on title insurance in Wayne County -- and could take more drastic actions if the problem persists, said Robert Meredith, incoming president of the Michigan Land Title Association.

Register of Deeds Bernard Youngblood denies the gap is as long as six months and said his staff was last week registering transactions that were filed in late January. He said a new $5 million computer system that should be online in August will fix the problem.

Meredith said the problems make fraud easier.

The county's lack of a log book and delay in entering sales into its computer make it impossible to tell if the property has been quickly and repeatedly sold to related parties, or flipped, to show an inflated value, whether the seller has deceptively transferred the ownership, known as title, to someone else, or if mortgages or other liens have been placed on the property.

Though fraud creates headaches, delays and expenses for buyers, mortgage companies, real estate agents and others, title companies bear the financial brunt of the problem because their job is to ensure property sales are clear of hidden claims and to guarantee the integrity of sales through the title insurance they sell.

"We see fraud every place, but not nearly to the extent we see it in Wayne County," Meredith said. "You've got, in essence, a six-month black hole you're dealing with."

Lenders and buyers both purchase title insurance to protect against fraud and other problems that can muck up a clean real estate deal. But in Wayne County, title companies have been forced to blindly insure the gap period between when a real estate document gets filed and when it gets registered. They say they're getting burned too often as a result.

"We've identified a problem with the gap and we are working to address that," said Youngblood, who is elected by Wayne County voters. "I don't know if it is contributing to the fraud problem."

The office receives about 3,000 deeds, liens, mortgages and other real estate documents each day, Youngblood said. "The documents come in at such a fast rate there is no way we've been able to (keep an entry book) with the exact time the document comes in," he said.

Mortgage fraud is growing

The FBI has identified mortgage fraud -- crimes committed involving the purchase or financing of a piece of real estate -- as one of the fastest-growing forms of white-collar crime. It called Michigan one of the top 10 "hot spots" in 2005 for mortgage and deed fraud.

The FBI estimates that mortgage fraud losses nationally jumped from $429 million in 2004 to $1 billion in 2005 and in Michigan from nearly $9 million to $26 million over the same period. Though specific figures for Wayne County were not available, Meredith and others in the real estate industry say Michigan's problem is overwhelmingly concentrated in Detroit and Wayne County.

They say the Wayne County recording backlog is not the cause of the fraud problem, but it is a facilitator.

"The gap period contributes to crime," said Howard Lax, a lawyer who represents title companies and edits the newsletter, The Mortgage News. Since problems are often not discovered until county records are brought up to date months after a sale, "it makes it very difficult to catch criminals in the act."

Many Michigan counties are out of compliance with state law by failing to keep an entry book. But since the other counties don't have a significant recording gap, their lack of entry books causes far fewer problems, Meredith said.

Because registers of deeds are independent elected officials, nobody in state government is specifically charged with overseeing them or making sure they comply with the law, said Patricia Irving Cwiek, local governmental affairs director for the land title association. The state attorney general or another party could sue to try to force compliance.

Court: Fix entry book

The Michigan Supreme Court urged Wayne County to fix the entry book problem in 2004, while dealing with a case that did not involve fraud, but which demonstrates the type of problems the county's recording backlog can cause.

The case involved construction liens. When construction companies work on jobs and don't get paid, they frequently place a lien against the title of the property they worked on for the amount of money they are owed. State law requires that such claims be filed within 90 days of the completion of the job. The court found that Central Ceiling and Partition Inc. filed its liens on time, but Wayne County did not register them until after the 90-day period had lapsed. That resulted in a dispute over whether the liens were even valid.

"I wish to emphasize the Register's current and ongoing noncompliance with this state's recording statute, which compromises and jeopardizes the interests of tens of thousands of Wayne County property owners," Michigan Supreme Court Justice Robert Young wrote in December, a year after the court first told the county to address the problem.

"It is my hope that the elected officials of Wayne County will recognize this grave concern and act immediately to protect their constituents."

Title insurance hike sought

Youngblood, who has set up a fraud task force in his office, says a solution is imminent, but Meredith said he has little faith in such promises.

One large title insurer, First American Title Co., recently sought to hike its Wayne County charges by $100 for a home refinancing and $150 for a home purchase, Meredith said. The increased fees have not yet been imposed, a company official said Wednesday. But Meredith said more increases in the cost of title insurance are likely on the way, he said.

If the problem persists, some title companies may just decide to stop doing business in Wayne County, Meredith said. Another option that's been discussed, he said, is changing the system so Wayne County real estate deals close "in escrow," and are not finalized until all the relevant filings are up to date.

However, such an action is unlikely, partly because "it would kill the real estate business in Wayne County," Meredith said. "Nobody would sell real estate if they couldn't get their money for six months."

You can reach Paul Egan at (313) 222-2069 or pegan@detnews.com.

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