U.S. District Judge William Nickerson sentenced Stephen Troese Sr., 72, of Davidsonville, Md., to a year and a day in prison followed by three years of supervised release for wire fraud arising from a scheme to defraud lenders and a title insurance company of $2,838,231.
The sentence was announced by U.S. Attorney for the District of Maryland Rod Rosenstein and Special Agent in Charge Richard McFeely of the Federal Bureau of Investigation.
According to his plea, Troese practiced as a title attorney and was variously an owner, part owner or the controlling figure of a number of title companies that did business in the Baltimore, Annapolis and Washington, D.C. metropolitan areas, including Troese Title Services, Inc., located in Camp Springs, Md.; Troese/Hughes Title Services, Inc., located in Greenbelt, Md.; and Troese/Prestige Title Services, Inc., located in Ellicott City, Md.. These companies performed title searches, provided title insurance, and conducted settlements. Troese Title, Troese/Hughes and Troese/Prestige each had an agency agreement with Chicago Title enabling them to provide title insurance, which meant that Chicago Title was liable for title defects to homeowners and lenders.
Troese Title and Troese/Hughes, which Troese formed in 1994 with co-defendant James Kevin Hughes, shared a joint escrow account for the receipt and disbursement of funds in connection with real estate closings carried out by both title companies. Co-defendant Brenda Lukenich was the escrow accountant for the joint escrow account as well as for most of Troese’s other title companies.
By 2005, the joint escrow account had developed a shortfall of more than $2 million, partly as a result of several major employee errors and embezzlements. Sometime in 2006, the joint escrow account was split into two new accounts and the existing balance from the joint account was divided between the new Troese Title and Troese/Hughes accounts, effectively assigning a $1 million escrow shortage to each company.
In 2006, the real estate industry started to slow, resulting in a steep decline in business for Troese Title and Troese/Hughes, further aggravating the problem of the shortfall in the escrow accounts.
In 1994, Troese had refinanced his home, claiming that the $655,000 loan would be used to pay off the previous first and second mortgages. In fact, the mortgages were not paid off. In February 2006, Troese again refinanced his home, representing that the loan of $964,533.26, would be used to pay off the two existing mortgages. Again the mortgages were not paid off, but instead the funds were used to help cover the existing shortfall in the Troese Title escrow account. Troese concealed the fact that the mortgages were not paid off by continuing to make the monthly mortgage payments on all three loans. The resulting loss to Chicago Title was $937,183.47, which it was required to pay to satisfy the two previous mortgages and pass clear title to the new lender.
In May 2008, Chicago Title terminated its agency agreements with Troese Title and Troese/Hughes, which had a significant number of mortgage pay-offs that had not been made because the escrow accounts were depleted as a result of theft, errors and omissions.
In the spring of 2008, Troese entered into new agency agreements with Chicago Title for three title companies, including Troese/Prestige. Thereafter, Troese/Prestige also served the clientele of Troese/Hughes and Troese Title. Troese/Prestige conducted settlements, but instead of using the lender money that was wired into Troese/Prestige’s escrow account as directed in the HUD-1 settlement statements, the money was transferred into escrow accounts at Troese/Hughes and Troese Title to cover the mortgage pay-off checks that were still outstanding for those entities.
In the summer of 2008, Chicago Title received information that a mortgage had not been paid off and audited Troese/Prestige. The escrow account did not contain enough money to cover the outstanding mortgage pay-offs. Chicago Title, as the title insurer, was forced to make the mortgage pay-offs, to pay off funds that had not been made by Troese/Prestige, and one mortgage that still had not been paid off by Troese Title. In total, the loss to Chicago Title stemming from the Troese/Prestige pay-offs was approximately $1.7 million.
The total loss attributed to Troese as a result of the above schemes was $2,838,231.
Hughes, 53, of Crownsville, Md., and Lukenich, 51, of Hughesville, Md., previously pleaded guilty to wire fraud and mail fraud, respectively. Hughes and Lukenich each face a maximum sentence of 20 years in prison at their sentencing, scheduled for Feb. 15 and Feb. 28, respectively.
Rosenstein thanked Assistant U.S. Attorneys Tonya Kelly and Gregory Bockin, who prosecuted the case.