Simply doing a better job isn’t good enough anymore.

Performing the same old tasks faster won’t cut it. Title agencies realize they must improve the efficiency of their methods to stay competitive in an industry that has entered a period of flux. But many agencies are making the mistake of thinking they can keep up simply by hiring more employees or pushing their staff to work harder. This is a dangerously limited approach to business improvement, because it neglects to address the framework in which the employees are working.

No matter how much you tweak outdated methods, they will never help you flourish in an industry that has already moved forward. No matter how much you soup up a car, it will never outstrip a jet.   

Mandrien has been working overtime the past couple of weeks helping several title agencies across the country improve their business methods. These agencies were successful and expanding, but they had come against a wall. They had refined their old methods to perfection, but found they still couldn’t keep up. In order to remain successful, they realized, they had to make some bigger changes. That’s why they called us in.

Luckily for them, they had already taken the first step to process improvement. They accepted that change was inevitable and decided to move forward. Many agencies are resistant to the prospect of change—either because they are too attached to their old ways or simply too scared to take the plunge—and put off improvements indefinitely. This mistake is often fatal.

So what are some ways that a title agency could undergo a process improvement?

First, better technology is indispensable. The right software will automate rote tasks, guide the process step by step, and keep all interested parties easily apprised of new developments. A sturdy technological infrastructure will also allow agencies to scale upward and downward quickly without sacrificing efficiency. By automatically time-stamping key points in the process, software can help management monitor key turn-time metrics so they can quickly identify and eliminate bottlenecks. Investing in new technology opens up new possibilities in efficiency and quality control.

Furthermore, the new technology should allow the agency to adopt a paperless process. Going paperless can be a difficult step for some title professionals. Many agents become attached to physical files and visualize their workflow in terms of stacks of paper. But storing documents online means they can be easily transferred to, and quickly accessed by, interested parties. The paperless title process is here to stay, and agencies should profit of it as quickly as possible.

Agencies should also take a good hard look at their process map and consider task redistribution. Are a constant influx of routine telephone calls and emails keeping staff from concentrating on their job? Create a call center staffed with highly trained customer service reps. Could outsourcing certain steps save the agency time and money? Research vendors and weigh the possibility. Understanding how all employees fit into the larger framework of the organization is the linchpin of the task redistribution process, so creating a detailed organizational chart can be helpful.

Finally, many agencies benefit from calling in an expert who can use business process improvement techniques such as Six Sigma to pinpoint the individual agency’s strengths and weaknesses. Without an outside pair of eyes, many agencies don’t realize where their true limitations lie. An analytic approach to identifying and removing defects is an excellent way to ensure an agency’s long-term profitability.

Now is the time to embrace the new possibilities that technology has opened up for the title industry. No matter how perfectly an agency hones the old methods, it will fall short of its competitors if it doesn't evaluate and ultimately implement certain changes. Stop making the same mistakes—look into process improvement today.

Though the real estate system is set up with multiple checks meant to keep all the players in a transaction accountable, our industry has so much money floating around and so many different individuals involved in each transaction that full visibility is practically impossible. Every day scammers are thinking up new and creative ways to game the system, or falling back on old tricks to defraud new victims. At Mandrien Consulting Group we believe it is our responsibility as real estate professionals to educate ourselves about the different types of fraud so we can have an eye for them if we ever encounter them in the course of our dealings—and so we can close loopholes and create an industry culture more conducive to spotting scams and nipping them in the bud. Here is a list of six common types of real estate fraud to be used as a resource both for homebuyers and for real estate professionals.

FLIPPING

The term “flipping” has entered common parlance to mean buying a home, renovating it strategically, and selling it for an overall profit. That is a totally legal enterprise, and if you can pull it off—more power to you! Recently there was a bumper crop of reality TV shows featuring buyers renovating and flipping their homes. Maybe—if you play your cards right—you could be the next Kim Kardashian.

However, “flipping” can also refer to a type of real estate fraud in which a number of people collude to inflate a property’s value with the purpose of securing a hefty second mortgage. While there are always multiple players involved in illegal flipping, the appraiser and the closer are the scam’s cornerstone.

First, the buyer takes out a mortgage for the home’s actual cost. Shortly thereafter, perhaps after some perfunctory improvements, a fraudulent appraiser values the home for significantly more than it is worth. The original buyer sells the house to another person (the home is “flipped”), who takes out a large mortgage. The larger mortgage is used to pay off the original mortgage, the profits are split, and the larger mortgage defaults. Sometimes the buyers are in on the scam, sometimes they are not, but usually the lenders bear the brunt of the loss.  

APPRAISAL FRAUD

Real estate agents work on a commission—the more the buyer pays for the property, the more money goes into the agent’s pockets. That’s why real estate agents are known to play hardball—they want a smooth, fast transaction, and every cent affects their salary.

However, some real estate agents take it a step further. With the help of a fraudulent appraiser who receives kickbacks for his or her services, they sell a house for more than it is worth with an eye to secure a large commission. Sometimes the homeowner is in on the scam, and splits a mortgage payment between the co-conspirators before allowing the home to immediately default. Other times, buyers are unaware of the fraud and have no idea they’ve been duped into overpaying for their home.

“STRAW BUYER”

The “straw man” is a logical fallacy in which a debater misrepresents his opponent’s argument in order to win the argument. The debater creates a “straw man” that is easier to knock down. For example, if I say, “Mandrien Consulting Group should go to the beach,” and you say, “No, Mandrien Consulting Group shouldn’t fritter away the whole day—we have errands to run,” you are creating a straw man argument. The Mandrien Consulting Group proposed beach trip might have taken four hours—but you are deceptively presenting my suggestion as a full-day trip, which makes your argument seem stronger than it really is. (And if you don’t want to go, you can just tell me.)

Just as a straw man argument is a deceptive misrepresentation, a “straw buyer” deceptively misrepresents his creditworthiness. By helping buyers distort their financial situation, the perpetrator helps them buy a home and secure a mortgage they wouldn’t otherwise have been creditworthy enough to qualify for.

Sometimes the perpetrator temporarily increases the buyer’s net worth by briefly lending the buyer some money. The buyer allows his financial situation to be misrepresented, because doing so allows him to get the home he wants. (“Besides,” he thinks—“I’ll be able to pay it off later.”) Other times, another buyer—one who is more creditworthy than the actual buyer—enters the equation and buys the home on the other person’s behalf.

While the latter form of “straw buying” isn’t necessarily illegal, duping banks into entering agreements with borrowers who are actually sub-prime is an unethical and costly practice.

DEFALCATION

Defalcation is probably one of the most basic types of real estate fraud. The attorney or agent in charge of the escrow funds absconds. Buyer and lender alike are left bewildered. As long as we have an escrow system in place, defalcation is possible. An individual who has fiduciary responsibility over funds can break the contract and leave without warning. Usually the lender is held liable for the loss.

FALSE FORECLOSURE RELEIF

When the subprime mortgage bubble popped, many homeowners found themselves defaulting on their mortgages and facing foreclosure. During this time of confusion and fear, a wave of unscrupulous individuals and groups presented themselves as a solution for homeowners facing the prospect of losing their home. Using aggressive telemarketing and advertisement campaigns, they promised that, for a fee, they could reduce the homeowner’s debt burden or even release the homeowner from debt obligations altogether. Sometimes the scammers would send official-looking documents, telling homeowners facing foreclosure that, for a fee, they can join a massive lawsuit against banks or other lenders.

Of course, the services promised are never rendered, and the scammers make off with the cash while the homeowners, worse off than before, face foreclosure.

REVERSE MORTGAGE SCAMS

Home equity conversion mortgages (HECMs), commonly known as reverse mortgages, are especially susceptible to fraudulent activities because these mortgages serve a vulnerable segment of the population. Reverse mortgages allow homeowners over the age of 62 to convert their home equity into a payment, which they can receive either in monthly chunks or in one lump sum. Borrowers don’t need to repay the loan until after they stop using the home as their primary residence (either due to death or moving, usually).

The number of reverse mortgages taken out by seniors has increase tenfold over the past decade, and fraud has increased as well. In addition to most of the types of fraud described above, perpetrators also prey on vulnerable seniors using more straightforward methods, like demanding bogus payments, withholding money that rightfully belongs to the buyer, or bullying the buyer into disadvantageous deals.

The risks associated with reverse mortgages have multiplied now that HUD has recently ended its program of subsidized, mandatory counseling for reverse mortgage applicants. While there are still certain avenues that applicants can take to receive counseling free of charge, this change makes the process more complicated, and reduces the likelihood of seniors educating themselves about the process.

WHAT CAN WE DO ABOUT IT?

Mandrien Consulting Group believes that education and accountability are the keys to reducing fraud. Buyers must be knowledgeable about what they are doing. Too often buyers feel that they are being presented with reams of papers to sign, and that they are pressured to sign them quickly and without careful consideration. The Internet is an excellent resource, and many consumer-facing guides exist to explain the concepts behind and steps involved in a real estate transaction. Mandrien Consulting Group further believes that we  should take the time to keep buyers abreast of the transactions they are taking part in, and we should point them toward the resources they can use. By demystifying the real estate process, we could help make fraudulent activities seem more suspicious.

Also, we should remain vigilant of the warning signs that fraud is occurring, and we should be tougher on the perpetrators of these scams. If a property is quickly resold for a substantial mark-up, there should be a system of checks in place that throw up a red flag. If an attorney defalcates, punishment more severe than a simple disbarment must be enacted. California Attorney General Kamala Harris is on the right track: she recently initiated a lawsuit against a group who allegedly duped thousands of homeowners into paying money to join a nonexistent lawsuit against banks.

Together, we can reduce the incidences of mortgage and real estate fraud. As real estate professionals, it is our duty to educate ourselves and be vigilant against mortgage scams, which in the long run affect our whole economy. 

Reading the news about the American economy this week, I can’t help but think of the words written by Bob Dylan and made famous by Jimi Hendrix: “There must be some way outta here,” said the joker to the thief. “There’s too much confusion, I can’t get no relief.”

Just as Americans were breathing a collective sign of relief over the resolution of the debt ceiling crisis, the stock market plunged and credit agency Standard & Poor’s downgraded the United States from a perfect credit rating of AAA to AA+. (While an AA+ might be an excellent grade for a high school student, it’s pretty lousy for a world economic superpower.) Economic forecasts are uncertain but generally grim. What do these things mean? And how will they affect the real estate industry?

First, the basics. The American federal government, as generous and engaged as it is, spends more money than it takes in. In order to make up the difference, the United States Treasury goes into debt by selling bonds and other securities to investors. This has been standard operating procedure for years now. Decades ago congress put a limit on the total amount of debt the United States could incur. As we are constantly accruing more debt, we’ve periodically increased our “debt ceiling” to reflect the current budget. Usually this increase is a straightforward legislative operation, and so it would have been this time, except that Republican congressmen, alarmed that the amount of debt was approaching the American GDP, seized the opportunity to push for pet spending reforms. As House Speaker John Boehner put it, “I don’t want to allow this moment that we have in our history to pass without real action to solve our long-term economic problems.” In order to increase the debt ceiling, President Obama would have to reach a compromise with Republican-dominated House of Representatives. And in the end this compromise was reached, but only after a lengthy and embarrassing political circus that led the American government to the brink of an unprecedented default. (The whole fiasco reminded of parents at the beach, threatening stubborn children, “Okay, bye bye! Stay if you want to say, but We’re leaving without you,” only in this case the parents actually got in the car and drove away.)

Mandrien Consulting Group announces the release of its new product, the Mandrien 3 Step Plan, an 8 week consulting engagement designed for title agencies seeking rapid national expansion.   Intended for forward thinking organizations that want to revitalize the execution of their corporate planning, the highly-concentrated two month engagement includes a 6 week 40 state national licensing plan, all-encompassing digital marketing program, and 3 day compliance workshop.

Director of Strategic Services of Mandrien Consulting Group, Matthew Montgomery, remarks, “We set out to create a comprehensive product that would give a local agent the tools and wherewithal to go from local to national in 8 weeks in a controlled and compliant fashion while at the same time present minimal intrusion to the executive team’s available managerial time.”

Led by seasoned Mandrien Consulting Group corporate strategic title industry experts, the 3 Step Plan consists of rapid licensing, web design, social media set up, and compliance mentoring. During month one Mandrien acquires at least 20 new state title licenses, builds a world class website and begins the planning for month two. In month two, the digital marketing program and licensing is completed as Mandrien prepares to impart the compliance body of knowledge necessary for multi-state title practice.

The time commitment required of executives in the 3 Step Plan is limited to collecting and sending strategic plan materials, participation in the 3 day workshop, and review of the comprehensive audit Mandrien Consulting provides demonstrating the prior state as compared with the new future state of the title agency.

To learn more about the 3 Step Plan visit http://www.mandrien.com/themandrien3-stepplan.

About Mandrien Consulting Group:

Mandrien Consulting Group is full service management consulting firm that serves the title and mortgage industries with results-driven corporate strategic planning. Already a proven leader in this industry, Mandrien built its reputation on consistently delivering desired results. Through its expanded products and services -- which include strategic national licensing, digital marketing, and compliance mentoring – Mandrien can assist title and mortgage companies with all of their consulting needs.