Freezing of Escrow Shoppe’s Assets Leaves Its Customers Livid
When David Fein completed the sale of his Woodland Hills house March 17, he had no reason to think anything was wrong.
That day, Fein went to the Escrow Shoppe, an Encino firm that handled his sale’s escrow. He signed the house’s deed over to the buyers, picked up a five-figure check written by the Escrow Shoppe--his proceeds from the sale--and three days later, deposited the check in his bank.
A few days later, Fein went to his bank’s automated teller machine to withdraw cash. But the ATM, instead of showing that he had thousands of dollars in his account, showed a negative balance.
“Naively, I didn’t feel that badly,” recalled Fein, who thought it was a computer glitch. “I knew it would probably be cleared up in 24 hours.”
He was wrong. On the day he deposited his check, March 20, the state Department of Corporations froze all of the Escrow Shoppe’s funds because the agency was seizing the firm for allegedly making $3 million in unauthorized payments.
Four weeks later, Fein still does not have his money, and now he is livid.
“Here I am in the most incredible situation of having sold a house, turned over the deed . . . and I sit without any proceeds from the sale,” said Fein, a 52-year-old TV producer. “It’s a nightmare.”
Hundreds of Accounts
And not just for Fein. The Escrow Shoppe had 300 to 400 accounts when it was seized, and $5 million of their money was frozen overall, said Judy L. Hartley, a senior lawyer at the Department of Corporations, which licenses escrow firms.
The department has tried as quickly as possible to sort out the Escrow Shoppe mess, but until its investigation is completed, “we will not release any funds,” she said. When will that be? Hartley said she did not know.
Thomas H. Warden, a lawyer for the Escrow Shoppe and its owner, Sandra Bianco, denied the state’s allegations and said no money from the firm is missing.
Meanwhile, Escrow Shoppe customers not only are out of thousands of dollars they had counted on, their housing plans have been thrown into chaos. The Escrow Shoppe stopped doing business and abandoned its office just as the state seized the firm.
Some customers are angry that neither state officials nor anyone else will tell them when they can expect their money, or at least keep them abreast of the investigation. Calls to the Department of Corporations, their real estate brokers and others usually yield no information, they assert.
“It’s peoples’ life savings, and they’re toying around with it like it means nothing,” said Alan Bloom, 26, whose sale of a Canoga Park condominium collapsed with the Escrow Shoppe. “They’re giving people the total runaround.”
Buyers and sellers of real estate use escrow companies to ensure that certain conditions are met, such as a property’s title search, before a sale is finalized. The firms also hold and transfer any payments between the parties until then. Frequently, each party is required to make a “good faith” deposit of a few thousand dollars to open escrow.
People often do not have a particular escrow firm they want to use, so they look to their broker to pick one. But the Escrow Shoppe case illustrates how people should not hesitate to investigate which escrow firm they are using, experts said.
Customers “should question the broker where they’re going to take the escrow,” said Ed Moore, president of Townsgate Escrow in Thousand Oaks. “How long have they been in business? Are they in good stead with the Department of Corporations?”
Yet even that advice might not have helped Escrow Shoppe customers. Both Fein and Bloom said they were referred to the Escrow Shoppe by their brokers, both of whom work for Mike Glickman Realty, a major brokerage company in the San Fernando Valley. Michael Pennell, Glickman’s chief operating officer, said Glickman had no warning before the Escrow Shoppe was seized that it was in trouble.
In any case, some customers’ frustration has boiled over. After the Escrow Shoppe was seized, Townsgate Escrow--at the request of the state--took over many of the Escrow Shoppe’s pending escrows. Within days, Moore said he and some of his employees received death threats from people demanding that their money be unfrozen immediately. Townsgate’s office also got a bomb threat, forcing the building to be evacuated.
“Some of these people have been caught right in the middle,” Moore said of Escrow Shoppe’s customers. He said some have canceled their escrows “and gone elsewhere, and I don’t blame them. They are in hopes of getting their deposits back when this all gets cleared away.”
State investigators think the Escrow Shoppe made unauthorized payments totaling $3 million, and that more than $200,000 might be missing, Hartley said. Among other things, the Escrow Shoppe was transferring money from some escrows that were pending to pay customers closing other escrows, Hartley alleged. That alleged shuffling between accounts was not authorized by the Escrow Shoppe’s customers, she said.
Licensed escrow firms are required to have insurance by joining Escrow Agents Fidelity Corp., or EAFC, a self-insurance group for the industry. The EAFC usually will cover any shortfall in customers’ accounts caused by embezzlement or other wrongdoing by the escrow firm involved, Hartley said.
But in this case, the EAFC, which is “working right alongside” state officials in their investigation, also is withholding any payments until the probe is completed, she said.
The investigation has been slowed by some odd circumstances.
A recent fire at the Department of Corporation’s downtown Los Angeles offices has forced department lawyers to work at home. Also, the state needs records from another entity, called Encino Equities, Hartley said. That firm also was owned by Bianco and shared the same office as the Escrow Shoppe, said Warden, Bianco’s lawyer.
(There is another firm named Encino Equities on Wilshire Boulevard in Los Angeles. But that firm’s owner, David Telerant, said his firm has no ties to the Escrow Shoppe.)
But the Encino Equities that is connected with the Escrow Shoppe had “not given us access” to the records the state needs, Hartley said. So last week, the Department of Corporations sent a subpoena for the records to Warden’s office, but he said he was out of the country last week.
Warden said Monday that “we intend to comply with the subpoena” and provide the records, perhaps within a week or so. But the delays have left Fein, Bloom and other Escrow Shoppe customers fit to be tied. “It’s absolutely Alice in Wonderland,” Fein said.
Could their real estate agents have helped? Bloom said he was first alerted to the problem by his Glickman agent. But after Fein found out on his own that his check was frozen, he said his Glickman agent told him that she had learned about the problem a couple of days earlier but “didn’t call me because she had hoped my check would clear.”
“That was outrageous that nobody from the Glickman company would call us,” Fein said. “It has gotten so preposterous that I now get calls from low-level people at Glickman to find out what’s happening” with the Escrow Shoppe mess, he added.
Glickman’s Pennell said his firm wasted no time in trying to help Fein and its 35 or so other customers who were using the Escrow Shoppe when it was seized.
“Everyone was concerned and everyone was trying to do something,” Pennell said. “We would have liked to have been able to do something to help our clients, vis-a-vis getting their funds unfrozen more rapidly. We were, of course, unable to do that.”