Firm Frozen; Buyers, Sellers Out in Cold : Home Deals in Limbo After State Seizes Encino Escrow Offices
When David Fein completed the sale of his Woodland Hills house March 17, he had no reason to think that anything was wrong.
That day, Fein went to the Escrow Shoppe, an Encino firm that handled his sale’s escrow. He signed the deed of his house 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 that 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.
No House, No Money
Four weeks later, Fein still does not have his money, and now he is very upset.
“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 television producer. “It’s a nightmare.”
And not just for Fein. The Escrow Shoppe had 300 to 400 accounts when it was seized, and $5 million in customers’ money was frozen, said Judy L. Hartley, a senior lawyer at the Department of Corporations, which licenses escrow firms.
The department has tried to sort out the Escrow Shoppe mess as quickly as possible but, until its investigation is completed, “we will not release any funds,” Hartley 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 is missing from the firm. Bianco could not be reached for comment.
Meanwhile, Escrow Shoppe customers are not only out 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 to get their money and that they have not even been kept abreast of the investigation. Calls to the Department of Corporations, their real estate brokers and others usually yield no information, they asserted.
Getting a Runaround
“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--that a property title search has been conducted, for example--before a sale is made final. The escrow 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 simply to open escrow.
People often do not have a particular escrow firm that 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.
‘Question the Broker’
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 broker 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.
State investigators believe that the Escrow Shoppe made unauthorized payments totaling $3 million and that more than $200,000 might simply be missing, Hartley said. Among other things, the Escrow Shoppe was transferring money from some escrows that were pending in order 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., a self-insurance group for the industry. 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, EAFC, which is “working right alongside” state officials in their investigation, is also withholding any payments until the probe is completed, she said.
And the investigation has been slowed by some odd circumstances.
A recent fire at the Department of Corporations’ downtown Los Angeles offices has forced department lawyers to work at home. Further, the state needs records from another entity that was also owned by Bianco.
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, Fein said.
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 collapsed.