Three months after state officials seized an Encino escrow firm, the Escrow Shoppe, and froze $5.5 million of customers' money, the customers are finally getting their money back--but not all of it.
Last week, Russell A. Greenwood, a court-appointed receiver looking into the Escrow Shoppe's books, unfroze most of the money but withheld 10% of each customer's amount. Why? Judy L. Hartley, a senior lawyer with the state Department of Corporations, which licenses escrow firms, said up to $450,000 of the money might still be missing.
The Escrow Shoppe had about 350 pending transactions when it was seized.
One customer, David Fein, said he was glad that he was finally getting his cash, but was annoyed that 10% of his money is still being withheld because of continuing confusion over the Escrow Shoppe mess.
"I would think by now it should be cleared up whether there are missing funds or not," said Fein, who had sold his house in Woodland Hills just as the Escrow Shoppe was seized, and whose five-figure profit on the sale was frozen.
Escrow firms such as the Escrow Shoppe help ensure that buyers and sellers of real estate meet certain conditions, such as obtaining a title search, and hold documents and cash transferred between the parties until the sale is completed.
When the Department of Corporations seized the Escrow Shoppe in mid-March, it alleged that the firm made $3 million in unauthorized payments and that about $200,000 of customers' funds might be missing. The agency alleged, among other things, that the firm had shifted money from some pending escrows to pay customers closing other escrows--all without authorization by the customers.
The state also froze the customers' money to get an accurate accounting of the Escrow Shoppe's assets.
But as the state probe continued, the customers grew furious. With their money frozen, they could not complete their transactions unless they put up more money. Their financial and housing plans were thrown into chaos, and authorities could not predict when the money would become available.
Hartley said 10% of the customers' money was still being withheld "to cover possible shortages," but said she had no additional details. Susan Allison, a lawyer for Greenwood's office, would say only that "we have to pursue what are some unexplained transactions."
No Criminal Action
Sandra Bianco is the owner of the Escrow Shoppe and one of her attorneys, Thomas Warden, said he was aware of the state's concern about the possible shortages, but that he had no details. He also noted that there is no criminal action pending against Bianco, nor is she facing any formal proceedings by the Department of Corporations.
However, the indications of further shortages appear to be at least partially related to a civil suit filed in Superior Court in Los Angeles by a real estate partnership named Los Angeles Martinique Investments.
Los Angeles Martinique filed its suit May 1 against the Escrow Shoppe, Bianco and another firm owned by Bianco named Encino Equity Services.
Encino Equity is a so-called "accomodator" firm used in commercial real estate deals. Specifically, when a group wants to sell one property at a profit, and reinvest that profit in another property without having to pay taxes on the profit in the meantime, it must use an accomodator to hold the profit as a third party until the money is reinvested.
Earlier this year, Los Angeles Martinique pursued just such a deal. According to its suit, the partnership sold a Hollywood apartment complex in February for a $451,000 profit, using the Escrow Shoppe as its escrow firm. Then it turned over the profit to Encino Equity--which had been recommended by the Escrow Shoppe--as its accomodator, as it searched for a new property in which to invest the funds.
On March 16, it found a new apartment building to buy, and asked Encino Equity to deposit the partnership's $451,000 for its purchase of the new property. But Encino Equity never turned over the money, the suit alleged.
Four days later, on March 20, the Department of Corporations seized the Escrow Shoppe. The partnership's lawsuit accuses the defendants of fraud, breach of contract and negligence, among other things, and asserts that the Escrow Shoppe and Encino Equities were insolvent and that the defendants' "secret intent" was not to complete the transaction, "but rather to close both businesses and to retain the sale proceeds for their own use."
The two firms, Bianco and the other defendants denied the suit's allegations.
Los Angeles Martinique is not among the Escrow Shoppe customers getting 90% of its money back. Why? Los Angeles Martinique's attorney Howard Grady explained that technically it was out of escrow, it had closed the sale of the first apartment building, and its money was not part of the $5.5 million in the Escrow Shoppe's trust fund that was frozen.
Meanwhile, the major players in the Escrow Shoppe mess are spreading the blame for why the customers' money had to remain frozen for three months.
Hartley of the Department of Corporations said her agency had to go to court to get the necessary records because of delays by the Escrow Shoppe, Encino Equity and their lawyers.
But Warden said his people cooperated, that the state's court action was unnecessary and that the delay was caused by the receiver Greenwood, who was "very slow in doing his accounting."
Ed Moore, president of Townsgate Escrow in Thousand Oaks, which took over most of the Escrow Shoppe's pending deals at the state's request, said the Escrow Shoppe deserves some of the blame. He said their files "were horrible . . . they were in all kinds of disarray," which made checking their accuracy more difficult.