Seizure Puts Escrows on Hold for Many
Nancy Hovey never imagined she could afford to buy a house.
But last April when a loan officer told her she qualified for a loan that would move her from a Burbank apartment into a three-bedroom home in Palmdale, she thought it was too good to be true.
It was.
“I was so happy when I bought the house, but I don’t even want it now,” Hovey said through tears. “I can’t believe the nightmare of buying a home.”
Escrow on her home should have closed last Tuesday, but the seizure of Valencia-based Country Oaks Escrow two weeks ago and the subsequent freezing of its assets by state regulators have put that on hold.
State officials shut the firm down after they found an approximate $2.6-million shortfall in the company’s $4.5-million trust fund during a routine audit. A state-appointed conservator said the loss appeared to have accumulated gradually over the last four years.
The shutdown left more than 2,000 escrows, mostly residential transactions, in limbo. State officials have said the missing money is insured by the Escrow Agents Fidelity Corp. and will be replaced after an audit is completed, but that audit has now completed its second week.
“It’s just a massive project and it’s just taking that long,” said Allen Eggers, a conservator for Country Oaks.
Every day that the audit continues, and every day that the money is not replaced, is one more day that Hovey worries if she will ever get to move into her dream home.
“This is my welcome to Palmdale,” Hovey said wryly.
Although she realizes a handful of people are responsible for the Country Oaks fiasco, she can’t help but be angry at the real estate industry that got her into this mess.
“I’m angry at the realtors, because I thought it was good faith that they were representing the sellers,” Hovey said. “I’m angry at the state because nobody can say to me in writing that yes, I can get my money back.”
Hovey, the payroll coordinator of a Century City hospital, said she has invested everything she has, nearly $7,500, in the house already, and she has nothing else to lose.
“I was so happy before, but now all the joy has gone out of this house.”
Her anger has been further exacerbated by a disclosure form from Burrow Escrow, the agency that took over Country Oaks’ files, that states it is possible that not all of the missing money will be reimbursed and that Burrow will not be held responsible if that is the case.
“Everybody is dodging responsibility here,” Hovey said, “but someone has to be responsible.”
Local real estate brokers agreed that the disclaimer is troubling.
“The assumption was made that because the company was bonded that it would be a matter of a week or two that those assets would be unfrozen,” one Santa Clarita broker said. “Now, the disclosure says that when the audit is complete that the bond company will only reimburse to the amount that embezzlement can be found, and does not include clerical error.”
Cheryl Wyland, owner of Santa Ana-based Burrow Escrow and chairwoman of the Escrow Agents Fidelity Corp. that insures escrow agents, said it isn’t reasonable to expect Burrow to cover losses under all possible circumstances.
“I don’t foresee that they’re not going to get all of their money back,” Wyland said, “but there is no guarantee.”
Eggers also said the gradual loss of the $2.6 million over four years indicates embezzlement, which would be covered by the fidelity agency.
In the meantime, in order for escrows to go through, either the buyer or the seller of the home must come up with extra cash equal to the amount on deposit in the defunct Country Oaks account.
It is not clear how many transactions such as Hovey’s have been stalled, but Wyland said that only “a very small percentage” of escrows remain hung up because of the closure.
Real estate brokers said, however, that as the audit continues without resolution, more escrows mature and thus more escrows will be stalled.
The owners, Kathy and Harold Wiener, and their attorney have not made any public comments about Country Oaks since its closure.
