Ann Startup has the same recurring nightmare that jolts her awake each night. She is crawling along her bedroom floor in a state of terror, searching desperately for security. And as painful as her nightmare is, she fears the sunrise more. Today could be the day that the Tooele County sheriff comes to evict her, put her out in the street. Her home at Oquirrh Cottages in Tooele was foreclosed upon Sept. 25, 2001, and sold on the courthouse steps six months later.
“Day and night are the same. It’s sheer terror. I’ve lived this way for 14 months. I paid cash—$107,000—for my dream home at Oquirrh Cottages. Every penny that I had. Now it’s all gone. I’m waiting for the axe to fall on me”
Mrs. Startup is disabled, living on $649 a month in Social Security, disability benefits. Her daughter helped her move from California to Tooele three years ago. Mrs. Startup raised five daughters working as a medical transcriptionist until her life changed when she had to have complete reconstruction of her left ankle.
“Look around. I could have lived here easily. It’s all on one level. Even my patio. I could have gotten my wheelchair any place. I didn’t come to Utah to be a burden on my daughter. I’ve always done for myself.” She tries to smile, turning away. Tears rim her swollen eyes.
Ann Startup became a mere case number in one of the largest alleged cases of white-collar, financial fraud in the Intermountain West. It is estimated that at the end of a very long road of investigation, civil litigation and criminal prosecution, the total loss to Utah homebuyers and investors could amount to $100 million.
Clay Harrison and L. Dale McAllister met in the Mormon missionary field 25 years ago. Together, they dealt in real-estate transactions related to Attorney’s Title Guaranty Fund, a company providing supplemental income opportunities to lawyers through escrow services and title insurance for real-estate transactions. The company maintains national offices in Florida, with western regional headquarters in Denver. Harrison, an attorney, worked as an escrow agent for Attorney’s Title Guaranty Fund. He also appointed McAllister as an escrow agent of Attorney’s Title Guaranty Fund. The two worked with Paul Stewart, their business partner. >>>>
Neither Harrison, McAllister or Stewart have been charged related to the cases described in this story. But they have been charged in other cases. And City Weekly has learned that their Byzantine activities, as recounted in 3rd District Court records, allegedly involved forgery, defalcation (stealing of escrow funds), property flipping, failure to pay underlying mortgages, mortgage stacking, securities fraud, identity theft check-kiting and running a high-ticket Ponzi scheme.
According to the Utah State Department of Insurance stipulation orders, 3rd District Court records and the testimony of Douglas R. Pollack, a certified fraud examiner, “investor losses (are) approximately $14 million” from the use of escrow accounts held in trust by Harrison and McAllister as escrow agents of Attorney’s Title Guaranty Fund.
Thus far, Attorney’s Title Guaranty Fund has not been implicated. The focus appears to be on alleged rogue agents working through the company.
Kaye Horrocks retired from the Tooele School District in 1997 after 39 years. She planned to serve an LDS mission at retirement. It was a lifetime dream. Mrs. Horrocks’ husband passed away in March 1997. Left alone, her five-bedroom home, garden and orchard became a burden—more than that, it was a constant reminder of her husband.
“He was everywhere. I couldn’t stop grieving as long as I was there. That’s when I found this lovely place at Oquirrh Cottages. It was mine. I paid cash from the proceeds of our other home sale. But my dream home was taken from me the day that Clay Harrison and Dale McAllister got me into closing at Attorney’s Title Guaranty Fund.”
Her foreclosure notice came almost the same day that her missionary farewell was announced. “I’d sold my car, rented my condominium to a wonderful family and I even bought a new missionary suitcase. My mission was taken away from me, too.”
At the age of 67, Kaye Horrocks struggles to buy her home a second time. She paid $130,000 cash two years ago. Her payment is now missing. Now she pays a mortgage of almost $1,000 a month out of her teaching pension and social security. It leaves her about $300 a month for utilities, food, insurance and payments to an attorney that she shares with Ann Startup. Mrs. Horrocks says that they owe over $10,000 to their attorney and their case hasn’t even been scheduled.
Compounding their plight is the absence of title insurance. Ann Startup paid more than $400, as instructed in HUD closing documents. Kaye Horrocks paid $700. But the money was not sent with their title insurance documents to the insurance company.
According to the Utah Division of Real Estate, Mrs. Startup and Mrs. Horrocks did everything right. Real estate brokers from Wardley/Better Homes and Gardens and Mansell Real Estate Brokerage represented them. There were appraisals and title searches performed. They paid cash with certified funds and thought that they had purchased title insurance.
After receiving their foreclosure notices, Startup and Horrocks contacted their real estate agents and were assured that all was well. They were told that title insurance would cover any problems with clear title to their condominiums.
According to investigators for Attorney’s Title Guaranty Fund, $237,000, supposedly safe in Harrison’s escrow account, had disappeared. Amresco Mortgage Company, the mortgage holder, was never paid. Investigators are attempting to trace the $237,000, according to Douglas Pollack’s testimony cited in Paul Stewart’s probable cause hearing in 3rd District Court. At least two of Harrison’s bank accounts are escrow accounts, controlled as a fiduciary responsibility as an escrow agent of Attorney’s Title Guaranty Fund.
Harrison, McAllister and Stewart didn’t function in a vacuum. There were, and still are, numerous other players. During a search of criminal and civil court records and interviews, about 50 willing and unwilling participants in the growing alleged white-collar crime wave have been identified.
Among them is Jeff Jones, who bought one condominium. He was evicted in the spring of 2001 and cannot be located. Recent investigations by Utah State Insurance fraud investigators have uncovered four separate mortgage loans, totaling more than $400,000, on Jones’s condominium. That’s more than $400,000 borrowed on a property appraised at $107,000. State fraud investigators allege that McAllister applied for and received four loans secured by the same property, called “Mortgage Stacking.” It was accomplished in just 40 days under a system of lax oversight and the mortgage industry’s trust in escrow agents, attorneys and real-estate professionals.
SCAM ONE: Defalcation
Defalcation is simply stealing or using monies from an escrow account. To do so is a felony. Startup and Horrocks paid cash. By law, it should have been held in Harrison’s escrow account, then dispersed according to the items for payment on the closing documents. At closing, documents are signed by the buyer, seller, real estate agent and the title agent. Amresco Mortgage Company was the mortgage holder of the Oquirrh Village properties in question. Dale McAllister is the first position, mortgagee of record on the deeds for all them, according to Tooele County tax records.
According to state investigators at the Department of Commerce, Mrs. Startup’s $107,000 and Kaye Horrocks’ $130,000 was gone shortly after the closing at Harrison’s office. The titles to the condominiums were in McAllister’s name. Then those titles went into foreclosure. Startup and Horrocks didn’t know until they got their foreclosure letters.
The women also didn’t know that they didn’t have title insurance on the cash purchases of their dream homes. There is no record that McAllister, as closing agent, sent the title insurance documents to Attorney’s Title Guaranty Fund.
“We made several phone calls and visits to our real estate agents and they said we were fine. They said that since we had title insurance, we were just fine.” Mrs. Startup said.
The most important attachment to a new title document is the policy of title insurance. This bombproofs the buyer and the mortgage company in case of fraud or other problems. Investigators say that title insurance was not secured, allowing Horrock’s and Startup’s $237,000 to be transferred. The irony is that the victims paid for their new homes in cash, giving McAllister almost a year-and-a-half before receiving notice of public sale of their foreclosed property.
Utah law states that the title and escrow agent has up to 90 days to transfer and deliver clear title, plus title insurance certificates, to a new real estate owner. As fiduciaries and escrow agents, appointed by Attorney’s Title Guaranty Fund, McAllister and Harrison controlled the dispersal of Startup’s and Horrock’s cash payments. The lender is supposed to be paid off along with issuance of warranty deed documents. Title insurance is paid and the policies are delivered to the owner. Sales commissions are paid to the real estate agent and broker in 72 hours. The title agency and its escrow agents has absolute control over the money in an escrow account.
But there is a big problem. No one is watching the title companies. No state agency monitors the hundreds of thousands of dollars deposited each day in escrow accounts in the state of Utah.
It has taken almost two years for real estate fraud investigators to catch up to McAllister, Harrison and Stewart. All McAllister and Harrison had to do was to make a few thousand dollars in mortgage payments each month to perpetuate the alleged scheme. Fourteen months passed before Mrs. Horrocks and Mrs. Startup discovered that they didn’t own the homes for which they had paid cash.
On March 12, Harrison signed a Utah State Department of Insurance stipulation and order revoking his insurance license and demanding that he cease all activities associated with title and escrow transactions. The same hearing recorded “findings of fact” stating that, as a licensed insurance and escrow officer, Harrison established five bank accounts into which trust funds were deposited and that the accounts were not identified as trust accounts. Harrison also, according to the stipulation, diverted trust funds to other purposes on 10 different occasions. Further, the stipulations states that Harrison co-mingled funds held in trust with payroll funds. He also provided false or misleading information in the conduct of escrow closings on at least six occasions by showing disbursements made in closing settlements but the checks were held and not cashed, the stipulation states.
Stipulation and order hearings are the first step leading to criminal prosecution. When proven in criminal proceedings, all of the preceding findings of fact are presented to the court as felonies.
In February 2001, an investigation was begun addressing numerous complaints regarding the activities of Harrison and Dale McAllister as licensed agents of Attorney’s Title Guaranty Fund. Subsequently, investigators for Attorney’s Title Guaranty Fund conducted an investigation of McAllister and Harrison. All of Harrison’s and McAllister’s bank accounts were frozen. Two cross-jurisdictional meetings were held in August 2001 attended by law enforcement officers, investigators from the attorney general’s office, members of the state departments of insurance, commerce and securities. A task force was formed to unravel the alleged white-collar real-estate fraud.
SCAM TWO: Mortgage fraud and
owner carry backs
There is a building at the top of Main Street in Magna. It is the largest building on the street and was once known as the Rigby Building.
The Rigby Building won the 1992 Magna City Community Beautification Award. Jerry and Sharon Rigby stand in front of the building in an old newspaper photo. They seem proud that the community recognized their hard work. New grass and flower beds link five leased offices to the driveway leading to the back of the warehouse, where Jerry Rigby kept his brine shrimping boat.
Jerry was forced to take an early retirement from Kennecott for health reasons. “Then Jerry being Jerry, he jumped right into the brine shrimping business. He’s such a good man,” Sharon says, linking her arm with Jerry’s. “We never come here now. Can’t even drive by. It makes us physically sick to see what McAllister and Harrison and their gang have done to our dream building.”
Now the largest building at the top of Main Street in Magna sits sagging in ruin. Plywood fills front windows. Handrails are torn from entryways. There is just one tenant and one car in the parking lot. A makeshift wire fence surrounds the warehouse area where Jerry Rigby kept his big boomed shrimp boat.
“We met a guy named Dean Casutt in 1997. We decided to sell our building. Jerry has diabetes and couldn’t work the brine shrimp anymore.” Sharon said, looking away from the building. “We had good rents. And only owed about $130,000 to our lender. But it was time for Jerry to take care of himself, enjoy what we worked so damn hard for.
“We almost made it, you know. If we hadn’t met Casutt, we would have had our little Kennecott pension, and good rents from the building. Now it’s all gone.” Jerry says.
Meeting Dean Casutt—who has not been charged or implicated in any court documents—led to Dale McAllister, Paul Stewart and Clay Harrison. They were still functioning as agents under the aegis of Attorney’s Title Guaranty Fund. Jerry and Sharon Rigby thought they were going to meet Casutt when they walked into closing at Harrison’s office at Attorney’s Title Guaranty Fund. McAllister’s assistant surprised them when she said that Dean Casutt was the buyer of their building but that McAllister would be doing the deal with them.
“McAllister is as smooth as butter. He’s mesmerizing. Our deal was for $300,000 for 10 years at 10 percent. They talked us into lending $60,000 to Paul Stewart and something called the Moroni 1901 Trust,” Sharon Rigby recalls.
HUD closing documents show that the Rigbys also loaned McAllister $40,000 secured by lots one through eight, and lots 43 and 44, at Le Cheminant subdivision in Salt Lake County.
The collateral looked good, the interest rate was well above prime rate. The Rigbys also got a check for $50,000 down, although it took McAllister six months to pay off their lender as promised. Between the payments of the two carryback loans and with what was left to be paid on the building, the Rigbys began to settle into retirement.
“It seemed so good. Jerry’s diabetes was more serious than we thought. And I was so happy that he didn’t have to ‘shrimp’ anymore. I guess the truth is that he shouldn’t have worked as long as he did. Now he is totally disabled. And we face bankruptcy,” Sharon explained.
Almost a year later, the sale of their building became a nightmare. First, they discovered that they had never been put in first position on the deed when McAllister and Stewart finally paid off the Rigby’s lender. In fact, they found out that they were listed in third position. Payments from McAllister dried up. A constant battle ensued with Harrison and Attorney’s Title Guaranty Fund over recording the Rigby’s interest on the trust deeds.
There were only two tenants left in the building, shrubbery died, windows were broken. Strangers showed up at night unloading trailers, then disappeared before dawn.
On March 30, 2001, the Rigbys tried to confront Harrison in the Attorney’s Title Guaranty Fund offices. Harrison would not see them. They left their complaint in writing with copies of all notes, closing papers and the HUD closing document. Harrison telephoned them stating that their money was safe in escrow at Attorney’s Title Guaranty Fund and he was recording their interest on the trust deed.
Mrs. Rigby says that because of their visit, McAllister showed up with a token payment, then disappeared and the stonewalling continued until they telephoned Brian Coleman, executive vice president of Attorney’s Title Guaranty Fund. Coleman assured them that Harrison was on top of getting the trust deed in line and was getting their money.
On June 10, 2001, the Rigbys sent registered demand letters to Clay Harrison and Brian Coleman. On June 19, 2001, 18 months after signing the HUD closing documents at Attorney’s Title Guarantee Fund, Coleman sent a letter to the Rigbys stating that Attorney’s Title Guaranty Fund had no liability in their case. “The Agency agreement between Attorney’s Title Guaranty Fund and Mr. Harrison provides that the agent is expressly not appointed as an agent of Attorney’s Title Guaranty Fund for the purpose of providing abstract and/or escrow services, and Attorney’s Title Guaranty Fund shall have no liability or responsibility for any claims or losses due to agent in an escrow capacity in the holding of these trust deeds. Therefore, Attorney’s Title Guaranty Fund, as the title insurance underwriter, does not have any involvement or liability with respect to your loan.”
Ann Startup and Kaye Horrocks were also hounding Coleman. They were also reassured that Harrison and McAllister were taking care of all of their problems at Attorney’s Title Guaranty Fund.
Coleman hadn’t mentioned that according to the Utah State Department of Securities records, Attorney’s Title Guaranty Fund launched an investigation into the alleged illegal activities of Harrison and McAllister. Special financial-fraud attorneys from Florida and a forensic auditor from Investigative Data Services gathered hundreds of documents and conducted dozens of interviews concerning Harrison, Stewart and McAllister. But Coleman had known about Harrison’s and McAllister’s activities six months before he sent the letter that sliced through the Rigbys’ hope for a fair and decent conclusion to their predicament.
Efforts to reach Harrison, Stewart and Casutt for comment were unsuccessful. An attorney for L. Dale McAllister offered no comment.
The Rigbys, like Ann Startup and Kaye Horrocks, have run out of time.
Dean Casutt has declared bankruptcy. The Rigbys received notice of his bankruptcy by registered mail. The Rigby Building has been sold to two different investors.
It’s part of an ongoing saga that doesn’t seem to interest Utah’s attorney general all that much. That, despite the fact that, nationally, Utah ranks near the top of the heap in mortgage and escrow fraud, right behind California, Florida and the District of Columbia.
According to the Mortgage Asset Research Institute, Utah escrow fraud grew 270 percent in 2001. Mortgage and escrow fraud amounted to $600 billion in losses nationwide.
A handful of investigators and attorneys are charged with investigating and prosecuting the growing cadre of crooked title companies and predatory real estate frauds thriving in Utah’s ocean of white-collar fraud.
Next Week, Part II: An alleged multi-million dollar Ponzi scheme also sucks in the rich and famous.