Lawsuits are piling up in what attorneys call another real estate scam in Las Vegas — one in which buyers of new homes faced foreclosure a few months later because liens hadn’t been paid off during the escrow process and fraudulent title insurance policies were issued.
At the center of the litigation is the now-closed Direct Title Insurance Agency Inc., which operated at 8965 S. Eastern Ave., Suite 150.
That company and others were hit with a class-action lawsuit alleging racketeering on April 15 in Clark County District Court in Las Vegas by attorney Matthew Callister.
Two homeowners in that lawsuit said they bought new homes late last year from Nevada Homes Group Inc./Wagner Homes Inc. in northwest Las Vegas neighborhoods called Day Dawn Vista and Day Dawn Crossing II — but both soon received foreclosure notices. That’s when they learned bank, subcontractor and homeowner association liens they were unaware of hadn’t been paid off at closing.
The title insurance policies were fraudulent, the lawsuit charged, because they falsely represented the homeowners were buying homes free and clear of encumbrances.
The lawsuit alleges fraud, racketeering and other counts, as the homeowners allege Direct Title Insurance “acquired property by false pretenses from the plaintiffs by falsely representing the home would be purchased free and clear of encumbrances and that a valid title insurance policy would be obtained.”
Also named as defendants in the suit are EnTitle Insurance Co., which appointed Direct Title as its agent, Wagner Homes Inc., Nevada Homes Group Inc., Paul Wagner and Paul Wagner IV.
The lawsuit says Paul Wagner is the president of Wagner Homes and is a director of Nevada Homes Group. A different individual, Paul Wagner IV, is president of Nevada Homes Group, the lawsuit says.
The suit says Wagner Homes/Nevada Homes Group induced the homebuyers into choosing Direct Title Insurance Agency for escrow and title insurance services, but didn’t disclose that Paul Wagner, the founder of Wagner Homes, had been indicted last year on bank and wire fraud charges.
Wagner has pleaded innocent in that case in which a federal grand jury alleged that from 2007 to 2009, as a home builder, he arranged to sell homes at inflated prices to fraudulently kick back money from the mortgage loan to buyers as incentives for them to buy his homes.
“The plaintiffs were not told that Nevada Homes Group was in reality a change in name only, designed to conceal the fact of Wagner’s indictment, and that the Wagner family still were the owners of Nevada Homes Group, with Paul Wagner IV being president and Paul Wagner being an officer,” the lawsuit charges.
Also being sued is Great Western Bank of Sioux Falls, S.D., which the suit says has a master lien on the Wagner Homes/Nevada Homes Group developments at issue and “knew or should have known that their liens were not being routinely paid at closings of the tracts” in the developments.
“Great Western Bank, despite knowing that their liens were not being paid from escrow, took no action to foreclose on their lien, and simply let innocent and good faith purchasers acquire properties, knowing or having reason to believe that their liens would not be satisfied from escrow,” the lawsuit alleges.
A message for comment on the lawsuit was left with the Wagners and Nevada Homes Group.
Attorneys for Great Western Bank, which is trying to foreclose on two homes at issue in the lawsuit, responded last week that the bank has no duty to ensure funds at closing are properly disbursed.
“The bank has zero liability based upon these allegations, which are against third parties not connected to the bank or the bank’s agents,” its attorneys with the Las Vegas office of the law firm Holland & Hart wrote in a court filing Monday. “Plaintiffs have named the bank by alleging some fantastical, non-existent duty on lenders, which is that lenders must be aware of all details of every escrow of property of which the lender has a lien, or be subject to liability. It is evident that the bank was named in the instant litigation solely to postpone the inevitable foreclosures.”
Great Western Bank’s attorneys said in their filings that on Jan. 1, Great Western declared Wagner Homes in default on loans and that the “release price” for each of the properties purchased by Callister’s clients is $40,100.
If this information is true, it means one of Callister’s clients who paid $185,000 in cash for a home, and received clear title and a title insurance policy, had actually purchased a home encumbered by a $40,100 lien without his knowledge.
The second client has a mortgage and, if Great Western’s assertions are true, would also have encumbered himself with an additional $40,100 in debt without his knowledge.
MetLife, which funded that mortgage, also is a defendant in Callister’s suit.
“MetLife had actual notice of the problems with Direct Title, which was a red flagged company by Metlife...but failed to use a different company to close escrow,” the lawsuit said. MetLife hasn’t yet responded to the suit.
Callister, in an interview Monday, said it was “insane” that Great Western would continue trying to foreclose on homeowners that Callister says have been victimized by a fraudulent scheme centering on false title insurance policies. Besides his two plaintiffs, Callister says, he’s aware of at least two other homebuyers victimized by the alleged scam.
Great Western’s attorneys, however, said their client didn’t cause the problem.
“If the court is inclined to grant plaintiffs some form of equitable relief, the court should order defendants EnTitle Insurance, Direct Title Insurance and MetLife Home Loans, the ones at fault under these allegations, to immediately tender the release prices so the bank may reconvey the properties,” their filing said.
EnTitle Insurance, of Independence, Ohio, the insurer that appointed Direct Title as its agent in Las Vegas, in the meantime is suing Direct Title’s principal, Christopher Durling of Sandy, Utah, in federal court in Colorado.
That lawsuit charges that Durling ran a Ponzi-type scheme in which money placed into escrow for home purchases in several states was misappropriated and then replaced with new money for later home purchases.
“When this fraud scheme collapsed in December 2010, at least $3.3 million in ‘new’ escrow funds...earmarked for 12 closings had vanished,” the March 9 suit charges, adding EnTitle had to cover those losses.
The suit says Durling’s Las Vegas business had escrow accounts at Service1st Bank of Nevada and that money from those accounts as well as accounts in Denver and Evansville, Ind., at times was diverted to cover Durling’s personal expenses as well as to his unrelated businesses in Utah called Spoko Entertainment LLC and Onguria LLC.
The lawsuit charges that during EnTitle audits in January of Durling’s Wheat Ridge, Colo., and Las Vegas title insurance offices, employees admitted that funds deposited in escrow bank accounts and earmarked for certain home closings was missing and could not be disbursed.
That lawsuit alleges breach of contract, fraudulent concealment and fraudulent transfers.
Attorneys for Direct Title Insurance Agency on Monday answered the federal lawsuit, generally denying the allegations and saying the dispute is subject to arbitration rather than being resolved in court.
Durling also filed a motion for dismissal of the fraudulent transfer and fraudulent concealment counts, with his attorneys saying EnTitle had failed to sufficiently plead those allegations.
A third lawsuit is pending against Durling, Direct Title Insurance Agency and a company called American National Title Services Inc.
It was filed in Clark County District Court on Feb. 21 by Direct Title’s landlord, 8965 Eastern LLC, and alleged the defendants had defaulted on their office lease and owed nearly $28,000 in back rent as of Feb. 21.
Attorneys for Durling have not yet answered either of the Nevada lawsuits. A message for comment was placed with his attorneys.
At the Nevada Division of Insurance, which regulates title insurance companies, spokesman Jake Sunderland said Tuesday the agency is aware of complaints against Direct Title Insurance Agency.
“Although we cannot comment on whether or not there is an investigation, we do encourage any consumers with issues to contact our consumer services section at (702) 486-4009,” Sunderland said in an email.
Nevada insurance records show that besides being associated with EnTrust through Jan. 7, Direct Title was associated through June 2, 2009, with Southern Title Insurance Corp. of Richmond, Va.