Forged and counterfeit documents commonly play a role in real estate and mortgage fraud, and notaries form a front line of defense in these areas. With that in mind, the following email message arrived yesterday afternoon, and since it is categorized as an alert, I feel it is worth sharing here:

DATE: September 11, 2008
FROM: Tim Reiniger, Executive Director
TO: Concerned Notaries of Michigan
RE: Your Support Needed For Important Fraud-Fighting Legislation

As a Notary in a state where there is no record-keeping requirement, you know the importance of keeping Notary records. The FBI and law enforcement agencies across the nation have cited Notary records as vital evidence in the investigation and prosecution of mortgage fraud and identity theft crimes. Despite the downturn in the mortgage industry, mortgage fraud has actually risen. In fact, the Mortgage Asset Research Institute has ranked Michigan number three in the nation in mortgage fraud for the first quarter of 2008. Because you use a Notary journal, we are asking for your support of important fraud-fighting legislation currently pending in the state Legislature. Officially designated as HB 5448 (with similar companion bills HB 5379 and 5431), this bill would require Notaries in Michigan to keep a record of all their official acts to facilitate prosecution of identity thieves.

ACTION ITEM: Please contact your State Representative and urge this legislator to support HB 5448.

For information on finding and contacting your State Representative click here: http://house.michigan.gov/find_a_rep.asp

Curious about House Bill 5448, I visited the Michigan Legislature’s website. There, I found the entire Michigan Notary Public Act along with the proposed language referenced in Tim Reiniger’s email alert:

A NOTARY PUBLIC SHALL KEEP, MAINTAIN, AND PROTECT, UNDER HIS OR HER EXCLUSIVE CONTROL, A CHRONOLOGICAL PAPER OR ELECTRONIC OFFICIAL JOURNAL OF NOTARIAL ACTS. THE JOURNAL SHALL CONTAIN THE FOLLOWING ENTRIES FOR EACH NOTARIAL ACT:

(A) THE DATE AND TIME OF THE NOTARIAL ACT.

(B) THE TYPE OF NOTARIAL ACT.

(C) THE TYPE, TITLE, OR DESCRIPTION AND DATE OF EVERY RECORD NOTARIZED.

(D) THE NAME, ADDRESS, SIGNATURE, AND, IN THE CASE OF REAL ESTATE RECORDS, THE RIGHT THUMBPRINT OF EACH PERSON WHOSE SIGNATURE IS NOTARIZED.

According to the National Notary Association (NNA), each year, countless civil and criminal court challenges are made to documents after they have been legally notarized. Claims of fraud, forgery, coercion and other misdeeds, real or not, are common. In some cases, an original document’s loss or theft makes the issue even more difficult to resolve.

A Notary’s journal, says the NNA, can prevent the frauds and many of the baseless lawsuits that burden our courts as well as safeguard personal rights when a valuable document is lost or fraudulently altered. The NNA also says the Notary’s journal supplies independent physical evidence that a particular document was signed or acknowledged on a specific day by a person who was positively identified by a Notary. Other benefits of the Notary’s journal (again, from NNA):

• It deters forgers and impostors who are naturally unwilling to leave a signature (and a thumbprint) that would incriminate them.
• A Notary journal protects the signer and other involved parties in the event the document is lost, challenged or fraudulently altered.
• It protects the Notary from baseless allegations by showing reasonable care was exercised in identifying the signer and performing the notarial act.
• A Notary journal provides critical evidence to law enforcement authorities in prosecuting frauds.
• It discourages groundless lawsuits by showing that a signer appeared before the Notary and was properly identified.
• A Notary journal can avert or quickly resolve litigation, helping unclog our over-burdened courts.

As I point in my book “Protect Yourself from Real Estate & Mortgage Fraud: Preserving the American Dream of Homeownership,” given the right to notarize documents is a privilege that’s not to be taken lightly. To make notarization of documents less susceptible to abuse, in addition to what has been proposed for Michigan, I recommend the following:

• Requirements for becoming a Notary should be much stricter. In some areas, becoming a Notary is easier than getting a cash advance at an ATM.
• Notaries should have an electronic system that captures the signer’s information (thumbprint and driver’s license) and verifies the information.
• Notaries should be required to pass a fraud-certification exam.
• A notary’s thumbprint should be included on the notarized document or within the seal. (Notaries often claim that they are the victims of identity theft. Requiring a thumbprint would help prevent that from occurring.)
• Notaries should receive newsletters in print or electronically keeping them informed of their responsibilities and any new fraud schemes that may exploit the powers of a notary.
• Notaries should be legally prohibited from notarizing real estate or loan documents for family members.
• Notaries should be legally prohibited from notarizing documents in transactions in which they have a direct or indirect beneficial interest. (Some states prohibit Notaries from notarizing documents in transactions in which the notary has a direct interest but provide no wording dealing with indirect interests.)
• An additional witness should be required to verify the identity and signatures of those signing the documents and then sign as a witness.
• Notaries should be required to obtain the thumbprint of the signatory in all transactions involving real property.
• Notaries should be provided with the legal discretion to refuse to notarize a document if the Notary believes that the signer is under duress or the victim of fraud.
• As is proposed in Michigan, all states should mandate that notorial logs be maintained.

Con artists will always find ways to exploit vulnerabilities in the system, but the system can and must fight back.

As a REALTOR®, I partner with Notaries on a daily basis. In fact, no real estate deal can go through without that familiar seal in place. Until recently, I imagined that this was one piece of the real estate fraud puzzle that was unwavering—a sentry in the fight against unscrupulous identity thieves and other fraudsters. But a few months ago a set of closing documents arrived on my desk with the Notary’s stamp already in place, sans my own signature. It was an affront to the very core of the Notary’s key function, to “require the presence of each signer and oath-taker in order to carefully screen each for identity and willingness.” Clearly this is a serious breach of ethics, and a significant potential for fraud.

Many real estate agents, loan officers, and other industry players have developed good relationships—or even friendships—with their primary Notaries. As relationships build, so too does trust. In a case like the one I experienced, it’s very likely that the Notary looked at the documents, recognized the names as people she works with on a regular basis, and trusted that we would ensure an accurate identity. After all, the Notary knows us well enough to believe we would never allow a document to go out without the proper identity checks. She may have even thought she was doing us a favor. Perhaps saving someone a trip, or a little time.

Later this morning I’ll be attending a settlement conference in the Claude and Rosalie Seay matter (if you’re not a regular reader, click here for background information on this shocking case of real estate fraud that was committed against an unsuspecting elderly couple). The Seay’s were victimized by, among other things, a Notary who authorized a kickback agreement. Unfortunately, whenever real estate or mortgage fraud is committed, chances are that somewhere along the way, a Notary failed to properly do his or her job! That’s why an article about the great job one particular California Notary is doing (according to today’s Los Angeles Daily News) is well worth mentioning.

From staff writer Eugene Tong at the Los Angeles Daily News:

Patrolling border between fraud, honesty with a stamp: Frank Marcial is not your average notary public

Frank Marcial has divided honest business from fraudulent wrongdoing for nearly 30 years, one stamp at a time. Though often overlooked as a formality, the notary public is often the last line of defense against fraud, and it’s a job the 53-year-old executes with the precision of a surgeon. Each click of his seal, each scribble and thumbprint in his logbook is intended to ensure that signatories are indeed who they claim to be.

Recalling a commercial property refinancing he handled about a year ago: “I stopped a signing at midpoint because I couldn’t account for the missus – part of it was she wasn’t who she said she was,” he said. The lender would’ve lost some $300,000.

It’s for his sharp eye and big heart – Marcial has been giving to the charity Feed The Children for a decade and personally delivered a tractor-trailer load of supplies to New Orleans in the aftermath of Hurricane Katrina – that the National Notary Association named him Notary of the Year for 2006.

“Frank Marcial is a notary that nobody’s going to con,” said Charles N. Faerber, vice president of the Chatsworth-based trade group. “The best notaries do a lot more than just stamp and sign. California has been called the fraud capital of the world. There are so many people here, and people are so mobile that identifying someone can be a real challenge.”

According to a May 2005 FBI Financial Crimes report, the number of reported mortgage-fraud cases jumped from 4,225 in 2001 to 17,127 in 2004; false-statement cases more than doubled – from 2,976 in 2001 to 6,784 cases in 2004.

But there’s more at stake than dollars and cents, Faerber said.

“After 9-11, the imposters around us may not just be after a quick buck,” he said. “They might be trying to blow somebody up. They often try to get notaries to give the patina of legitimacy. California does hold its notaries to higher standards. It requires notaries to fingerprint and requires them to take a course and pass a test.”

Marcial reads signers with the eye of a behavioral psychologist – are they nervous? Is the pen moving with confidence, or does it seem rehearsed? All could point to potential fraud.

“The execution of the signature – if you see them thinking about it, it makes you wonder,” said Marcial, of Stevenson Ranch. “Neutrality is a big must when it comes to executing on behalf of the lender. You got to stay neutral all the time. You see both sides of the coin.”

Click here for the rest of Tong’s article, and look for one of mine own on the problems associated with notary laziness and signature shortcuts to appear in the Summer 2006 issue of NSA Today, the official membership publication of the National Notary Association.