The following three Maryland defendants were indicted Jan. 19 for mail and wire fraud arising from a scheme to defraud lenders and a title insurance company of over $4 million:
Stephen J. Troese, Sr., age 71, of Davidsonville;
James Kevin Hughes, age 52, of Crownsville; and
Brenda Lukenich, age 60, of Hughesville.
The indictment was announced by United States Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation.
According to the 12 count indictment, Troese was an attorney, and owned or controlled title companies that he created in the 1980’s and 1990’s that did business in the Baltimore, Annapolis and Washington, D.C. metropolitan areas, including Troese Title Services, Inc. (Troese Title), located in Camp Springs, Maryland; Troese/Hughes Title Services, Inc. (Troese/Hughes), located in Greenbelt, Maryland; and Troese/Prestige Title Services, Inc. (Troese/Prestige), located in Ellicott City, Maryland. Troese entered into agency agreements with Chicago Title Company which authorized the Troese title companies to sell its title insurance policies to lenders and buyers. While the title insurance policies obligated Chicago Title to pay losses resulting from undiscovered defects in the title of the property, the agency agreements expressly provided that Troese and the Troese title companies were responsible to Chicago Title for any losses associated with fraud, dishonesty or theft.
The indictment alleges that beginning at least as far back as 2004, a substantial shortfall began to develop in an escrow account maintained by Troese Title and Troese/Hughes for the receipt and disbursement of funds in connection with real estate closings carried out by both title companies. This shortfall is alleged to have been partly the result of mistakes made during the closing process on several transactions that required costly pay-outs to resolve, and partly from several large and long-undetected thefts by individual employees, although these factors did not account for all of the deficit. In the spring of 2005, Lukenich, the escrow accountant for the title companies, advised others at Troese Title and Troese/Hughes that the shortfall totaled at least $2 million. The shortfalls were further aggravated in 2006 through 2008 as the real estate and refinancing boom that had started in approximately 2002 first cooled, then collapsed.
Because of these shortfalls, both Troese Title and Troese Hughes allegedly delayed making the required payoffs to the original lenders after each closing in order to generate a “float,” whereby funds coming into the escrow accounts from later transactions could be used to make the payments due on transactions that had already closed. Initially, funds were held for periods of three to five days, but this “hold” allegedly later grew to 10 days and even longer. By mid-2008, payments were being held for three weeks or more.