Some sellers and servicers have paused doing business with two of the tri-state’s largest title insurers, according to an email from a lawyer at Troutman Pepper.
The email did not disclose which sellers or servicers are pausing their business with Madison or Riverside. Madison ranked fifth on The Real Deal’s 2018 list of New York’s largest title insurance companies with $2.3 billion in transaction volume. Riverside ranked tenth on the 2018 list with $1.56 billion in volume.
Title insurers comprise a multi-billion-dollar-a-year industry, but have long been an opaque corner in commercial real estate. The business is designed to protect buyers from dubious real estate deals.
The pause on Madison and Riverside’s title business comes weeks after the two were mentioned in a Department of Justice investigation into real estate investor Boruch Drillman.
The Department of Justice alleges Drillman engaged in a multi-year scheme to obtain over $165 million in loans to fraudulently acquire multifamily and commercial properties. Drillman pleaded guilty to one count of conspiracy to commit wire fraud. Neither Madison or Riverside were named as defendants.
Drillman, 36, conspired to dupe lenders into giving him loans, according to the DOJ. In one example, in March 2019, Williamsburg of Cincinnati was acquired for $70 million. Drillman and his partner allegedly used a stolen identity to convince a lender and Fannie Mae that the purchase contract was actually $96 million. According to the DOJ, Madison Title performed two closings: One for the $70 million sales price, and another for the fraudulent $96 million sales price presented to the lender.
Drillman used a similar tactic with a Troy, Michigan commercial property. In September 2020, the Troy Technology Park was acquired for $42.7 million. But Drillman and his partners presented the lender with a fraudulent sales contract for $70 million. To support the inflated purchase price, Drillman showed the lender and appraiser a fraudulent letter of intent to purchase the property from another party for $68.8 million.
To conceal the fraud, Drillman and his co-conspirators arranged for a short-term $30 million loan to show he had the funds to close on the loan. On Sept. 25, 2020, Riverside Abstract performed two closings, one for the true $42.7 million sales price and another for the fraudulent $70 million sales price presented to the lender, according to the DOJ.
Drillman did not return a request to comment. Madison and Riverside also did not return a request for comment.
Read More: Businesses pause on deals with Major Title Insurers