Three months after state officials seized an Encino escrow firm, the Escrow Shoppe, and froze $5.5 million of customers' money, the customers are finally getting their money back--but not all of it.
Last week, Russell A. Greenwood, a court-appointed receiver examining the Escrow Shoppe's books, unfroze most of the money but withheld 10% of each customer's amount. Why? Judy Hartley, a senior lawyer with the state Department of Corporations, which licenses escrow firms, said up to $450,000 of the money might still be missing.
The Escrow Shoppe had about 350 pending transactions when it was seized.
One customer, David Fein, said he was glad that he was finally getting his cash, but "annoyed" that 10% of his money is being withheld because of continuing confusion over the Escrow Shoppe mess.
'Should Be Cleared Up'
"I would think by now it should be cleared up whether there are missing funds or not," said Fein, who had sold his house in Woodland Hills just as the Escrow Shoppe was seized and whose five-figure profit on the sale was frozen.
Firms such as the Escrow Shoppe help ensure that buyers and sellers of real estate meet certain conditions, such as obtaining a title search, and hold documents and cash transferred between the parties until the sale is completed.
When the Department of Corporations seized the Escrow Shoppe in mid-March, it alleged that the firm had made $3 million in unauthorized payments and that about $200,000 of customers' funds might be missing. The agency alleged, among other things, that the firm had shifted money from some pending escrow accounts to pay customers closing other escrow accounts--all without customer authorization. The state also froze the customers' money to get an accurate accounting of the Escrow Shoppe's assets.
But as the state investigated, customers grew furious. With their money frozen, they could not complete their transactions unless they put up more money. Their financial and housing plans were thrown into chaos, and authorities could not predict when the money would become available.
Hartley said 10% of customers' money is still being withheld "to cover possible shortages" but said she had no additional details. Susan Allison, a lawyer for Greenwood's office, would say only that "we have to pursue what are some unexplained transactions."
Sandra Bianco is the owner of the Escrow Shoppe and one of her attorneys, Thomas Warden, said he was aware of the state's concern about the possible shortages but that he had no details. He also noted that there is no criminal action pending against Bianco, nor is she facing any formal proceedings.
The indications of further shortages appear to be at least partly related to a civil suit filed May 1 in Los Angeles Superior Court by Los Angeles Martinique Investments, a real-estate partnership, against the Escrow Shoppe, Bianco and another firm owned by Bianco named Encino Equity Services.
Encino Equity is a so-called accommodator firm used in commercial real estate deals. Specifically, when a group wants to sell one property at a profit and reinvest that profit in another property without paying taxes on the profit in the meantime, it must use an accommodator to hold the profit as a third party until the money is reinvested.
Earlier this year, Los Angeles Martinique pursued such a deal. According to its suit, the partnership sold a Hollywood apartment complex in February for a $451,000 profit, using the Escrow Shoppe as its escrow firm. Then it turned over the profit to Encino Equity--which had been recommended by the Escrow Shoppe as its accommodator--as it searched for a new property in which to invest.
Escrow Shoppe Seized
On March 16, it found a new apartment building to buy and asked Encino Equity to deposit the partnership's $451,000 for its purchase of the new property. But Encino Equity never turned over the money, the suit alleged.
Four days later, the Department of Corporations seized the Escrow Shoppe. The partnership's lawsuit accuses the defendants of fraud, breach of contract and negligence, among other things, and asserts that the Escrow Shoppe and Encino Equity were insolvent and that the defendants' "secret intent" was not to complete the transaction, "but rather to close both businesses and to retain the sale proceeds for their own use." The two firms and Bianco denied the suit's allegations.
Los Angeles Martinique is not among the Escrow Shoppe customers getting 90% of their money back. Los Angeles Martinique's attorney Howard Grady explained that technically it was out of escrow, it had closed the sale of the first apartment building and its money was not part of the $5.5 million in the Escrow Shoppe's trust fund that was frozen.
Meanwhile, the major players in the Escrow Shoppe mess are spreading the blame for why the customers' money had to remain frozen for three months.
Hartley of the Department of Corporations said her agency had to go to court to get the necessary records because of delays by the Escrow Shoppe, Encino Equity and their lawyers.
But Warden said his people did cooperate, that the state's court action was unnecessary and that the delay was caused by Greenwood, who was "very slow in doing his accounting."