Witnesses Describe Fees, Refunds In Trial Of Washington State Auditor
A former manager for Fidelity National Title escrow offices in western Washington testified Wednesday that State Auditor Troy Kelley promised to track real estate reconveyances for a $15 flat fee and refund leftover funds to customers.
The testimony from Julie Yates, now a compliance trainer for Fidelity, came on day three of Kelley's federal trial on charges related to the real estate services business he ran prior to his election to statewide office.
"Did Mr. Kelley expressly say the money would be refunded if it wasn't needed?" Assistant U.S. Attorney Andrew Friedman asked Yates.
"Yes," she answered.
Yates testified that she first met Kelley in 2003 and soon contracted with his company, the Post Closing Department, or PCD, to take over tracking reconveyances from another firm whose service quality had declined.
A reconveyance is when the deed of trust to a property is transferred back to the owner after the owner's loan is repaid and the lender clears its interest in the title. During the heyday of the real estate market in the 2000s, Kelley's company contracted with escrow companies to track reconveyances after real estate deals closed to make sure the reconveyance was actually recorded.
Typically escrow companies would collect $100 to $150 in upfront reconveyance fees from homeowners at closing and forward that money to PCD. Prosecutors say most of that money--minus a small tracking fee--was supposed to pay for trustee and county recording fees in the rare event the lender didn't process the reconveyance. Otherwise, they maintain, Kelley was supposed to refund the money.
Kelley and his attorneys have countered that those fees could be legitimately spent down by PCD as it worked the reconveyance files, even if trustee and recording fees weren't ultimately owed.
Yates, however, testified that Kelley was not authorized to charge additional fees for his service beyond a base $15 tracking fee.
"Was there any discussion ... of any additional fees that PCD would charge to Fidelity," Friedman asked.
"No," Yates replied. "Fifteen dollars was his fee, was always his fee."
Kelley is accused of amassing more than $3 million in reconveyance fees that should have been refunded to homeowners and then seeking to conceal the money when questions were raised. He's also charged with filing false tax returns and making false declarations.
On cross-examination, defense attorney Patty Eakes challenged whether Yates could accurately recall emails and conversations from 13 years ago, especially since many of the emails from that era have not been recovered.
"You would agree that your memory may not be perfect?" Eakes asked.
"That's correct," Yates replied.
Eakes also noted that the only surviving copy of the agreement between Fidelity and the Post Closing Department is a version that's missing Kelley's signature and doesn't include a sample refund letter that's referenced. Yates insisted it's the same contract that Kelley had signed.
As to the question of whether Kelley was only allowed to charge a flat $15 tracking fee per file, Eakes got Yates to acknowledge the contract didn't explicitly prohibit additional charges.
"The agreement does not say that he cannot charge any other fees, does it?" Eakes asked.
"I don't believe it says that," Yates conceded.
The first witness to take the stand in the government's case against Kelley was Krista Thoreson of Snohomish, who runs a home building company with her husband. In 2007, Thoreson and her husband sold seven townhomes they had built in West Seattle. Their escrow company, Fidelity National Title, charged them a total of $955 in reconveyance tracking fees as a part of those sales.
Thoreson's husband handled the closings, but she took note of the fee weeks later while doing some bookkeeping. Thoreson recalled that her lender had previously charged an upfront reconveyance fee when it initiated the construction loan for the housing project. So she emailed Fidelity to ask why they were being charged a second reconveyance fee.
"I considered it an incorrect fee so I was pursuing it," Thoreson tesified.
Fidelity ultimately referred her to the Post Closing Department which sent her a refund of $850, minus $105 in tracking fees. Kelley signed the refund check. Prosecutors have said Kelley illegally pocketed millions of dollars in reconveyance fees over several years, but would issue refunds from time to time when escrow clients complained about the fees.
In his cross-examination, Kelley's attorney Angelo Calfo pointed to his client sitting in the courtroom and asked Thoreson if she knew him. She answered that she had only previously seen him on TV.
"Did he ever promise you a refund?" Calfo asked.
"No," she answered.
Calfo sought to show that the refund was a courtesy and not an indication of an improperly charged fee. He also noted that the reconveyance charge showed up as a fee, not an estimated closing cost, and that escrow customers agreed to pay the fee when they signed their closing statements.
Calfo also got Thoreson to say she would have been OK with paying the fee if she had been told it was important for someone to make sure the bank cleared its interest in the property being sold.
"I would have been fine with that," Thoreson said.
The jury also heard from Nancy Moore, an accountant who sold a house in West Seattle in 2005. She too used Fidelity Title and, like Thoreson, felt she was double-charged for reconveyance fees. "Because I'm an accountant, I look at everything," Moore told federal prosecutor Arlen Storm.
Moore emailed Fidelity to ask if a refund was appropriate, but said she received no response. She then followed up and threatened to make a consumer complaint to the state attorney general. A couple of months later, Moore received a $100 refund check in the mail from the Post Closing Department, signed by Kelley.
As he did with Thoreson, defense attorney Calfo sought to cast doubt on the idea that Moore was owed a refund. He got her to acknowledge that the reconveyance charge was likely a fee, not an estimate on her closing statement--a document she no longer possesses.
At trial, Kelley's defense team hopes to convince the jury that reconveyance fees charged at closing did not duplicate reconveyance fees charged by lenders. Furthermore, they want to show that refunds weren't owed and that escrow customers in fact got a service in exchange for the reconveyance fee, even if that service and who was performing that service was not apparent to the consumer.
Throughout the day Kelley paid close attention to the testimony. At one point he handed Calfo a page from a yellow legal pad with a note scrawled on it. That prompted Calfo to ask a government witness one more question before finishing a cross-examination.
During breaks Kelley chatted with his wife or consulted with his attorneys.