In May of 2008, a Seattle-area attorney and homeowner named Frank Cornelius, Jr. received a $250 refund check in the mail from the Post Closing Department.
Post Closing was a company owned and operated by Washington State Auditor Troy Kelley, who at the time was a Democratic state lawmaker from Tacoma. But Cornelius didn't know that then.
The check and accompanying refund letter arrived just days after Cornelius had filed a federal class action lawsuit against Fidelity National Title over a certain type of fee charged at real estate closings.
"To be honest with you, I thought this was from Fidelity and they were sending me a check because I had filed a lawsuit," Cornelius testified Thursday in Kelley's federal money laundering and tax evasion trial.
Kelley issued refund, say prosecutors
Instead, prosecutors allege, it was Kelley who went to the bank shortly after the lawsuit was filed, purchased a cashier's check for $250 and mailed it to Cornelius, perhaps in an effort to disqualify him as a plaintiff in the class action.
Cornelius is now a key prosecution witness in the case against Kelley who's accused of pocketing millions of dollars in reconveyance fees that should have been refunded to homeowners. A reconveyance is when a lender clears its interest in a property after a loan is paid in full.
Prosecutors point to Cornelius's refund as evidence that Kelley knew he was obligated to return the money.
In 2003, Fidelity contracted with the Post Closing Department to make sure lenders processed reconveyances after real estate closings. If that didn't happen it could create a cloud on title situation.
Cornelius used Fidelity when he refinanced his home in 2007 and paid off a home equity line of credit. At closing, he was charged $280 in fees to make sure his prior lender processed the reconveyances for the home loan and the line of credit. Fidelity passed along the $280 from Cornelius to Kelley's company.
A $15 tracking fee
According to prosecutors and Fidelity, Kelley was entitled to keep a $15 per reconveyance tracking fee. The rest of the money was to be set aside in case the Post Closing Department had to pay trustee or county recording fees to complete the reconveyance. If that money wasn't needed, they say, Kelley was obligated to refund the remaining fees to the homeowner.
In Cornelius' case, his lender did process the reconveyances rather quickly. But he didn't receive a refund.
Class action lawsuit
It was Cornelius' fiancée who first flagged the issue. She was a paralegal with the Seattle class-action law firm Hagens Berman. At one point, she mentioned to Cornelius that the firm was working on a case against title and escrow companies like Fidelity over reconveyance fees. Cornelius testified that when they discovered he had been charged these fees once by his lender and again at closing, he turned his closing paperwork over to Hagens Berman and later agreed to become a lead plaintiff.
The sudden refund check that Cornelius received in May of 2008, right after the lawsuit was filed, was accompanied by a letter that said this was Post Closing's second attempt to refund him.
"A review of our records show that you did not cash our check of January 7, 2008," said the letter. But Cornelius says he never received that check.
Along with the refund check and letter, Post Closing included a copy of what purported to be the original refund letter. On that letter Cornelius' address was off by a single digit. Theoretically that would explain why Cornelius didn't receive the first refund.
But federal prosecutors have a different theory. They allege Kelley "fraudulently placed a slightly-incorrect address in the letter's heading" to create a "plausible explanation" for why the letter had never arrived.
Cornelius too was suspicious.
"It was too coincidental with bringing the lawsuit, the fact that it just had one digit off on my address, it just didn't make sense," Cornelius said in an interview after testifying in Kelley's trial.
For his part, Kelley said in a 2010 deposition that he didn't recall sending Cornelius a refund. Other homeowners have also testified at Kelley’s trial that they received refunds from the Post Closing Department, but only after they first complained to their escrow companies about the reconveyance fees.
Kelley’s attorneys have suggested that if Kelley did issue refunds it was as a customer courtesy, and not because he was legally obligated to refund the money. They’ve compared it to Nordstrom’s famously generous return policy.
In court, defense attorney Angelo Calfo sought to show that Kelley—as a third-party vendor—had no relationship whatsoever with escrow clients.
Calfo asked Cornelius, "Did Mr. Kelley promise you'd get anything back?”
"I didn't even know who Mr. Kelley was," Cornelius responded.
Calfo also showed the jury Cornelius' HUD-1 settlement statement and suggested that when he signed that statement, he agreed to pay the reconveyance fees and gave up his rights to the money.
Ultimately, Cornelius' class action lawsuit was dismissed, as were other similar lawsuits against the industry. The defense hopes to use that fact to help convince the jury that there was no fleecing of homeowners.
As he left the courthouse after testifying, Cornelius said he will leave it to the jury to decide Kelley's guilt or innocence, but he believes it's appropriate Kelley has been brought to trial.
"I think it's important that if something did happen that's wrong that it get resolved,” said Cornelius. “And if it's a criminal issue, it's a criminal issue.”