Homeowners testify in Troy Kelley trial

The fee didn’t look right to Nancy Moore.

She paid it as one among many closing costs when she sold her house in West Seattle in November 2005. But she told a jury Wednesday she had paid a similar fee to her mortgage lender.

“It appeared to me I was charged twice for something,” said Moore, an accountant who now lives in Burien.

After calling and emailing Fidelity National Title, the escrow company that had prepared the closing documents, she became frustrated with a lack of response.

In February 2006, she threatened to file a complaint with the state attorney general’s office.

Three months later a check arrived for $100, signed by Troy Kelley.

Fee refunds are at the heart of the state auditor’s federal criminal trial concerning his past work as a contractor for escrow companies.

The trial entered a third day Wednesday with the start of witness testimony.

At the time, Kelley, a Tacoma Democrat, tracked real estate deeds to make sure proper ownership was recorded. People selling and refinancing homes paid fees of $100 or more to his company via Fidelity or Old Republic Title.

Julie Yates, a former escrow manager for Fidelity, negotiated the company’s contract with Kelley. She testified Wednesday that he agreed to keep just $15 of each fee, pay any third parties involved in the documentation process, known as reconveyance, and refund the rest to homeowners.

Prosecutors say that, in most cases, no processing was needed because lenders already had done it, yet Kelley rarely issued refunds. They allege he stole, hid and laundered $1.4 million in fees that should have been sent back to homeowners.

Kelley has said he was allowed to keep more in cases involving extra work and negotiated side deals on the extra fees.

Yates said she knew of no amendment to the contract.

Defense attorneys say a surviving draft of the contract is vague and might not be the final version. Under questioning from attorney Patty Eakes, Yates acknowledged her memory isn’t perfect and that the contract didn’t explicitly say no other fees could be charged.

One key question is why homeowners did receive refunds in rare cases.

Prosecutors say refunds happened when a savvy borrower such as Moore complained or when Kelley tried to cover his tracks. For them, it’s evidence he should have been returning fees regularly.

Kelley’s defense says he didn’t need to give the refunds except in rare cases of double charging, although he sometimes did it as a courtesy to homeowners.

That was good customer service, Eakes told the jury Tuesday in an opening statement.

She compared refunding fees upon demand to retailer Nordstrom accepting returns of shoes even if they have been worn.

“We don’t have to take the item back,” Eakes said, describing what she said was Nordstrom’s policy, “but we’re going to do it in order to make them happy.”

Homeowners sued escrow companies over the fees in 2008, but those attempted class actions eventually were dismissed. Among their claims: The fees were duplicative because lenders had already charged them.

Claims of double-charging came up again Wednesday. Moore was one of two home-sellers who testified they received refund checks from Kelley after questioning fees as duplicative.

The second was a homebuilder from Snohomish.

Krista Thoreson’s company spent $955 on the fees upon selling an eight-unit development in Seattle. But the fees looked to her like ones she had already paid to her bank.

When she questioned them, Fidelity told her she could expect a refund once it was verified that the bank had performed the documentation. So she waited and kept checking back.

“I considered it an incorrect fee, so I was pursuing it,” Thoreson said.

Then came a check from Kelley refunding $850, all of what she had paid minus his $15-per-home fee.

Under defense questioning, Thoreson said she didn’t feel cheated or lied to at the time. She wanted an explanation, she said.

“If they told you it’s important for someone to be responsible to make sure that the bank does the reconveyance, would you have agreed to pay the fee?” Kelley defense attorney Angelo Calfo asked.

Yes, Thoreson said.

This story was originally published March 16, 2016 at 10:58 AM with the headline "Homeowners testify in Troy Kelley trial."