business

A Forest Lake real estate closer accused of pocketing about $1.3 million in dozens of property transactions has been slapped with a $420,000 fine -- one of the largest civil penalties state commerce regulators have ordered an individual to pay.

Cynthia T. Strand, who operated Strand Closing Services Inc., was supposed to have used the money to pay off mortgages and various transaction fees on nearly 40 real estate transactions. Instead, the payments went from her company's general account to Strand or to businesses that Strand and her husband controlled, the Minnesota Department of Commerce said Tuesday.

State regulators also charged Strand with allegedly failing to record change of title in several cases and failing to remit title insurance premiums, among other things. Her insurance producer license, real estate closer license and notary commission have been revoked.

"[Strand's] inappropriate and illegal real estate activities have caused substantial harm to Minnesota residents and exposed homeowners to potentially catastrophic losses in connection with property purchases and refinancings," Kevin Murphy, deputy commissioner in the Department of Commerce, said in a March 21 order.

Strand has 30 days to request a hearing on the penalty but hasn't done so yet, said Department spokesperson, Nicole Garrison-Sprenger. Strand couldn't be reached Tuesday for comment.

Her company filed for Chapter 7 bankruptcy in March 2010 with $1.6 million in assets and $2.1 million in liabilities. The bankruptcy was ultimately dismissed because of the fraud accusations, according to Rebecca Christensen, Strand's bankruptcy attorney.

Strand was charged in Washington County with theft by swindle, insurance fraud, aggravated forgery, concealing criminal proceeds and racketeering. Her husband, Steve Strand, was originally charged with her, but charges against him have been dropped.

State regulators started investigating Strand's business practices in late 2009 after a bank claimed her company didn't use loan proceeds to pay off the first mortgage on a property, as intended.

The Commerce Department received other complaints as well, including two that involved the city of Forest Lake, which alleged that funds brought to real estate closings at Strand's company weren't used to pay off previous mortgages and associated fees.

Most of the deals in question involved residential properties, many of them in the northern Twin Cities suburbs.

Several closers in Minnesota have been implicated in similar schemes since the mortgage melt-down began.

In January, a former Freeborn County commissioner who ran a real estate closing company was charged in federal court with stealing about $1 million from escrow accounts.

Chris Galler, chief operating officer for the Minnesota Association of Realtors, said his group has been working with state regulators to strengthen laws to make it harder for closers to engage in unethical or illegal behavior. Such problems can be more acute in smaller companies where there isn't as much oversight of operations, he said.

"You're more likely to have problems when there aren't as many people overseeing operations on a daily basis," Galler said.

Those smaller companies tend to service rural communities where larger companies don't exist. Galler said large fines help ensure that the individuals behind these companies aren't able to get back into the business.

Galler said such behavior is akin to a Ponzi scheme and that victims often don't recoup what has been lost because the money is gone before the fraudster has been caught.

The Associated Press contributed to this report. Jim Buchta • 612-673-7376 Jennifer Bjorhus • 612-673-4683