First American Blames Fraud for Drop in Income

First American Financial, a Santa Ana title insurance and trust company, said it was the victim of fraud that caused it to post lower net income of $4.6 million for the second quarter, a 59% drop from $11.1 million earned in the same quarter last year.

Quarterly revenues were down 12% to $154.4 million for the quarter from $175.3 million last year.

A New York agent, now in jail, stole $1.5 million in escrow funds, and a Florida agent fled with $5 million in funds that were supposed to pay off senior liens on 34 properties developed and sold by the agent’s building company, said Jack H. Derloshon, the company’s chief financial officer.

The Florida agent is still being sought, he said.

For the first six months, the firm reported net income of $1.5 million, down 93% from $23 million in the same period last year. Revenues fell 9% to $283.8 million in the period from $312.9 million last year.

The six-month income also was affected by an agency fraud, a $1.7-million theft of escrow funds in the first quarter by a different Florida agent, Derloshon said.

Such frauds occur occasionally, he said, but he couldn’t recall the firm ever getting hit so hard in such a short span.

Derloshon said lower revenues reflect a sluggish first quarter in home sales and contrasts with the record sales in the first half of 1987 when interest rates were at their lowest level in years.

The company is the parent of First American Title Insurance and First American Trust.