Tuesday, February 26, 2008

Hire an attorney before a real estate agent?


I was interviewed yesterday by a national publication for an article concerning advantages and disadvantages of using a real estate agent when you are buying or selling real estate. I highly recommend that people have real estate agents, but I am even more adamant that people hire an attorney to assist them with purchasing or selling real estate. I mentioned, somewhat in passing, that I always recommend that people hire an attorney before doing anything else in anticipation of buying or selling real estate. The interviewer was taken aback by this concept and reasonably asked why someone would want to do that.

Sure, it may be a bit self-serving for an attorney to suggest that buyers and sellers should hire an attorney. But let me explain.

Buying or selling real estate is, for most of us, the biggest financial transaction of our lives--tens or even hundreds of thousands of dollars and decades of financial obligation. You need someone by your side who represents only you. You need someone who understands the issues and problems. While lenders, real estate agents, appraisers, and title companies may be involved in your transaction, only your attorney is ethically bound to have an undivided loyalty only to you. If any of these individuals tell you that you do not need an attorney, you owe it to yourself to question why they would make such a recommendation to you. Are they trying to hide something? Are they afraid someone who is looking out only for you might question the transaction? Our website has a whole page of examples of what did go wrong for people who did not have an attorney, and things that did not go wrong but would have had we not been involved.

Most attorneys charge a flat fee for real estate transactions. So they are not interested in maximizing the purchase price to maximize their fee. Their fee is their fee whether your purchase price is $10,000 or $1,000,000. Their fee also is not dependent on whether or not you actually purchase the property. So a good real estate attorney is not afraid to tell you when it is appropriate to walk away from the purchase or sale. Reputable attorneys are never, ever, ever "dual agents." An attorney should represent the buyer or the seller, but not both.

A real estate attorney has the experience and expertise to guide you through a complicated process, from start to finish. What often happens, at least in this area, is that people hire a real estate agent first. They find a house (or a buyer for their house) and sign a purchase agreement. At this point, they are already obligated. If there is something in that agreement which would work to your detriment, there usually is not much that can be done by your attorney. Find an attorney first, and have them review the purchase agreement before you sign it. The best time to contact your attorney is before you even start looking for a home or when you are just preparing to sell your current home.

An experienced real estate attorney can even recommend lenders and real estate agents who have a demonstrated track record of reliability, integrity, and expertise, saving you a great deal of worry and frustration. As with any profession, the vast majority of lenders and real estate agents are reputable and work very hard for their clients, but there are a few who do not. A real estate attorney will have the experience to know who falls into which category, and will not be afraid to let you know--in fact, you attorney will be ethically obligated to let you know.

And for those of you who opt for the FSBO (for sale by owner) route, your attorney can be a wealth of information, and ensure that you comply with all applicable laws and disclosure requirements.

I honestly think that if everyone hired an attorney to represent them, there would be much less mortgage fraud, and much, much less predatory lending. If I had a nickel for every time I prevented a lender from taking advantage of one of my clients, I would have $4.35. Sure, I would be on the St. Patrick's Day card list of quite a few more people than I am currently if I would just "look the other way," but that is not a trade off I am willing to make.

Wednesday, February 20, 2008

New Illinois Radon Disclosure

As of January 1, 2008, the Illinois Radon Awareness Act (420 ILCS 46/1) requires sellers of residential real estate to provide to the buyer the IEMA pamphlet entitled "Radon Testing Guidelines for Real Estate Transactions" (or an equivalent pamphlet approved for use by IEMA) and the Illinois Disclosure of Information on Radon Hazards. The way the statute is worded, the buyer is not obligated to purchase the property until the disclosure and pamphlet are provided. If the disclosure and pamphlet are provided after an offer is presented to the seller, the seller must provide these documents to the buyer before accepting the offer, and allow the buyer an opportunity to review the information and possibly amend the offer. I find the italicized language problematic, since it does not distinguish between "good" and "bad" disclosures. For example, a buyer tenders an offer to a seller. The seller dismisses other offers, provides a radon disclosure which shows the home was tested last week and has no radon, and then accepts the buyer's offer. The buyer can then lower the offered purchase price. Sure, sure this is a counteroffer and the seller does not have to accept it. So, sellers, be careful, and give a radon disclosure and pamphlet to anyone who even looks like they might think about looking at your home.

Friday, February 8, 2008

Short Sales

First of all, what is a short sale? It is simply paying the lender less than the amount due on your mortgage loan in exchange for a release of lien against the real estate.

Why would a lender agree to this? Foreclosure is much more time consuming and expensive. The lender owns your property after foreclosure, and is responsible for maintenance, taxes, and most importantly, selling the property. So, accepting a short sale is sort of a "bird in the hand" theory. The lender knows the property is sold, and they know exactly what they are going to receive. With foreclosure, it can take months (even years) before the property is sold, and there is no way to know how much the lender will get when it eventually sells.

Why isn't the the perfect plan to avoid foreclosure? There are some risks involved for the home owner. Most people think that they no longer owe the money because the mortgage has been released. That is not necessarily the case. More often than not, the lender wants all the money to which they are entitled--and who can blame them. This point needs to be negotiated. If the lender actually does forgive the debt, another potential pitfall is the tax liability of the forgiven debt. Since you are given a "gift" of not having to pay back the money, this can be considered income. There are circumstances where you would be responsible for the taxes on this forgiven debt.

How do you do it? There is a great deal to be aware of when you try to do a short sale. Please don't try to do this on your own. Make sure you hire a competent real estate attorney to assist you. Your attorney will probably need your written authorization to contact the lender. Your attorney will prepare a preliminary settlement statement so that the lender can see that the sale price of the home is not sufficient to pay off the loan. Some lenders will require hardship letters. Some will even want appraisals so they can see you aren't selling the property for less than you could.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.

Wednesday, February 6, 2008

Lenders in Illinois who require you to use their title company

You have a right, under Illinois law, to select any title agency you like. Simple as that. Boiled down: No firm which may make a loan secured by an interest in real estate with a single family residence shall require, either directly or indirectly that any borrower obtain title insurance through a particular insurer, agent, or broker. Here it is in its entirety:

(815 ILCS 505/2T) (from Ch. 121 1/2, par. 262T) Sec. 2T. No person, firm, corporation, partnership or association which may extend credit or make a loan secured by an interest in real estate which is or is to be improved with a single family residence or any residential condominium unit occupied or to be occupied as a principal residence by either the borrower as an individual or, if the borrower is the trustee of a trust, by a beneficiary of that trust, shall require, either directly or indirectly, as a condition precedent to making such loan or extending such credit (a) that any seller, borrower, mortgagor or debtor to whom such money or credit is extended negotiate, obtain or contract for title insurance through a particular insurer, agent or broker; or (b) that any seller, borrower, mortgagor or debtor pay for a title commitment or policy other than a title commitment or policy issued at the request of the seller, borrower, mortgagor or other debtor. Nothing contained in this Section shall be construed to prohibit the lender from requiring title insurance as a condition of making a loan secured by an interest in real estate. The lender may refuse to make the loan or may reject the title insurer or the proposed policy if the lender believes on reasonable grounds that the title insurance will afford insufficient financial protection to the lender or insufficient protection as defined under regulations administered by the Federal Home Loan Bank Board. Nothing contained in this Section shall be construed to affect any provision in a contract between a seller and buyer of real estate with respect to the selection of title insurance. (Source: P.A. 85‑1209; 85‑1351; 85‑1440.)

Certainly makes me wonder about lenders who, when faced with this statute, still refuse to let their borrowers select their own agent. What exactly do they have to hide? Are they receiving illegal kickbacks? Is their title agent a little "flexible" with the rules? Something even more nefarious? There are a few lenders in this area who have refused to allow borrowers to choose their own title agent. I wonder how much they will enjoy defending an Illinois Consumer Fraud and Deceptive Business Practices Act claim? Please call me if your lender has problems understanding this law. Or better yet, find a new lender.

Tuesday, February 5, 2008

Deed and Green

Deed and green. Sounds like someone who works to improve the environment. But it is actually a pejorative term to describe what lazy attorneys do, or rather don't do, for their clients. In the olden days in Illinois, the declarations of value required when selling real estate were green. Hence they were called "green sheets." So "deed and green" refers to an attorney who does nothing but prepare a deed and green sheet for a seller of real estate--no representation, no attending closing, nothing. Seriously, all they do is fill in the blanks on a couple of prepared documents. This is not representation. This is providing secretarial services. In Illinois, there is an ethics opinion which states it is unethical for an attorney to prepare a deed and delegate all other responsibilities of the real estate transaction to a non-attorney. Here is a snippet of that opinion:

Opinion No. 94-1 July, 1994
Topic: Unauthorized Practice of Law; Conflicts of Interest; Limitation of Scope of Representation Digest:
A lawyer aids in the unauthorized practice of law, and may violate rules pertaining to confidentiality, conflicts, and the duty to communicate with and explain matters to a client, by limiting his role in a real estate transaction to the drafting of documents and delegating the gathering and dissemination of information, the resolution of problems arising from such the documents drafted, and other problems which may arise at the closing, to the real estate broker.
Ref.: Illinois Rules of Professional Conduct, Rules 5.5(b), 1.4(b), 5.4(c)
ISBA Opinion on Professional Conduct, Nos. 90-35 and 87-2

If you would like to read the rest, just let me know.

So why would an attorney do this? Are they lazy? Are they trying to minimize risk? Sucumbing to the demands of referring real estate agents? I have no idea. I am sure, however, that if a problem arises, the disciplinary commission and the attorney's malpractice carrier will not be amused with any arguments that the attorney felt his or her responsibility ended at preparing the deed.

In our area, there are only a couple of bad apples I know of who pull the "deed and green" routine, but in other parts of Illinois, with the exception of the Chicago area, it is more common. And in Iowa? Oh my goodness! You certainly would not guess Iowa prides itself on keeping attorneys involved in real estate transactions. We are involved in transactions throughout the entire state, and I am constantly shocked at how little attorneys do in "representing" their clients. Outside of our community, you are more likely to see Sasquatch on your way home from work this morning that you are to find an attorney at a closing.

So, come on "deed and green" attorneys; either represent your clients or don't represent your clients. Stop being satisfied with doing only part of your job. And sellers, if you can't find an attorney who will actually represent you, don't pay for someone to complete a couple of simple documents for you. Keep looking for someone who is willing to actually do his or her job. We are out there! And if there really is not one attorney in your community willing to represent you (and sadly, there are places like that), fill in the blanks yourself and save the $50-$100. All the documents you need are easily available on the Internet.

Friday, February 1, 2008

Good for her!

One of the reasons many of the mortgage fraud schemes can flourish is because of complicity, or at least indifference, of a very few appraisers. Just a few bad apples make it very difficult for appraisers with a strong moral compass to succeed. A California appraiser was "blacklisted" by Washington Mutual because she refused to lie about market conditions. This is pretty much the same problem legitimate closing agents and title companies suffer through every day. If I had a nickel for every "client" or "deal" we lost because we were not "flexible" enough.... Well, it would be a nice big pile of nickels. Of course, who need clients like that, I know, I know, but it sure would make life and business easier if we all played by the same rules.

Here's the whole story:,0,5983594.story

Good luck Jennifer! We're all rooting for you.