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:
http://www.chicagotribune.com/classified/realestate/news/chi-harney_re_01-27jan27,0,5983594.story
Good luck Jennifer! We're all rooting for you.
Friday, February 1, 2008
Thursday, January 31, 2008
Your check register needs to match the HUD-1
Isn't that a simple rule? But for some reason, many closing agents and title companies just can't quite seem to follow this rule. When I look at a title/closing/escrow company's trust or escrow account check register for a particular file, it needs to match exactly what is on the HUD-1 Settlement Statement. So, if the seller is getting $23,000 on the settlement statement, your check register better show a check to the seller for $23,000. Not only that, but the names need to match. If the settlement statement says "Repairs to Smith Construction," that check best have gone to Smith Construction, and not back to the buyer or seller. Likewise, the seller's proceeds need to go to the seller, not to the seller AND the buyer, as some of the "flexible" closing agents will do.
The buyer and seller sign under this language on the HUD-1 Settlement Statement:
I have carefully reviewed the HUD-1 Settlement Statement and to the best of my knowledge and belief, it is a true and accurate statement of all the receipts and disbursements made on my account or by me in this transaction.
The closing agent signs this:
The HUD-1 Settlement Statement which I have prepared is a true and accurate account of this transaction. I have caused or will cause the funds to be disbursed in accordance with this statement.
Those statements are pretty simple too, aren't they? What often happens is that the purchase agreement says that the seller will pay $3,000 of the buyer's closing costs (we won't discuss the fact that they have artificially inflated the purchase price by that $3,000). Sometimes, the closings costs don't amount to $3,000. Sometimes, the lender will not allow the seller to pay certain closing costs. Sometimes, the buyer would end up getting money back if the buyer gets the full $3,000, and the lender does not allow the buyer to get a check at closing. Doesn't matter.
Let's say the lender, for whatever reason, only allows the buyer to receive a credit for $2,000 of the $3,000 seller paid closing costs. The loan officers and real estate agents will beg, plead, and argue that you should give the seller $22,000 of the $23,000 shown on the settlement statement, and give the other $1,000 to the buyer. When the real estate agents and the loan officer are telling you that it's not fair if the buyer doesn't get the full $3,000, that all the other title companies in town will cut checks which differ from the settlement statement, go back and read what you just signed:
The HUD-1 Settlement Statement which I have prepared is a true and accurate account of this transaction. I have caused or will cause the funds to be disbursed in accordance with this statement.
And then ask yourself if their business is worth damaging your community, hurting our economy, and committing mortgage, RESPA, mail, and wire fraud.
www.thomasmoens.com
The buyer and seller sign under this language on the HUD-1 Settlement Statement:
I have carefully reviewed the HUD-1 Settlement Statement and to the best of my knowledge and belief, it is a true and accurate statement of all the receipts and disbursements made on my account or by me in this transaction.
The closing agent signs this:
The HUD-1 Settlement Statement which I have prepared is a true and accurate account of this transaction. I have caused or will cause the funds to be disbursed in accordance with this statement.
Those statements are pretty simple too, aren't they? What often happens is that the purchase agreement says that the seller will pay $3,000 of the buyer's closing costs (we won't discuss the fact that they have artificially inflated the purchase price by that $3,000). Sometimes, the closings costs don't amount to $3,000. Sometimes, the lender will not allow the seller to pay certain closing costs. Sometimes, the buyer would end up getting money back if the buyer gets the full $3,000, and the lender does not allow the buyer to get a check at closing. Doesn't matter.
Let's say the lender, for whatever reason, only allows the buyer to receive a credit for $2,000 of the $3,000 seller paid closing costs. The loan officers and real estate agents will beg, plead, and argue that you should give the seller $22,000 of the $23,000 shown on the settlement statement, and give the other $1,000 to the buyer. When the real estate agents and the loan officer are telling you that it's not fair if the buyer doesn't get the full $3,000, that all the other title companies in town will cut checks which differ from the settlement statement, go back and read what you just signed:
The HUD-1 Settlement Statement which I have prepared is a true and accurate account of this transaction. I have caused or will cause the funds to be disbursed in accordance with this statement.
And then ask yourself if their business is worth damaging your community, hurting our economy, and committing mortgage, RESPA, mail, and wire fraud.
www.thomasmoens.com
Wednesday, January 30, 2008
Fake second mortgages
Why would anyone give a "fake" second mortgage? Here's how the scam works. Let's say the seller wants $100,000 for their house. The buyer does not have a down payment, and does not want to pay mortgage insurance. The buyer, seller, and sometimes the real estate agent, loan officer, and title company all conspire to increase the purchase price to $120,000 with the seller "financing" $20,000. The $20,000 seller financing is shown on the settlement statement. There is an actual note and mortgage signed by the buyer at closing evidencing the $20,000 debt. In extreme cases, the title company will even record the mortgage (though most do not).
So far, this is completely legitimate. What happens next though, is that the mortgage is immediately released, and the note cancelled. I have actually heard tell of the president of a big title company in our area who actually makes a big show of tearing up the note at closing.
As soon as that is done, it becomes a $20,000 gift from the seller to the buyer. And it becomes mortgage and RESPA fraud. The end lender is led to believe that the purchase price is actually $120,000, and that the buyer will be making payments to the seller on the $20,000. The truth is that the house is only worth $100,000 and the buyer has absolutely no investment in the property. Not really any different that under the table kickbacks, except that they put it on the table first.
www.thomasmoens.com
So far, this is completely legitimate. What happens next though, is that the mortgage is immediately released, and the note cancelled. I have actually heard tell of the president of a big title company in our area who actually makes a big show of tearing up the note at closing.
As soon as that is done, it becomes a $20,000 gift from the seller to the buyer. And it becomes mortgage and RESPA fraud. The end lender is led to believe that the purchase price is actually $120,000, and that the buyer will be making payments to the seller on the $20,000. The truth is that the house is only worth $100,000 and the buyer has absolutely no investment in the property. Not really any different that under the table kickbacks, except that they put it on the table first.
www.thomasmoens.com
Tuesday, January 29, 2008
Corporations selling real estate
Since the Quad Cities is a community which is split into two states, we often have "jurisdictional" problems. One common problem is when a corporation or LLC sells real estate in a state in which it is not authorized to do business. In other words, an Iowa corporation sells real estate in Illinois without being authorized to do business in Illinois.
In Illinois a corporation does not need to be authorized to do business in Illinois if all it does is buy and sell real estate. Buy it and sell it. That's it. As soon as it does anything to the property, the rules change. The problem arises when that corporation "transacts business" in Illinois. For example, if Iowa Property, Inc. buys a lot in Illinois, then builds a house on that lot, Iowa Property, Inc. needs to be authorized to do business in Illinois. Similarly, if Iowa Property, Inc. buys a house or building in Illinois and then fixes it up, it also needs to be authorized to do business in Illinois. In both of these examples, Iowa Property, Inc. is transacting business in Illinois and therefore needs to be authorized to do business in Illinois.
If Iowa Property, Inc. is not authorized to do business in Illinois when it buys property, improves it, and then sells it, all of the franchise tax, income tax, and registration fees it would have owed had it been paying its fair share become liens against any real estate it owns in Illinois. So essentially, if an attorney or title company allows the Iowa corporation to sell this real estate, the buyer could end up being responsible for this lien.
I have had numerous "stern discussions" with Iowa attorneys regarding this. I will never let my buyer-client purchase property from a corporation not authorized to do business in Illinois, when it should have been authorized to do business in Illinois. It is a simple enough process to check--www.cyberdriveillinois.com will tell you whether or not a corporation or LLC is authorized to do business in Illinois. Unfortunately, I see attorneys and title companies allow this to slide by all the time. They succeed in failing their clients.
In Illinois a corporation does not need to be authorized to do business in Illinois if all it does is buy and sell real estate. Buy it and sell it. That's it. As soon as it does anything to the property, the rules change. The problem arises when that corporation "transacts business" in Illinois. For example, if Iowa Property, Inc. buys a lot in Illinois, then builds a house on that lot, Iowa Property, Inc. needs to be authorized to do business in Illinois. Similarly, if Iowa Property, Inc. buys a house or building in Illinois and then fixes it up, it also needs to be authorized to do business in Illinois. In both of these examples, Iowa Property, Inc. is transacting business in Illinois and therefore needs to be authorized to do business in Illinois.
If Iowa Property, Inc. is not authorized to do business in Illinois when it buys property, improves it, and then sells it, all of the franchise tax, income tax, and registration fees it would have owed had it been paying its fair share become liens against any real estate it owns in Illinois. So essentially, if an attorney or title company allows the Iowa corporation to sell this real estate, the buyer could end up being responsible for this lien.
I have had numerous "stern discussions" with Iowa attorneys regarding this. I will never let my buyer-client purchase property from a corporation not authorized to do business in Illinois, when it should have been authorized to do business in Illinois. It is a simple enough process to check--www.cyberdriveillinois.com will tell you whether or not a corporation or LLC is authorized to do business in Illinois. Unfortunately, I see attorneys and title companies allow this to slide by all the time. They succeed in failing their clients.
Friday, August 10, 2007
Illinois Deed Provider, Inc.
Several clients have called recently regarding a letter they received from Illinois Deed Provider, Inc. Illinois Deed Provider, Inc. proposes to obtain a certified copy of your deed for $89.50. My advice, save your money, or donate it to a worthy cause.
The letter claims that a certified copy of your deed "provides evidence that your property was transferred to you." It does no such thing. As a real estate attorney, I can assure you that it is absolutely unnecessary to have a certified copy of your deed. Deeds are not like the title to your car–you do not need your deed--original or copy--to sell your real estate or otherwise to prove ownership. One deed, standing on its own, is meaningless.
It is necessary to follow the chain of title to determine ownership. In other words, I could give you a deed to the Centennial Bridge, and it could be recorded, and you could obtain a certified copy of that document. However, unless I owned the Centennial Bridge, and the person who deeded the property to me owned it, and the person before that person, etc., you just received a deed to nothing. No amount of certification changes this simple fact.
Further, those documents are part of the permanent record at the Recorder’s Office, and you can obtain copies anytime you like. So, if it ever turns out for some peculiar reason you need a copy, it can be obtained with one visit to the Recorder’s Office. By the way, the Recorder's Office charges $49.00, there is no parking fee, and you only need to go there once, contrary to what the Illinois Deed Provider folks might try to tell you.
Their letter claims that the U.S. Government recommends that you have "an official or certified copy" of your deed. I looked at the page they say recommends this. It says nothing of the kind. The page contains a list of documents you should consider keeping in your safe deposit box. In the section regarding what you should keep in your safe deposit box, it says, "If applicable, you should have official or certified copies of documents for your safe deposit box" [emphasis added]. Since, in Illinois and Iowa at least, it is unnecessary to have a certified copy of your deed, I would state unequivocally that this recommendation is not applicable with regard to deeds.
The company appears to owned by an Illinois licensed real estate broker by the name of Barry Joel Isaacson. Mr. Isaacson is not an attorney, even though he is giving legal advice by explaining the legal effect of documents to others. In my opinion, this is the unauthorized practice of law.
If you receive this letter, please, please, please, just ignore it. If you are deadset on giving away money, please consider a donation to the Animal Aid Humane Society or the Quad City Animal Welfare Center instead of Mr. Isaacson. At least then it will be for a good cause.
www.thomasmoens.com
The letter claims that a certified copy of your deed "provides evidence that your property was transferred to you." It does no such thing. As a real estate attorney, I can assure you that it is absolutely unnecessary to have a certified copy of your deed. Deeds are not like the title to your car–you do not need your deed--original or copy--to sell your real estate or otherwise to prove ownership. One deed, standing on its own, is meaningless.
It is necessary to follow the chain of title to determine ownership. In other words, I could give you a deed to the Centennial Bridge, and it could be recorded, and you could obtain a certified copy of that document. However, unless I owned the Centennial Bridge, and the person who deeded the property to me owned it, and the person before that person, etc., you just received a deed to nothing. No amount of certification changes this simple fact.
Further, those documents are part of the permanent record at the Recorder’s Office, and you can obtain copies anytime you like. So, if it ever turns out for some peculiar reason you need a copy, it can be obtained with one visit to the Recorder’s Office. By the way, the Recorder's Office charges $49.00, there is no parking fee, and you only need to go there once, contrary to what the Illinois Deed Provider folks might try to tell you.
Their letter claims that the U.S. Government recommends that you have "an official or certified copy" of your deed. I looked at the page they say recommends this. It says nothing of the kind. The page contains a list of documents you should consider keeping in your safe deposit box. In the section regarding what you should keep in your safe deposit box, it says, "If applicable, you should have official or certified copies of documents for your safe deposit box" [emphasis added]. Since, in Illinois and Iowa at least, it is unnecessary to have a certified copy of your deed, I would state unequivocally that this recommendation is not applicable with regard to deeds.
The company appears to owned by an Illinois licensed real estate broker by the name of Barry Joel Isaacson. Mr. Isaacson is not an attorney, even though he is giving legal advice by explaining the legal effect of documents to others. In my opinion, this is the unauthorized practice of law.
If you receive this letter, please, please, please, just ignore it. If you are deadset on giving away money, please consider a donation to the Animal Aid Humane Society or the Quad City Animal Welfare Center instead of Mr. Isaacson. At least then it will be for a good cause.
www.thomasmoens.com
Thursday, March 29, 2007
Tenancy by the entirety
For a primer on tenancy by the entirety, visit
http://thomasmoens.com/tenancy_by_the_entirety.html
I had the misfortune of witnessing a good example of ineffective counsel regarding tenancy by the entirety yesterday. I was at a real estate closing where the buyers were moving here from the East Coast. They still owned a home on the East Coast. Unfortunately, the attorney they hired is not known for his brilliant legal acumen. He simply told them that tenancy by the entirety was the "best" way to take title. Here is just a small sampling of what he failed to ask to determine whether this was best for them:
Oh, and he misspelled "entirety" on the deed.
www.thomasmoens.com
http://thomasmoens.com/tenancy_by_the_entirety.html
I had the misfortune of witnessing a good example of ineffective counsel regarding tenancy by the entirety yesterday. I was at a real estate closing where the buyers were moving here from the East Coast. They still owned a home on the East Coast. Unfortunately, the attorney they hired is not known for his brilliant legal acumen. He simply told them that tenancy by the entirety was the "best" way to take title. Here is just a small sampling of what he failed to ask to determine whether this was best for them:
- Were they married? Sure he assumed they were, but if they were not, they cannot be tenants by the entirety. Of course, this is not as bad as another genius in the area who routinely vests title in unmarried people as "each an unmarried person, as tenants by the entirety."
- Were they planning to occupy this house as their residence? Again, he assumed, but if they did not, they cannot be tenants by the entirety. Perhaps they were planning to remain on the East Coast for a few weeks or months.
- Was their home on the East Coast owned by them as tenants by the entirety? Let’s say it was, and there was a judgment against the husband in the state from which they moved. It is possible that his haste to foist this tenancy upon them made that judgment immediately enforceable.
- Did either of them have any reason to believe they may become disabled?
- Did either of them have any reason to believe they were more likely than the average person to be sued?
Oh, and he misspelled "entirety" on the deed.
www.thomasmoens.com
Tuesday, March 13, 2007
Section 9 Violations and Foreclosures
Due to the increased number of foreclosure, there are a lot more banks selling foreclosed property. Many of these entities require their own addendum to the purchase agreement, sometimes ten to twenty pages long. One provision almost all include is something along the lines of, "Seller shall select the closing agent," sometimes even, "Buyer shall pay for all title insurance from the title company selected by Seller." Apparently, these banks, and the attorneys who prepare these addenda are not familiar with RESPA Section 9 (12 U.S.C. § 2608). It states:
(a) No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company.
(b) Any seller who violates the provisions of subsection (a) of this section shall be liable to the buyer in an amount equal to three times all charges made for such title insurance. 12 U.S.C. § 2608.
Even where the seller specifies the closing agent, leaving the selection of title insurer ostensibly up to the buyer, there is a Section 9 violation. The key word in the statute is "indirectly." Here’s the train of thought:
1. The purchase agreement specifies that the seller shall designate the providers of title and escrow/closing services. (This may be interpreted as a direct requirement that the buyers utilize the title company selected by seller.)
2. The buyers’ lender will require a mortgagee’s policy of title insurance.
3. This lender will also require an insured closing protection letter (CPL).
4. In order for the CPL to be effective, the same company must issue both the CPL and the mortgagee’s title policy.
5. Since the seller is specifying the closing agent, the seller is requiring, at least indirectly, that the buyers purchase the mortgagee’s policy from a particular title insurance company.
Therefore, this requirement violates Section 9 of RESPA. Additionally, these title companies are often from out of town, and the fees are, to put it politely, exorbitant. Often, they will utilize the out of town title company, which then will hire a local title company to act on its behalf. This, of course, smacks of illegal kickbacks. But that’s a different article.
Some bank’s attorneys then try to make the argument that if the purchase agreement specifies that the buyer is getting a conventional loan, not a federally related mortgage loan (FRML), then Section 9 does not apply. While I would not be surprised for someone who is not an attorney to make such a mistake, it is a bit disappointing when someone "in the business" is not aware of the definition of FRML, and does not take the simple effort to learn the definition. Specifically, FRML is defined as:
[A]ny loan (other than temporary financing such as a construction loan) which—
(A) is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from one to four families, including any such secured loan, the proceeds of which are used to prepay or pay off an existing loan secured by the same property; and
(B) (i) is made in whole or in part by any lender the deposits or accounts of which are insured by any agency of the Federal Government, or is made in whole or in part by any lender which is regulated by any agency of the Federal Government, or
(ii) is made in whole or in part, or insured, guaranteed, supplemented, or assisted in any way, by the Secretary or any other officer or agency of the Federal Government or under or in connection with a housing or urban development program administered by the Secretary or a housing or related program administered by any other such officer or agency; or
(iii) is intended to be sold by the originating lender to the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, or a financial institution from which it is to be purchased by the Federal Home Loan Mortgage Corporation; or
(iv) is made in whole or in part by any "creditor", as defined in section 1602 (f) of title 15, who makes or invests in residential real estate loans aggregating more than $1,000,000 per year, except that for the purpose of this chapter, the term "creditor" does not include any agency or instrumentality of any State. 12 U.S.C. § 2602.
By golly, that’s fairly well every mortgage loan given in this country today. If the loan is to be secured by residential property, the accounts of the lender are insured by a Federal agency (FDIC), and the lender sells its loans to FNMA, then it is a FRML. Therefore, even though a loan is a conventional loan and not an FHA or VA loan, it falls within the RESPA definition of FRML and is both a conventional loan and a FRML. In addition, even assuming paragraphs (i), (ii), and (iii) do not apply, there are very few lenders of any substance which do not fall under the definition contained in paragraph (iv). Four quarter million dollar loans and RESPA applies. And before you ask, creditor under section 1602 (f) of title 15 is defined as:
(f) The term "creditor" refers only to a person who both
(1) regularly extends, whether in connection with loans, sales of property or services, or otherwise, consumer credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, and
(2) is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness or, if there is no such evidence of indebtedness, by agreement. 15 U.S.C. § 1602.
So, the moral of the story: If you are a seller and you require the buyer to use your favorite title company or closing agent, you are probably violating Section 9 of RESPA.
www.thomasmoens.com
(a) No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company.
(b) Any seller who violates the provisions of subsection (a) of this section shall be liable to the buyer in an amount equal to three times all charges made for such title insurance. 12 U.S.C. § 2608.
Even where the seller specifies the closing agent, leaving the selection of title insurer ostensibly up to the buyer, there is a Section 9 violation. The key word in the statute is "indirectly." Here’s the train of thought:
1. The purchase agreement specifies that the seller shall designate the providers of title and escrow/closing services. (This may be interpreted as a direct requirement that the buyers utilize the title company selected by seller.)
2. The buyers’ lender will require a mortgagee’s policy of title insurance.
3. This lender will also require an insured closing protection letter (CPL).
4. In order for the CPL to be effective, the same company must issue both the CPL and the mortgagee’s title policy.
5. Since the seller is specifying the closing agent, the seller is requiring, at least indirectly, that the buyers purchase the mortgagee’s policy from a particular title insurance company.
Therefore, this requirement violates Section 9 of RESPA. Additionally, these title companies are often from out of town, and the fees are, to put it politely, exorbitant. Often, they will utilize the out of town title company, which then will hire a local title company to act on its behalf. This, of course, smacks of illegal kickbacks. But that’s a different article.
Some bank’s attorneys then try to make the argument that if the purchase agreement specifies that the buyer is getting a conventional loan, not a federally related mortgage loan (FRML), then Section 9 does not apply. While I would not be surprised for someone who is not an attorney to make such a mistake, it is a bit disappointing when someone "in the business" is not aware of the definition of FRML, and does not take the simple effort to learn the definition. Specifically, FRML is defined as:
[A]ny loan (other than temporary financing such as a construction loan) which—
(A) is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from one to four families, including any such secured loan, the proceeds of which are used to prepay or pay off an existing loan secured by the same property; and
(B) (i) is made in whole or in part by any lender the deposits or accounts of which are insured by any agency of the Federal Government, or is made in whole or in part by any lender which is regulated by any agency of the Federal Government, or
(ii) is made in whole or in part, or insured, guaranteed, supplemented, or assisted in any way, by the Secretary or any other officer or agency of the Federal Government or under or in connection with a housing or urban development program administered by the Secretary or a housing or related program administered by any other such officer or agency; or
(iii) is intended to be sold by the originating lender to the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, or a financial institution from which it is to be purchased by the Federal Home Loan Mortgage Corporation; or
(iv) is made in whole or in part by any "creditor", as defined in section 1602 (f) of title 15, who makes or invests in residential real estate loans aggregating more than $1,000,000 per year, except that for the purpose of this chapter, the term "creditor" does not include any agency or instrumentality of any State. 12 U.S.C. § 2602.
By golly, that’s fairly well every mortgage loan given in this country today. If the loan is to be secured by residential property, the accounts of the lender are insured by a Federal agency (FDIC), and the lender sells its loans to FNMA, then it is a FRML. Therefore, even though a loan is a conventional loan and not an FHA or VA loan, it falls within the RESPA definition of FRML and is both a conventional loan and a FRML. In addition, even assuming paragraphs (i), (ii), and (iii) do not apply, there are very few lenders of any substance which do not fall under the definition contained in paragraph (iv). Four quarter million dollar loans and RESPA applies. And before you ask, creditor under section 1602 (f) of title 15 is defined as:
(f) The term "creditor" refers only to a person who both
(1) regularly extends, whether in connection with loans, sales of property or services, or otherwise, consumer credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, and
(2) is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness or, if there is no such evidence of indebtedness, by agreement. 15 U.S.C. § 1602.
So, the moral of the story: If you are a seller and you require the buyer to use your favorite title company or closing agent, you are probably violating Section 9 of RESPA.
www.thomasmoens.com
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