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10 Things Open Houses Won;t Tell You

SmartMoney (@SmartMoney)
4/24/12 7:28 AM
Just 11% of homeowners found their purchase from an open house sign, while 40% found their homes online. sm.wsj.com/I8fbRY

Emerging Fraud Trends

You Should Know About

The current housing market, while showing modest signs of improving, continues to suffer from high inventories, sluggish sales, and a high foreclosure rate. It remains an attractive environment for mortgage fraud perpetrators who discover methods to circumvent loopholes and gaps in the mortgage lending market whether the market is up or down. Here’s a look at some emerging schemes, according to the Federal Bureau of Investigation.

 

Economic Stimulus: First Time Home Buyer (FTHB) Tax Credit Fraud

The schemes used to exploit the home buyer credit program include applicants with income that exceeds program requirements, individuals who have owned a home more than five years, and individuals applying for the program before finalizing the purchase of a home. The FBI anticipates that fraud strategies will primarily include the following two deceptions: using people under the age of 18 to claim the tax credit, thereby allowing subsequent transfer of ownership to a family member who qualifies for the credit; and using non-resident aliens or illegal immigrants to apply to the home buyer credit program. 160 schemes related to this economic stimulus tax credit have been uncovered, and it is investigating over 100,000 possible fraudulent filers in Buffalo, New York.

Commercial Real Estate Loan Fraud

Perpetrators, including loan officers, real estate developers, appraisers and apartment management companies, are increasingly submitting fraudulent documents that misrepresent their assets and property values to qualify for loans to buy or retain property. When the loans are funded, the perpetrators often cease payment of their mortgages, resulting in foreclosure. According to open-source reporting, CRE loans are expected to produce more than $100 billion in losses by the end of 2010. Preliminary analysis indicates that the commercial markets exhibiting the most significant signs of distress are in areas where there is also a significant mortgage fraud problem.

Foreclosure Rescue Schemes –

Loan Modification Fraud

The growing number of homeowners needing loss mitigation assistance has overwhelmed mortgage servicers and led to the explosion of third-party loan modification companies claiming to offer assistance to homeowners struggling to avoid foreclosure. Perpetrators of loan modification scans follow the same pattern as predatory lenders by targeting vulnerable homeowners, including minorities, non-English speakers, seniors, and residents of low-income neighborhoods. Perpetrators solicit homeowners with mail flyers offering to help them stop the foreclosure process on their homes. This type of scheme is also conducted in conjunction with the filing of a bankruptcy petition to stall the foreclosure process to garner more advance fees for the perpetrator.

Home Valuation Code of Conduct Fraud

Lenders are circumventing the Home Valuation Code of Conduct (HVCC) by using other non-commission employees to order appraisals. The HVCC agreement between the FHFA and the New York Attorney General’s Office was intended to govern the way appraisals were ordered for all single-family mortgage loans (excluding government-insured loans such as FHA and VA) sold to Fannie Mae and Freddie Mac. In the fashion of a true arms-length transaction, all appraisals are to be ordered through a third-party appraisal management company to eliminate collusion between the appraiser and those who earn an income from loan closings.

Flipping, Short Sales, and Broker Price Options

Perpetrators are conducting short sale property flipping schemes using distressed properties of homeowners who are unemployed or facing foreclosure. The perpetrators collude with appraisers or real estate agents to undervalue the property using an appraisal or a broker price opinion to further manipulate the price down (the flop) to increase their profit margin when they later flip the property. They negotiate a short sale with the bank or lender, purchase the property at the reduced price and flip it to a pre-selected buyer at a much higher price. In closing short sales, agents must read the closing instructions carefully to see if there are limitations in the time period before a house can be transferred after the original sale. While the initial sale could be a legitimate transaction, if the property is resold before meeting a specified time frame by the lender, the agent could face a CPL claim.

Property Theft Targeting Bank Owned Properties

Perpetrators are targeting bank-owned properties by filing a false warranty deed using a false rental/lease agreement and collecting advance fees from an unauthorized tenant. The perpetrator arranges to rent out the bank-owned property to an unsuspecting renter. If the renter is confronted by a realtor or law enforcement, the perpetrator has advised the renter to produce a lease agreement previously provided to them. During the course of this scheme, the perpetrator places “no trespassing” signs on the properties and often changes the locks. With access to the appropriate software and knowledge of required real estate documents, a perpetrator can create fictitious documents such as a deed of trust, have the deed notarized, pay a nominal fee, and present or mail the deed to the recorder. The deed will then be recorded transferring title of all legal rights to the property.

Additional Concerns: FHA 90-Day

Property Flip Waiver

The HUD FHA 90-day property flip rule designed to prevent illegal property flips of FHA-insured properties was waived by HUD through January 31, 2011 for all sellers to move a stagnant real estate market and remove property off the books and records of banks. Regulators and law enforcement officials continue to oppose this waiver as it contributes to an ever-increasing pool of potentially fraudulent property flipping schemes as it does not require the seller to have title to the property for a minimum of 90 days.

12 Ways to Sell Your Home in This Crappy Market

Concurrent Closings

What is a Concurrent Closing?

A Concurrent Closing is the term used to define two or more properties dependent on each other to close. For example, the first property funds and records and the proceeds from that transaction are used to fund or partially fund the second transaction and then it can record. Sometimes we have concurrent recordings in which the second transaction is not dependant on funds from the first transaction. In this case the two can record back-to-back without delay, however, if the first transaction is pulled due to technical difficulties, then the concurrent transaction may also be pulled.

Do I have to use the same Title & Escrow Companies on all transactions?

No you don’t, although it can make things easier. The normal procedure on a single transaction is to fund the new loan, record the documents and then send the proceeds via wire or check to the escrow company. When a concurrent closing is involved, time is of the essence. If both transactions use the same title & escrow companies then no money needs to move locations. If different title and escrow companies are used, we just need to communicate with each other. At the close of the first transaction instead of sending the money back to the first escrow company and have them send it to the second escrow company who would then send it to the second title company, we would instead wire the money directly to the second title company saving valuable time. Once the second title company verifies the funds they can go ahead with the second transaction.

What is the key to a successful transaction?

Communication is the key. No matter what you may have heard, all title companies actually work quite well together. Our goal is to help you succeed. By communicating your needs to your escrow and title companies we can work with all parties involved to insure a successful close.

Commonly Used Terms to Assist You With Your Title Transaction & Payoffs

Payoff: The receipt of funds from the buyer and the payment of the obligations of the seller in conjunction with a real estate transaction. The payoff function is performed by the title company.

Sub-escrow (loan payoff) is an extremely important service provided by title companies to facilitate the handling of money in the closing of a real estate transaction. The performance of the payoff function, exclusive of escrow services, is unique to Southern California. This is because the majority of our customers are independent escrow companies and the majority of our title orders require payoff service. The Sub-escrow department does not draw escrow instructions or documents (i.e. Grant Deeds, Trust Deeds, etc.) They do not order demands for payoff, but do make the payoffs at the close of escrow.

Prefigures: Estimated payoff figures calculated and given prior to closing upon request. These figures are only valid through the date given and are based on the information provided at the time.

Good Funds: The title company must be in receipt of “good funds” prior to disbursing on a payoff. Types of good funds include: a) Funds wired into the title company’s Sub-escrow account; b) A cashier’s, teller’s or certified check (provide next-day availability after deposit to comply with AB512); c) Other local checks (provide availability of funds two days after deposit), and d) Out-of-area checks (provide availability of funds five days after deposit).

Demands: Demands must include specific payoff information concerning the particular property and must be signed. It is the responsibility of the escrow officer to order and provide all necessary demands, including any updates or changes on a timely basis.

Taxes: Outstanding property taxes can be paid out of the payoff proceeds.

Refunds: Any overpayment of demands will be refunded to the escrow upon receipt from the lender. Refunds typically take two to six weeks to process.

Shortages: Corinthian Title Company will contact the escrow officer if there is a shortage of the necessary funds to cover the outstanding obligations. The shortages must be received prior to payoff.

Disbursement Checks: Checks are delivered locally to lending institutions by a contracted messenger service. Checks to individuals and out-of-area lenders are typically sent via an overnight delivery company.

Wire Transfers: Funds can be wired into and out of the Corinthian Title Company offices with our bank.

Out-of-County Transactions: Corinthian Title Company offices can receive and disburse payoff funds through any of our offices.

Purchasing a Binder Can Help to Insure Savings on Title Cost

The buyer of a property who anticipates reselling it within 3-4 years can save a significant amount in title charges by purchasing a binder. A binder is a temporary contract in which the title company agrees to issue a specified policy within a certain period of time. The binder must be requested before the property being purchased closes escrow. The fee for a three-year binder is 10% of the basic rate for a full title policy. This is in addition to the applicable fee for an Owner’s Policy (usually paid by the seller). The use of a binder in your transaction can result in a significant savings when the property is resold.

Example: $1,000,000.00 – Initial Sales Price

Buyer plans to sell within three years for $1,200,000.00

In this case, the basic rate is $2,126.00. The binder fee is an additional $212.60, or 10% of the basic rate. The buyer sells the property two years later for $1,200,000.00. The basic rate for a ALTA Homeowners Title Policy at that price would be $2,559.00. The buyer now pays the difference between the two basic rates, i.e., $2,559.00 – $2,126.00 = $433.00.

 

With Binder

Initial Binder Fee              $212.60

Paid at Time of Resale     $433.00

Total Binder Fees              $645.60

 

Without Binder

ALTA Homeowners Policy Rate  $2,559.00

(Amount that would be paid for a policy with no available binder credit)

 

Total Savings

ALTA Homeowners Policy Rate  $2,559.00

Total Binder Fees              – $645.60

Total Savings      $1,913.40

 

3-Year Binder

Prior to the expiration of the three-year period, a binder may be extended for a fourth year for an additional 10% of the base rate.

20 Reasons For Title Insurance

  1. Title Insurance will protect you against a loss on your home or land due to a title defect.
  2. A deed or mortgage in the chain of title may be a forgery.
  3. Claims constantly arise due to marital status and validity of divorces.
  4. A deed or mortgage may have been made by an incompetent or under aged person.
  5. A deed or mortgage made under an expired power of attorney may be void.
  6. A deed or mortgage may have been made by a person with the same name as the owner.
  7. A child born after the execution of a will may have interest in the property.
  8. Title transferred by an heir may be subject to a federal estate tax lien.
  9. An heir or other person presumed dead may appear and recover the property or an interest.
  10. A judgment regarding the title may be voidable because of some defect in the proceeding.
  11. By insuring the title you can eliminate delays when passing your title on to someone else.
  12. Title Insurance reimburses you for the amount of your covered loss.
  13. Title Insurance helps speed negotiations when you’re ready to sell or obtain a loan.
  14. A deed or mortgage may be voidable if signed while the grantor was in bankruptcy.
  15. Claims have risen dramatically over the last 30 years.
  16. There may be a defect in the recording of a document upon which your title is dependent.
  17. Title Insurance covers attorneys’ fees and court costs.
  18. Many lawyers protect their clients as well as themselves, by procuring title insurance.
  19. A deed or mortgage may have been procured by fraud or duress.
  20. A title policy is paid in full by the first premium for as long as you own the property.

7 Dangerous Short Sale Myths

There is a lot of information – and mis-information – out there about foreclosures and short sales. And not knowing which are hard facts could put your home and family in a perilous position.

Eileen Smith, a REALTOR® from Tucker, GA cautions “Don’t let one of these myths land you and your family in foreclosure”:

“A short sale can be an excellent solution for homeowners who must sell, and owe more on their homes than they are worth. Unfortunately, a number of myths about short sales have developed, and it is important to understand the reality of this process should you find it meets your current needs.

Myth #1 – The Bank Would Rather Foreclose than Bother with a Short Sale – This is one of the most common misconceptions. The reality is that banks do not want to foreclose on your property because the foreclosure process is incredibly costly. Banks, investors, and even the federal government have all publicly stated that if a person is qualified for a short sale, the deal needs to be considered. Overwhelmingly, banks receive more on their investment through a short sale than a foreclosure.

The qualifications for a short sale include:

1. Financial Hardship – There is a situation causing you to have trouble affording your mortgage.

2. Monthly Income Shortfall – ‘You have more month than money.’ A lender will want to see that you cannot afford, or soon will not be able to afford, your mortgage.

3. Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

Myth #2 – You Must Be Behind on Your Mortgage to Negotiate a Short Sale – While this may have previously been the case, today lenders are looking for verifiable hardship, monthly cash flow shortfall, or pending shortfall and insolvency. If you meet these three requirements and believe that you soon may be unable to afford your mortgage, act immediately. Any delay could limit your options. Do not wait until the countdown clock to foreclosure has started and you have even less time left.

Myth #3 – There is Not Enough Time to Negotiate a Short Sale Before My Foreclosure – This is a myth that probably hurts homeowners the most. Many do not realize that foreclosure is a process, and that there is time to make decisions that may result in better outcomes. The foreclosing party—in most cases a lender—can stall a foreclosure up to the final day of the process. Today, many lenders will stall a foreclosure with as little as a phone call from you explaining that you are trying to sell, and almost all lenders will stall a foreclosure with a legitimate contract. For real estate professionals who understand foreclosures and short sales. there is time available until the foreclosure is complete.”


 

5 Things You Should Know Before You Flip A Property by William Bronchick, Esq.

1. Money is made at the buy, not the sell of your flip. When flipping a house your money is made at the purchase not at the sell of the house. So, many times people buy a house with the intentions of making a huge profit only to find out that they could not make any money after all the renovations because the purchased price of the house was to high. When you purchase your property you need to be sure that you buy the house with enough money to make renovations, have carrying cost, and add about 5 $6,000. Now, cost is at $147,000, and that is if everything goes as planned. Profit is under 10,000 dollars. The mistake was made at the purchase at the home, not the sell!

2. Get an inspection on the home – Get a complete inspection done on your property. By, spending a few hundred dollars on this expense you can save thousands in problems that you cannot see. Foundation, Pest, Wood Rot, Etc… By, getting a full inspection you can rest assured that you know every thing that is wrong with the property before its to late. In the contact for the house you need to make sure that you have 7 days to have a inspection preformed, and if the inspection finds problems that are going to cost more money that you are willing to spend you can get out of the contract with no penalties.

3. Don’t do the work yourself: – Get a contractor or several sub-contractors and have the work done quickly. You need to have you house flipped ASAP, so that you can get it on the market and get it sold. When I started flipping my brother and me did a house together, and we did all the construction. I had a construction background and figured it would save thousands, but it took us over 4 months to get the work done that a contractor could have had the work done in a month. But, we trying to save money on our flip did all the work on our time off and after work, and it just took to long. On our 2?nd flip we used contractors for almost everything and had the house completely flipped with a new roof, new air conditioning, new hardwood, and much more in only 3 weeks. We did not have to spend all our time working on the property and were able to spend that time looking for the next deal. This is how you get rich in real estate.

4. Place the property for Sale 1 to 2 percent below market value: If you are wanting to flip real estate and make money the object is to buy and sell the property as quickly as possible, so that you can move on to the next house. If you purchase a house and try to sell it at top dollar to make and extra couple of thousand dollars on your flip, and end up holding it for 6 months you are loosing money. Get the house on the market at a price that is going to blow the competition away, and you will sell it no matter what the market conditions. On our second house the market for selling house went down do to the housing market as a whole, and the tightening of the loans across America. We were told that you could not sell a property in this market, but we went ahead anyway and flipped our house. After 3 weeks on the market we had 3 people wanting to buy the house. Why, because we offered it at such a great deal that people wanted to jump on it. That is what you have to do especially if the market is slow.

5. Use a real estate agent – Do not try to sell you house on your own. Harness the power of a real estate agent and the power of the MLS system. When you do a FSBO you are depending on people driving by your house and seeing you sign, with a real estate agent you have some one actively marketing you house to get it sold. Once again this will free up more time for you to look for more great deals. If you want to help the process I have found that Craigslist and listing you house in Google Adwords help to, but I use these tools with the help of a agent to make sure I have all my bases covered.

I hope this article has been helpful with the basics needs of flipping a house. If you will study and learn you will make money. But, do your homework before you purchase a house, and make sure that you can pull a profit on your deal. Then, make it happen!

 

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