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Wisconsin Passes New Privacy Law Affecting Closings

A new state law may make the closing process slightly more difficult. The law makes it harder to order water bills for real estate closings. Being aware of the new law can avoid delay and help ease concerns when the title company asks for information or signatures.

Act 25 And Municipal Water Bills

When a home owner sells a house, they must assure that the water bill is paid in full as of closing. Title companies take care of this by ordering the Seller’s final water bill from the municipality. This is typically the only utility that the title company will handle because it is listed on the offer to purchase and can become a lien against the property if not paid.

Wisconsin Act 25 now prohibits a municipality from releasing customer information to any person (including a title company) without the home owner’s consent. This means, title companies need a written authorization and consent from every seller in order to request the water bill.

While this might seem like a minor detail, it adds time and complication to an already rushed and complicated process. Many sellers are nervous about the process and are skeptical and hesitant to give information and authorization to a title company that they hardly know.

The Wisconsin Realtor’s Association has advised all Wisconsin Realtors to include the following authorization on their listing contract:

The Seller authorizes the Broker and/or the title company Seller anticipates will close the transaction, to obtain any municipal utility customer information relating to the Property, including but not limited to customer usage or account information.

Homestead Title has already revised our Authorization (used for mortgage payoffs) to include any municipal utilities.

Homestead’s mission and passion is to make the closing process easier. By providing education and helping Realtors and Sellers understand the process, we make the process more enjoyable, less stressful, and smooth for everyone involved.

 

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Too Much Money is a Red Flag!

Realtors, attorneys, and home sellers should be alert to red flags that indicate fraud, scams, or troubled deals. One major red flag is when a buyer offers too much money. Sellers should beware of any offer with a purchase price that is far higher than expected or earnest money that is far more than customary in the market.

Common Scams

Foreign Buyer Blindly Purchasing Home

One common scam involves foreign buyers emailing Realtors asking for help purchasing a home. After a few emails, the buyer (usually from China, England, or Canada) will make a full price offer on a home the he has never seen. He will then send earnest money in a certified check. If the red flags weren’t waiving already, they should be when the Earnest Money is way too high. For instance, in Madison, Wisconsin, earnest money typically ranges from $1,000 – $3,000. The foreign buyer will send $100,000 or more in earnest money. They will then ask for a return of the excess money. If you return the funds via wire, as requested, you will soon find yourself in a bind when the certified check bounces. It was fake.

Too much earnest money is a red flag!

For more information on this, common scam: Link here.

Local Buyer Seeking Occupancy

Another potential scam occurs when a buyer seeks to purchase property with an extended, pre-closing occupancy. In this case, we have seen buyers offer substantial earnest money (10-20 times the typical amount) and request occupancy for many months prior to closing. The buyer then moves in, fails to close and refuses to leave. The seller must file an eviction proceeding to remove the buyer.

Again, too much earnest money raises red flags. In additions, extended, pre-closing occupancy should raise a red flag worthy of retaining an attorney.  Interestingly, one of the ways to mitigate the risk of an extended occupancy period is to ask for an unusually high amount of earnest money.  Thus, red flags don’t always lead to fraud.  But they can indicate additional risks.

Unrealistic Purchase Price

Any time a buyer offers far more than the reasonable value of a home, it is a red flag for fraud. In some cases, this kind of fraud can benefit both buyer and seller. But, it may be fraud nonetheless and can expose the Realtor or other professionals to liability and harm.

For additional resources on avoiding Real Estate Scams, check out the following links:

Various Real Estate Scams: http://realtormag.realtor.org/law-and-ethics/law/article/2010/08/5-real-estate-scams-you-need-know-about

Foreign Buyer Scam: https://homesteadtitle.wordpress.com/2010/06/15/real-estate-scam-warning/

Corporate Records Scam: https://homesteadtitle.wordpress.com/2013/02/01/scam-alert-annual-minutes-requirements/

Deed Copy Scam: https://homesteadtitle.wordpress.com/2012/07/20/deed-copy-scam-alert/

Better Business Bureau False Complaint:
https://homesteadtitle.wordpress.com/2012/01/20/better-business-bureau-false-complaint/

 

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Up, Up, and Away

Rates on the Rise, But Sales Remain HOT

Mortgage rates spiked over the last two weeks. In fact, since the end of April, the average rate on a 30-year fixed rate mortgage increased by nearly 25%.

Pressure From The Fed Kept Rates Low

The Fed had helped keep mortgage rates low through a bond purchase program called Quantitative Easing (QE for short). But, recent announcements by Fed Chairman Ben Bernanke signaling a slow down or end to QE spooked the market.

Mortgage rates jumped and have continued to rise since those announcements.

Real Estate Market Continues Hot Streak

Despite rising rates, the real estate market remains hot. Realtors continue to be overwhelmed with activity and many sellers are seeing multiple offers near or at asking price.  Homestead’s numbers are no different. After an incredible year of growth in 2012, we have seen a 30% year over year increase in closings. And, despite the jump in interest rates from April to June, our new orders have not slowed.

Homestead’s growth is both a function of a strong market and of our strong commitment and passion to making the closing process easier for our customers and clients. Our values of caring, empathy, flexibility, loyalty and a hands-on, education based approach have cemented a loyal following of Realtors and do-it-yourself sellers.

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Set Your Clocks Back!

What if you set your clocks back to 1984? The cost of an owner’s policy of Title Insurance on a $200,000 purchase in Dane County was $975.

Back in 1993 the same policy cost $1345.

But, by 2011, the price for that policy in Dane County had fallen to $575.

Prices took the same downward spiral in Milwaukee. Meanwhile, most other counties in Wisconsin did not experience this “race to the bottom.” Throughout the state, owner’s title policies ranged between $700 and $1010. That’s one of the reasons the State Insurance Commissioner stepped in. The discounts had not only become random and unrelated to risk, they where potentially discriminatory. A Dane County resident might pay $575 while in Wausau, the exact same policy cost $1010 to cover the exact same risk.

Title Underwriters heeded the commissioner’s warnings and filed new rates. Contrary to some recent rumblings, these rates are not much higher than past rates. Today, that $200,000 policy will cost a Dane County seller $664 – $830, depending upon the underwriter and risk. That’s lower than 1984, much lower than 1993, and, in most areas of the state, even lower than 2011.

For a detailed explanation of the new title rates, link to:

https://homesteadtitle.wordpress.com/2012/10/11/title-rate-clarifications/

In the meantime, Daylight Savings Time ends on November 4th at 2am.

Set your clocks back one hour!

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Closing Cost Credits – Buyer Beware!

A simple contract term can cause so much confusion:

“Seller shall provide buyer with a closing cost credit of $3,000 at closing.”

Closing cost credits are often used to help buyers cover their costs or to address contract issues prior to closing. When Buyer’s and Sellers agree on this credit, everyone should be happy. Unfortunately, it is not that simple.

The buyer’s lender must approve all closing credits and they must appear on the HUD-1 Settlement Statement. Problems arise when lenders reject these credits.

Contract Language and Communication

Realtors must draft good contract language and communicate with their Buyers. First, Realtors may provide for a “closing cost and prepaid” credit. Lenders will only allow credits up to the amount of the Buyer’s actual closing costs. Including “prepaids” allows many lenders to increase the allowable credits to include prepaid mortgage interest and tax escrows. Realtors should also avoid excessively large closing cost credits. In Dane County, for instance, it is unusual for closing costs to exceed $3,500. A closing cost credit of $8,000 is virtually certain to be denied. It is also important to communicate with your Buyers and warn them that the closing cost credit requires lender approval. Prepare them for the possibility that the credit may be limited or even rejected.

Avoiding Lender Rejection of Credits

Many Realtors or attorneys include provisions that reduce the purchase price by the amount of any rejected credits. Beware: this can cause delays and the need to re-underwrite a loan. The seller may also credit “prepaid” items to increase the allowable credits. Check with the lender prior to drafting the “closing cost and prepaid credit” provision to make sure it is acceptable. The best practice is to avoid closing cost credits that exceed actual closing costs.

Most importantly, if a lender rejects a credit, there are certain things that are not acceptable:

  • Do NOT have the Seller write a personal check to the Buyer at closing
  • Do NOT ask the title company to write a check to the buyer, and reduce the seller’s proceeds by that amount.
  • Do NOT have the Realtors write a check to the Buyers.

Each of these “solutions” may constitute loan fraud. It is never worth risking a Realtor’s license or an attorney’s practice to assist or instruct their clients in the commission of loan fraud (no matter how unlikely it may seem that there would be any real consequences).

This information is provided by attorney Pete Zarov. This is not intended to constitute legal advice and should not be relied upon in place of individualized legal advice. For more real estate tips, check out Homestead Title’s blog.

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