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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.

 

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/

 

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.

Mortgage Rates Shot Up This Week

Mortgage rates shot up this week and many are wondering why and what’s next. Homestead Title is going wonky today and dabbling in the guessing game of mortgage rates.

Bonds and Mortgage Rates

Mortgage Rates tend to follow long term bonds and, specifically, the 10 year Treasury Bond market. As bond yields increase, mortgage rates go up. And, sure enough, bond yields rose this week. But, most economists believe there is a much stronger force at play that has kept interest rates low. It is called the Fed and its program of Quantitative Easing.

Quantitative Easing Explained

The Federal Reserve has ways of influencing the economy. Its primary tool is to lower the interest rate charged to banks for inter-bank lending. By lowering the cost of money they hope Banks will borrow more, lend more freely, and spur economic growth.

Over the past 4 years, the Fed lowered rates to nearly zero, yet banks still weren’t lending enough and the economy wasn’t growing fast enough. In fact, banks were borrowing this cheap money and using it to buy safe bonds that paid a small return. Unable to lower the cost of money, the Fed sought to influence the quantity of money (hence the term Quantitative Easing). They pumped cash into the economy by buying up the same bonds and safe investments that banks were buying. This lowered the yields on bonds and indirectly lowered mortgage rates.

And sure enough, people borrowed. This spring has seen a surge in the real estate market and low interest rates have surely played a role.

Why Did Rates Rise Suddenly This Week?

When the Fed talks, the markets listen. On May 22, Federal Reserve Chairman Ben Bernanke suggested that the Fed might slow down or stop Quantitative Easing sooner than expected. The markets and banks reacted strongly (some would say they overreacted) and mortgage rates spiked.

What Will Happen Next

We’re a Title Company, not fortune tellers. If we could accurately predict the economy, we’d be on a beach in the Caribbean. But we can report what other’s are saying. Many economists think this is still a volatile market and rates will drop back down. It is hard to imagine rates dropping back to the historic lows of the last year, but we never imagined that was possible in the first place. Rates are still well below 4%, which is a screaming deal by comparison to rates over the last 50 years.

Title Commitments 101

Reading Title Commitments For Better Closings

Q: What is the most common mistake Realtors (and FSBO parties) make in reviewing a title insurance commitment?

A: They don’t review or read it at all!

Most Realtors are trained not to act as attorney’s or give any legal advice. The Title Commitment is a legal document and advising a client on it could constitute legal advice. In addition, many Realtors and FSBO parties simply don’t know what to look for and, therefore, don’t read the document.

Title Commitments Provide Critical Information

All Realtors should be reviewing the title commitment for certain, important information. A title commitment has three sections or schedules: Schedule A, Schedule B-I Requirements, and Schedule B-II Exceptions. At a minimum, Realtors should be reviewing the following:

Schedule A

The first part of the title commitment provides the names of the proposed insured. This should be your buyers. If it is not, call the title company right away – they might be missing an Amendment or their might be an error in your paperwork.

The Policy Amount should match your purchase price.

The name of the seller should be listed in paragraph 3 as the “fee simple” owner. If the name is different, there may be a title issue such as a deceased individual or spouse that still owns the property, a trust or LLC that has an interest in the property, or some other issue that requires attention.

The land referred to in the policy should match the land being sold. It will be a legal description, not a postal address. Review to make sure it looks right, especially if the property is a Condominium or includes multiple lots.

Schedule B-I Requirements

This portion of the title commitment provides a list of requirements that must be met in order to close. The requirements will call out any unusual issues that must be dealt with at closing. For instance, if the seller is deceased, the Requirements might require a valid Personal Representative to be appointed to sign on behalf of the estate.

In addition, most title companies will include any loan payoffs, taxes, or other liens that must be paid at closing. Some title companies, however, will show those liens in Schedule B-II.

Schedule B-II Exceptions

This section shows all of the title “issues” that are excepted from coverage – in other words, the title company will not insure for these issues. They are usually things like covenants, restrictions and easements. But, at some title companies, seller mortgages and liens will appear in this section. Therefore, it is important to review.

Reviewing is not Advising

Although Realtors should review the title commitment, they should not advise their clients about the legal meaning and effect of this document. That would constitute legal advice and is prohibited under Wisconsin Law. Nevertheless, if the Realtor spots a problem (the wrong seller or buyer or too many Mortgages), that should be brought to the client’s attention with the advice to seek legal counsel.

The title commitment is a critical document that provides all parties and their agents with notice of the current state of title. While Realtors should not make a “legal” review of this document, they should make a thorough review to avoid any closing problems.

 

“Refer A Friend” Program Likely Violates Federal Law

A Realtor recently asked me about an interesting incentive program. In hopes of increasing business, the agent would like to consider a “refer-a-friend” program, providing raffle prizes to former clients who refer listings or buyers to the Licensee. She suspected that this might not be legal. Her legal intuition is correct. A “refer a friend” program with raffle tickets and prizes likely violates RESPA Section 8 and Wisconsin State licensing law. Incentives-for-Referral programs should probably be avoided.

RESPA Prohibits Giving Value in Exchange for Referrals

A referral program that provides anything of value to the referring party likely violates State and Federal law.  The Real Estate Settlement Procedures Act (RESPA), Section 8 prohibits the giving of “any thing of value” in exchange for a referral of real estate services or the splitting of fees where one party performs no services (a referral is not a service). This prohibition includes the giving of raffle tickets, prizes, or other non-monetary consideration.

The Department of Housing and Urban Development (HUD) has addressed similar programs in the past.  In February 2004, HUD entered into a settlement agreement with Integrity Home Funding LLC over a “Refer a Friend” program.  Under this program, a mortgage broker provided raffle tickets and the opportunity to win prizes to any former client that referred business to the broker.  HUD determined that the “Refer a Friend Program” violated Section 8 of RESPA because it provided a thing of value for referring business.  The broker entered a settlement agreement with HUD, agreeing to pay $1,500 in penalties and an additional $20,000 if he was found to have later violated the agreement. 

Wisconsin Law Limits Referral Fees to Licensed Agents

In addition, Wisconsin State law prohibits the payment of any fee, commission, or referral fee to a non-licensed individual:

Wisconsin Statute 452.19 Fee-splitting. No licensed broker may pay a fee or a commission . . . for a referral or as a finder’s fee to any person who is not licensed . . . .

This prohibition would also likely apply to providing prizes in exchange for referrals.

Moral of the Story – Don’t offer prizes for referrals:

Refer a Friend Programs or raffles tickets in exchange for referrals are almost certainly prohibited under state and Federal law.

 

DISCLAIMER: This post should not be used for, and is not intended as, legal advice. Please consult an attorney regarding the specific facts and circumstances of your situation and never rely upon any blog as legal advice!

Madison Couple and Local Agent Featured on ‘House Hunters’

The popular reality show “House Hunters” visits Madison with an episode airing tonight, May 13, 2013 on HGTV.

Tune in at 9:00pm to watch Keller Williams agent Josh Lavik help Darren and Megan Haworth find a home. The show’s producers were originally drawn to Lavik’s marketing materials. They were so impressed with the results of this show, they’ve also filmed another, featuring Josh and his wife, Jennifer, in their search for their own home.

Congratulations to Josh on a job well done and to his clients for finding the home of their dreams.