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Foreclosures getting worse

This story aired on May 28, 2010 on WKOW News.

By Bob Schaper – bio | email | Twitter | Facebook

MADISON (WKOW) – A quarter of all home sales last month involved distressed properties – and the situation could be getting worse.

Peter Zarov, owner of Homestead Title, says the number of distressed sales – such as short sales and auctions – is likely to go up because closings lag months behind foreclosures.

“I’m hoping we’re at bottom,” he said. “But every time I say that it gets worse.”

Nationally, distressed sales were 33 percent of all sales in April, according to the National Association of Realtors. That was down slightly from March, when it was 35 percent.

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Changes to Recording Fees & Social Security Protection

Effective June 25, 2010 the cost to record a real estate document in the County Register of Deeds office will be $30 regardless of the number of pages.

Formerly, the fee was based on the number of pages in a document: $11 for the first page and $2 for each additional page. This old fee structure made it difficult to give exact quotes prior to closing. The new fee will, on average, not add much in total fees and will add certainty to transactions. Lenders and Realtors will be able to give exact quotes for recording fees.

Five dollars of the new fee is designated for the removal of social security numbers from all public documents. The recording fee will revert to $25 upon the earliest of the following 1) the Register of Deeds has successfully redacted all social security numbers from electronic format; 2) January 1, 2012, unless an extension of time is granted by DOA; or 3) January 1, 2015.

New Rules for Correcting Errors in Recorded Documents

Errors in recorded documents are common and unavoidable. Everyone makes mistakes from time to time. It is how we correct those mistakes that separates us.

For over a decade, the tool for correcting a mistake was an “Affidavit of Correction.” If a deed or a mortgage contained an error, the title company or an attorney would record an Affidavit that described the error and showed how it was to be corrected. For instance, if a deed omitted a Buyer’s middle initial, the title company would file an affidavit of correction that stated: “The Deed recorded on May 24th omitted John D. Smith’s middle initial. The Buyer’s correct name is John D. Smith.”

In 2007, the Wisconsin Court of Appeals ruled in Smiljanic v. Niedermeyer, 2007 WI App 182, 737 N.W.2d 436, that using Affidavits of Correction to correct errors is not proper because there is no Statute in Wisconsin that authorizes the use of this tool. This new ruling not only made it much more difficult to correct errors, it called into question all of the past Affidavits that had been filed.

A new law now authorizes the use of Affidavits of Correction in certain circumstances and describes who must sign the document.

What May Be Corrected? A corrective instrument may be used to correct a legal description (such as a distance; unit, or building number; subdivision or condominium name, etc.), a party’s name or marital status, homestead information, dates, notary information, and a number of other issues.

Who May Sign? The new law provides that the person who may sign is a “…person having personal knowledge of the circumstances of the conveyance and of the facts recited in the correction instrument, including the grantor, the grantee, the person who drafted the conveyance that is the subject of the correction instrument, or the person who acted as the settlement agent in the transaction…” In other words, the title company, any party, or an attorney involved in the transaction can all sign.

In certain circumstances, however, only a party can sign. For instance, if a buyer is to be removed from title, THAT buyer must sign. If a parcel is corrected to add land, the Sellers must sign. 

What About Old Affidavits of Correction? The new law “grandfathers” in old Affidavits of Correction if they would be valid under the new law.

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Foreclosures continue to rise in 2010, and with them, we continue to see more REO and Sheriff’s Sales. A sheriff’s sale is the judicial auction at the end of the foreclosure process. If there are no bidders, the bank retakes the property and sells it from its “Real Estate Owned” Department, or REO for short.

Both of these sales occur after a foreclosure, a judicial proceeding designed to end all ownership rights in former owners. This raises the question:

Do buyers of these properties really need title insurance?

The Answer is a resounding YES!

A Sheriff’s sale is designed to “strip” all interests and liens from the property and sell it free and clear to a new buyer. But, that does not always happen. Lien holders, like mortgages and judgments, that are not properly named or served in the foreclosure proceedings may retain an interest in the property. Taxes likely will remain due against the property. And, certain federal liens can be enforced months after the sale.

The Sheriff’s deed provides no warranties. This means that any title problems are solely the buyer’s responsibility. While title insurance will not entirely take the place of a warranty, it provides a level of protection and insurance in the event of a title claim.

Similarly, a Bank generally will transfer the property by “Special Warranty Deed” or “Quit Claim Deed.” These deeds also lack the full warranties of an ordinary deed. The warranty is the seller’s promise of good title.  Without a full warrenty, buyers will not be able to go after the seller for most title problems.

Thus, the need for title insurance.  A title insurance policy can protect buyers from liens such as past mortgages, judgments, taxes, or construction liens that might attach to the property.

Buying a property out of foreclosure without title insurance – whether at Sheriff’s sale or through REO – is a risky proposition. The cost of an owner’s policy of title insurance is a small price to pay to substantially minimize the risk.

Title insurance, however, is not the perfect solution.  It won’t eliminate all risks.  Title policies usually include certain “exceptions” or “exclusions” from coverage. The policy may not cover for some title risks such as adverse possession, boundary line disputes, construction liens, or matters not shown in the public record (among others). A full warranty deed would be the only protection from all title claims. But, Banks and Sheriff Sales don’t generally offer full, warranty deeds.

The trade-off when buying an REO or Sheriff’s sale is a great price in exchange for a little risk… unless you don’t bother with title insurance, in which case you’ll get a great price with a whole lot of risk.

This discussion is not intended as legal advice and should not be used outside of Wisconsin.  Buyers of REO or Sheriff sale properties are urged to seek the advice of a qualified attorney.

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Foreclosure This Exit: Highway Sign

Short Sale Seminar

May 26, 2010: 9am – 12pm

City Center West
525 Junction Rd.
Madison, WI 53717-2152

Licensed REALTORS and lenders are invited to attend this powerful seminar on short sales, foreclosures, and the new HAFA Program.

Attorney Peter Zarov will be breaking down the Agent’s responsibilities, the foreclosure time line, and the short sale process. This class will cover:

  • Short sale time line
  • Foreclosure process
  • How to avoid liability during a short sale (Your referral team, common scams, etc.)
  • The short sale packet and best practices to submit
  • The NEW Federal HAFA Short Sale Program
  • Transactional pitfalls that will kill the deal that can be avoided

Agents will a acquire critical knowledge of the foreclosure process in Wisconsin, short sale procedures, and the changes brought about by the new HAFA Program that went into effect on April 4, 2010. Surviving and thriving in this market requires a familiarity and understanding of these topics.

The Event is $15 and includes materials, bagels, pastries, coffee, and juice. We accept payment by credit card or check.

Attend This Event

For more information, go to www.homesteadtitle.net/seminars or subscribe to our blog at www.homesteadtitle.net/blog

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The deadline for accepting a “binding contract” and qualifying for the home buyer tax credits expired on Friday April 30th.  For those who signed an offer on or before April 30th, they can still get the credit if they close by June 30th.

But the big question on the minds of Realtors and those in the real estate industry is:  Will buyers stop buying? 

 Will buyers jump back on the fence?  Will the market slow down?  Many expected a sharp decline in activity after the credit expired.  Others feel that the influence of tax credits and incentives is overstated. 

 We are curious to see what you are experiencing?  Post a comment and let us know.

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The deadline for the First Time Home Buyer Tax Credit and the Long Time Home Buyer Tax credit is FAST approaching.  The deadlines are:

1.  The parties must enter into a “binding contract” on or before April 30, 2010; and

2.  The transaction must close on or before June 30, 2010.

This means you have just days or hours until Friday, April 30 2010 to enter a “binding contract.”  Lets get those offers signed!

NOTE:  The IRS has not defined “binding contract” and many parties have questioned the effect of contingencies.  For instance, short sales require bank approval.  When that approval is a contingency that has not been met prior to April 30th, is there a binding contract?  One would have a strong argument that the offer is binding (the lender is not a party and their approval is only a contingency), but it is the IRS and a court’s interpretation that will matter.  Consult an accountant and or an attorney if you or your clients have this issue.  See Our Blog Post on Short Sales and The Tax Credit.

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Land Contracts have come back in vogue as lending standards have tightened.  Land Contracts are essentially a form of Seller financing.  In a nut shell, the buyer pays the Seller in installments over a period of time until the total purchase price is paid in full. 

A buyer’s ownership interest in a Land Contract differs state by state.  So do enforcement provisions.  In Wisconsin, a land contract buyer is deemed to have “equitable title” upon signing the land contract.  This means that, for all intents and purposes, the Buyer owns the property and the seller owns a right to get paid.  This is why the seller needs to think like a bank.

If a bank won’t extend long-term financing to the buyer, why should the seller?  The short answer is: the seller needs the money, needs the sale, and needs it now.  Nevertheless, the Seller still should act like a bank by asking for credit reports, payment history, assets and liabilities, and a decent down payment.

Many (if not most) land contracts are structured so that the Buyer will make payment for a number of years and then make a balloon payment at the end.  A typical land contract might have the Buyer making 36 monthly payments of $1200 and then paying the balance in full at the end of the third year.  In this era of strict loan standards, a buyer with poor credit won’t be able to refinance in year 3 unless he has great credit and equity in the property.  That is why a seller should want to know at the front end whether the buyer has good credit (or terrible credit).  If the buyer has terrible credit, what are the odds that he will be able to refinance in the next 3 years?

And, the worse the Credit, the more the Seller should want in a down-payment.  A buyer with poor credit is also more likely to incur judgments or tax liens that can attach as liens on the property.  Once this happens, the seller’s only way to remove those liens (in Wisconsin) is to have them paid or to foreclose on the property.  Foreclosure is expensive.  Thus, a Seller that knows he is extending a land contract to a buyer with poor credit may want a large enough down-payment to cover these potential costs. 

The most important thing to understand is that only a licensed Broker or Attorney can draft a land contract on behalf of another in Wisconsin.  We strongly advise all sellers considering selling on a land contract to consult an attorney… and act like a bank.

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Distressed Property Resources

 

Education and expertise are critical to serving distressed homeowners and buyers of distressed properties. Beware of internet sites that often contain incorrect information or involve scams. We have found the following resources to be helpful for Wisconsin Realtors, attorneys, and distressed home owners.

Trusted Web Sites:

 




 

 

Trusted Sources of Education:

 

 

The best resources are local. Feel free to contact Homestead Title to see if we can answer your questions or point you in the right direction. We’re here to help!

Ph: (608)203-4800

Email: home@homesteadtitle.net

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 The Tax Deadline Approaches . . . or does it?

Buyers who wish to qualify for the first time home buyer tax credit must meet two deadlines:

  1. They must “enter into a binding contract to buy, a principal residence on or before April 30, 2010” and
  2. Close on the home by June 30, 2010.

See The IRS Website for more information.

So why are people flocking to close on April 30th?   We are seeing record volume for the last few days of the month. Indeed, Homestead Title’s sales volume for the last 4 days of April is up over 250% compared to the previous 5 year average.

Most title companies in Madison are already booked and the orders keep rolling in. (Homestead is still available for those who truly need to close – link here to place a title order). 

But this is a phantom deadline — the deadline for closing is not until June 30th.  Perhaps we are seeing a coincidental market upswing?  Perhaps buyers are erring on the side of caution?  Or perhaps buyers were simply confused when they wrote their offers and think they really need to close by the end of April?

Any questions about whether you or your buyer qualifies for the tax credit should be directed to an accountant. We have provided information from the IRS website, but it is important to consult with an expert about your specific facts and circumstances.

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On January 1, 2010, new Federal Rules took effect, requiring lenders and home buyers and sellers to use new forms.  Specifically, lenders must use a new, standardized Good Faith Estimate (called the GFE) when taking loan applications.  And, at closing, title companies must use a new HUD-1 Settlement Statement (usually called the HUD).

The HUD has always been the document that discloses all closing costs.  The new HUD must disclose closing costs and must show how those closing costs compare to the lender’s original estimates on the GFE.  Thus, lenders cannot quote one thing and then charge a much higher price.  Indeed, the new HUD contains a 3rd page that shows exactly what was quoted on the GFE and compares those quotes to the actual closing costs.  Certain of  these charges are allowed to change and some cannot.   The amount of price difference that is allowed under Federal law is called the “tolerance” limits. 

 These “tolerances” for differing prices have caused confusion and problems for some lenders and title companies.  One of the most confusing aspects of the “tolerance” limits relates to the Owner’s Title Policy and the State Transfer Tax.  In many states, those charges are paid by buyers.  In Wisconsin those charges are virtually always paid by the seller (indeed, Wisconsin is one of four states that statutorily requires the seller to pay the Transfer Tax).  Nevertheless, the lender is required to disclose these seller fees to the buyer on the GFE.

Herein lies the problem.  When taking the loan application, lenders are required to disclose to their buyers fees that the buyer will not have to pay at closing.  If lenders fail to disclose these fees, there could be penalties or, worse yet, delays in closing.  And, more problematic yet, the transfer tax is one of the few fees that has a zero tolerance.  This means that the quote on the GFE must match exactly to the final amount charged at closing (even though it won’t even be charged to the buyer at closing).  The Transfer Tax, in Wisconsin, is based upon the purchase price, which lenders may not know  at the time of the loan application.  Even the smallest inaccuracy in the purchase price and transfer tax can lead to problems.

So what is a lender to do?  Lenders should disclose the owners policy of title insurance on the GFE.  Then, on the HUD, there will be a seller credit to the buyer for that same amount.  This is confusing, bur required under the new rules.  The American Land Title Association has taken the position that lenders in Wisconsin need not disclose transfer taxes as a buyers fee on the GFE.  And, as a practical matter, most lenders in Wisconsin have not been disclosing the Transfer Tax on the GFE. 

Homestead Title has a spotless record on preparing the new HUDs and complying with the new GFE rules.  While we’ve heard many lenders complain of difficulties and confusion relating to the forms, we have not experienced any problems on our end.  If you have any questions on the title or closing implications and rules of the new GFE (in Wisconsin), just call or email and we’re here to help.

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