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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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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.

 

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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.

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Madison Plant Sales

Spring is finally here and its time to get planting! If you are selling a home, a beautiful garden can add curb appeal. If you’re staying put, a garden can add to your home’s value, the sustainability of your property, and your happiness.

Homestead Title takes pride in being green and sustainable. Every year we provide a list of local garden sales in the Madison area. Enjoy!

 

Date

Location

Event

May 4, 9am-1pm Alliant Energy Center Compost Bin Sale: bins are $45 each
May 5, 12pm-2pm Olbrich Gardens Dahlia Tuber Sale: sponsored by the Badger State Dahlia Society
May 10-11, 9am-3pm Olbrich Gardens Plant Sale with the Pros: Olbrich Gardens annual fundraiser.
May 10 -11, 8am-4pm West Side Garden Club: 3518 Nakoma Rd. West Side Garden Club annual plant sale.
May 10-12, 8am-3pm 5586 Cheryl Dr., Fitchburg Fitchburg Plant Sale
May 11, 9am-2pm UW Arboretum Visitor Center Native Plant Sale
May 11, 9am-1pm 1008 Shorewood Blvd, Shorewood Hills, WI Shorewood Hills Garden Club Plant and Mulch Sale
May 11, 9am-2pm Waterman Park, downtown Oregon Oregon Garden Club Plant Sale
May 11, 8:30am-1pm 7437 Terrace Ave., Middleton Sunset Garden Club Plant Sale
May 11, 8:30am-11am Mt. Horeb Fire Station, 120 S. First St., Mt. Horeb Mound Vue Garden Club Plant Sale
May 16-18, 9am-5pm Habitat ReStore, 208 Cottage Grove Rd. Habitat for Humanity of Dane County Plant Sale
May 18, 9am-12pm West Madison Agricultural Research Station, 8502 Mineral Point Rd. Wisconsin Hardy Perennial Society plant sale.
May 18, 9am-11am Spring Harbor School Indian Hills Garden Club plant sale
May 19, 12pm-3pm 1 Fen Oak Ct., Madison (east side UW-Extension) Master Gardener Plan Sale, Dane County UW-Extension Office
June 2, 10am-2pm Olbrich Gardens Wisconsin Hosta Society, hosta sale

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There is a new scam targeting Wisconsin small businesses. A company called Corporate Records Services is sending out very official looking forms that request information about the company, the submission of an Annual Minutes Form, and the submission of $125. The form appears to be required by state statute. Businesses are not required to fill out this form. In fact, it is difficult to see what, if any, services this company provides.

The Wisconsin Department of Financial Institutions has issued and official statement cautioning business owners against this scam:

http://www.wdfi.org/newsroom/press/2013/AnnualMinutesFormAlert.pdf

Other states, including Illinois, New York, Maine, Indiana, and Tennessee have also issued warnings against this scam.

Wisconsin business owners who have questions about this form are urged to contact the Department of Financial Institutions (DFI) at 608-266-1622.

 

Thank you to the WRA for alerting the Real Estate industry, many members of which have been targeted by this scam.

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BREAKING NEWS:
On January 1, 2013, Congress extended an important law that exempts many homeowners from paying taxes on cancelled debts. As part of the “Fiscal Cliff” deal, Congress extended the Mortgage Forgiveness Debt Relief Act of 2007 until the end of 2013. This will have a positive impact on distressed homeowners.

Cancelled Debt

If you owe a debt to someone else and they cancel or forgive that debt, the cancelled amount may be taxable.

Cancelled or forgiven debts happen every day in the Real Estate world. Short sales and foreclosures result in substantial, cancelled or forgiven debts. The Bank’s loss may be considered the home owner’s gain – a taxable, forgiven debt. A short sale happens when the proceeds of a home sale are not enough to pay off the mortgage. The bank agrees to take a “short” payoff and may cancel or forgive the shortage.

For the last 5 years, most homeowners were exempt from paying taxes on that forgiven or cancelled debt. The Mortgage Forgiveness Debt Relief Act of 2007 exempted many homeowners from paying taxes on forgiven debt. But, that law was set to expire on December 31, 2012

Taxable Income

If you owe $200,000 on your home but your sale only results in $150,000 in proceeds, you will be “short” by $50,000. You would likely need to count that $50,000 as taxable income to the IRS! In this case, you might owe and additional $12,500 in tax liability. In fact, you may owe this tax even if your house is foreclosed if it results in a shortfall to the bank.

Mortgage Forgiveness Debt Relief Act of 2007

The Mortgage Forgiveness Debt Relief Act of 2007 exempts many home owners from paying taxes on the forgiven debt. On January 1, 2013, Congress extended the Mortgage Forgiveness Debt Relief Act of 2007 until the end of 2013. This has the potential to save distressed homeowners millions of dollars in “phantom” tax liability over the coming year.


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