Got a call last week from one of our good mortgage broker friends, a reputable guy, under pressure from a Realtor seller to close quickly on a new deal.
We order title and find that the property isn't even in the Realtor's name. Hmmmmm....we find that the property was conveyed - recently - early in 2007 - from what appears to be an elderly homeowner - via a Power of Attorney - to a man for $33,000.00.
Two things catch my eye immediately. First, the sale price for my transaction is around $125,000.00. Secondly, the Power of Attorney names some kind of senior services organization as the attorney in fact or agent as we call them here in Pennsylvania, probably a non-profit.
I issued the title commitment with a flip alert. We move forward thinking that our seller really is the guy who just bought the property for $33,000.00 and that the sales agreement had the wrong info on it. NO..........the agreement is right. Our Realtor has a deed in hand - unrecorded - wherein he has purchased the property for $46,500.00 from the other ($33,000.00) guy and HE is selling it to our buyers for $125000.00. The Realtor's attorney is trying to get the deed recorded ASAP, etc., etc. etc. There is also some kind of screwy mortgage between these two - the $33,000 guy and our Realtor - that got missed because it was so poorly drawn as to be unfindable in a normal title search. Nevertheless, having been told about it, I decided to REVISE my title commitment and add the satisfaction of the goofy - sorry - screwy mortgage and the intervening deed into our Realtor seller and added yet another flip alert.
You might be asking about these flip alerts - our reputable mortgage broker cetainly did.
Well, guess what? Lenders have started making claims against title insurers based on the failure to adequately disclose flips. Yes, that's right! Simply reciting a 24 month chain isn't sufficient. You have to give a bigger heads up - one that will be noticed. Two underwriting attorneys have suggested to me that they really prefer that I write a separate letter warning of a flip and attach it to the commitment. Since that isn't a mandatory procedure, I am happy with the alert we use. Lenders do seem to be noticing it. In fact, the lender in this case has rejected the mortgage on account of it.
My point of view on flips is that my job is to give the facts to all parties and let them decide. It's their decision. So, if the buyers have the facts and don't mind paying $125000.00 for a house just recently purchased for much less, that's their business. If the lender has the facts and is still willing to lend, that's their business.
This case, though is kind of bugging me because the original seller - so recently divested - really isn't aware. The decision to sell at that price was made by an "agent", a senior service of some kind who I would think has a fiduciary duty to the principal, the elderly man who owned the home. Our title abstractor who lives nearby the house was curious so he took a drive by and said even from the outside with no updating he thought the house was worth at least $100,000.00. So, you've got to wonder about the "agent" who sold the house under the Power of Attorney. What concievable motivation did that individual have for throwing away all of that equity?
My first thought was, well, perhaps the elderly man is incapacitated and the "agent" from the senior service thought it best to rid him of assets so he could go on Medicaid. That lead me to think the ones harmed are the tax payers, then I had a chat this evening with the elderly parents of a friend.
We have to make some assumptions, First, it seems likely that this elderly gentleman has no family and is alone. My friend's mother pointed out that the care he may be receiving on Medicaid may be less nice than that he may receive if he were able to use the equity in his home. I don't know how far roughly $80,000.00 goes these days, but it seems like it's just really not right that this person was rooked out of what may have been his life savings.
This deal is still in progress and I wonder if there are any AARP folks out here reading this who may want to comment. What are these senior services and is this how they normally do business?