Tuesday, October 23, 2012

How can we educate our Realtors and loan officers to understand "off HUD" is a big deal and not an option?

There is a BIG disconnect in our business.  The disconnect is that folks just don't get that the INVESTORS in the mortgage backed securities market and the rating companies are depending on an agreed set of underwriting criteria for the underlying mortgage loans.

Anytime a Realtor or loan officer or any lending personnel decide to move "OFF HUD" to avoid the agreed set of underwriting criteria, they are committing MORTGAGE FRAUD.  Period. End of story.

UPDATE:  I was asked to elaborate on this.  I think we need a secondary market primer given to Realtors and loan officers so that they can understand how program guidelines play a part in the assessment of risk when pools of mortgages are priced for sale in the secondary market.

Say for instance that a program allows for a seller assist of 3%.  The risk analysis is based then upon the buyer/borrower having a minimum down payment plus cash reserve, and a portion of their closing costs.  They have something to lose and therefore are less likely to walk away if they fall on hard times.  If, unknown to the mortgage underwriter, the seller gives the buyer/borrower a sum of $3000 under the table presumably to cover repairs or what not, the buyer/borrower may net have NO investment in the transaction and the risk on this mortgage is then substantially higher.

Does that make sense?  Can you see now how moving items "OFF HUD" and outside of the program guidelines defrauds the mortgage lender who makes representations and warranties concerning the loans contained in a pool and how it ultimately defrauds the investor who buys the securities backed by such a pool of mortgages?

It was not the system of pooling mortgage and making securities that caused the Great Recession.  It was the failure to adhere to program guidelines that were in place to protect investors and keep the system honest.

Sunday, October 14, 2012

I just ordered this book.

Will report back with a review after reading.

R's tax proration discussion continued

Hello Diane

Thanks for the info.  I looked at the sales contract from this past summer...here's what I found about prorated taxes:

"PRORATIONS: Taxes for the current year, maintenance fees, assessments, dues and rents will be prorated through the closing date (Jun 26, 2012).  The tax proration may be calculated taking into consideration any change in exemptions that will effect the current year's taxes.  If taxes for the current year vary from the amount prorated at closing, the parties shall adjust the prorations when tax statements for the current year are available (in this case they were available Oct 1).  If taxes are not paid at or prior to closing, Buyer will be obligated to pay taxes for the current year."

So in this case, taxes were not paid at or prior to closing.  But I didn't take ownership of the property until Jun 26, yet I could still be liable for taxes owed during a period when I didn't even own the property?  My other frustration is that this stipulation in the contract is buried in the fine print...and if I don't happen to find this phrase on closing day, I'm stuck with all taxes?  I'm no expert on closing contracts.  If I was, why would I pay the closing agent to do anything?  I guess my other question...who should have made me aware of this?  My realtor/agent, the title company representative, or the building/owner?

And knowing this verbiage from the contract now, how would you proceed?



Hi, R:  This is not unusual.  We all as consumers sometimes ignore the boilerplate in contracts but that doesn't mean that those words have no meaning.  As a buyer you are on your own unless you hire an attorney specifically representing you or you have a true buyer's agent.  The title agent, even if they are an attorney, is not acting the capacity of buyer counsel.  In fact, typically the sales contract is already negotiated before the title agent enters the transaction.  Buyers need to read their sales contracts and if they aren't sure, they need to hire an attorney to advise them.

You might still at least contact the title agent by email or phone to ask them how or why they calculated the prorations.  See if their explanation makes sense now that you have read that portion of the sales contract. If they clearly demonstrate that they were following the instructions contained in the contract, you have your answer. 

You might also want to talk with your real estate agent to see how they interpret this language in the sales contract.  Perhaps the agent can shed light on local custom or may even agree with you that there was an error.

I hope this information is helpful and I thank you for sharing your experience as I am posting it on the blog because I think it will help other home purchasers.


R wants to know if a tax proration error is covered by title insurance

So I bought a house on Jun 26, that was the day we closed.  I just got the property tax bill from our county and it was rather high, and I don't remember any credits coming my way at closing from the Jan 1-Jun 25 timeframe.  I went back to look and still don't see anything.

My question for you -- since I didn't take ownership until Jun 26, I assume I'm not liable for property taxes from Jan 1-Jun 25, right?  Should those have been prorated and charged to the seller at closing?  Even if they were estimated at the time since final property tax bills aren't issued until Oct 1?

And if this was a human error of some sort, who's responsible for the screw up?  The title company?  And how would I go about getting reimbursed so I'm not stuck with the entire 2012 calendar year tax bill?  Can I invoke title insurance for human error?  I assume these are the types of things title insurance is used for?

Your thoughts?



Hi, R:  The method of prorations for taxes and whether or not prorations take place is set out in the sales contract.  The title agent would look at the contract and set up prorations or not based on what buyer and seller agreed to.  In the absence of such instruction from a contract, a title agent would typically do whatever is the custom for that area.  The responsibility of the buyer and seller, then, is to review these figures and then by signing the settlement statement, acknowledge acceptance.

If the county tax bill is based on a calendar year, and the bill doesn't come out until October for this calendar year, then it would make sense that the seller would have given you a credit for January 1 thru June 26.  This credit would be on page one of the HUD-1 on the bottom half of the page.

If the county tax is based on a fiscal year, the dates may be different and it is possible that the October bill is for a fiscal year that started after June 26 but in that case you would have given the seller a credit for the county tax to adjust for what they had paid beyond closing to the end of the fiscal year.

Tax prorations are typically not covered by title insurance.  However, they may be covered by a Closing Services Letter if you are in an area where such letters cover consumers.  In PA the letters DO cover buyers.  The basis of a claim under the letter is that the title agent did not follow the written instructions.  In that case you would have to show that you gave written instructions for prorations and as I mentioned before, these are typically in the sales contract.

If there is no basis for a title insurance claim you could speak with an attorney and consider suing the title agent for negligence. Again, though, I think you'd have to show that they were given instructions and did not follow them.

Prorations of taxes are not mandatory as part of a real estate transaction.  They are negotiated by agreement between buyer and seller.

Hope this helps. ;)


Sunday, October 07, 2012

tip for preparing your Power of Attorney

First, if you are an adult with children and/or property, please take the time to have two documents prepared by an attorney - a Last Will and Testament and a Power of Attorney. People become disabled or die unexpectedly so please do not wait until you are old to make important decisions and codify them in writing.  You probably also want to add a Living Will or Healthcare Directive.

Second, if you already have these documents, remember to look at them every few years and make changes as needed with your attorney's assistance.

I am not an attorney but as a title insurance agent I read a lot of wills and power of attorney documents.  After reading so many I've given thought to my own documents and made some changes.   The one big change I'd like to talk about in this post concerns powers given to another person to manage your affairs.

This is on my mind today as a loved one is in the hospital and we just reviewed important documents.

When you ask your attorney to prepare a Power of Attorney document, it will likely be a General Power of Attorney which gives broad powers to your agent/attorney in fact to pretty much do just about anything with your property.  Presumably this person will act in your best interest and I think you might presume that they will do so only when you have given permission, right?

What if you are perfectly capable of making decisions but your family or this person decides that they want to make a decision for you without your knowledge?

We had a case in our office recently in which an elderly lady living in an assisted care facility owned a country cottage, one that she loved according to her family.  She had no children.  She had executed a General Power of Attorney document giving power to her nephew. The nephew listed the cottage for sale and signed a sales contract without ever discussing it with his aunt. His aunt is lucid, just too old to live alone, has no children with whom she might reside. Had she considered that he might make major decisions on her behalf without discussing them with her?  Probably not.

When we received the title order and saw a the Power of Attorney document we asked if his aunt was capable of signing the deed. That's when he revealed that she was unaware of the sale but that she was capable. He said she really loved the cottage and thought that selling it would upset her. We insisted that he get her permission for the sale and that she sign the deed herself.  She consented and we closed the transaction.  I have no idea how that conversation went, but she might have felt compelled to complete it since the transaction had moved so far along.  What if she had been contemplating one last stay in the cottage or just looked forward to maybe spending an afternoon or two there?  I can imagine that, can't you?

At any rate, this could be avoided by creating a Power of Attorney which only goes into effect after one or two [you choose the number] doctors write a letter stating that you are mentally incapable of making decisions.  This way you have a document in place in case you are still alive but incapable of managing your affairs but while you are alive and still capable you are not giving broad powers to another person to act in your stead. You have given power but limited it to the time when you are incapable to manage things yourself.

Again, I raise this as something for you to consider when you work with your attorney in creating these very important documents.  I have noticed over time that very few Power of Attorney documents contain this limitation.  I'm not sure why, but I think it's a good idea and so my personal document does contain such a limitation.

Monday, October 01, 2012

eAppraiseIT ..... "BADddd"

The settlement is based on 10,000 appraisals for WaMu in 2006 and 2007, and related communications with employees. Emails show a pattern of favoritism that created a "proven appraiser list" for Washington Mutual.
One email produced during trial stated: "The appraisal list that eAppraiseIT ... is using has been totally scrubbed. But instead of keeping good appraisers, they went for the BADddd ones."