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FinCEN asks Title Companies to Investigate Cash Sales and $ Laundering

WASHINGTON

The Financial Crimes Enforcement Network (FinCEN) has issued Geographic Targeting Orders (GTO) that will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies used to pay all cash for high-end residential real estate in the Borough of Manhattan in New York City, New York, and Miami-Dade County, Florida. FinCEN is concerned that all-cash purchases (i.e. those without bank financing) may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures. To enhance availability of information pertinent to mitigating this potential money laundering vulnerability, FinCEN will require certain title insurance companies to identify and report the true “beneficial owner” behind a legal entity involved in certain high-end residential real estate transactions in Manhattan and Miami-Dade County.

We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium U.S. real estate to secretly invest millions in dirty money, said FinCEN Director Jennifer Shasky Calvery. Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering. But cash purchases present a more complex gap that we seek to address. These GTOs will produce valuable data that will assist law enforcement and inform our broader efforts to combat money laundering in the real estate sector.

The order is temporary in effect, through August 27th. Read full article HERE.

Pennsylvania Man Indicted in Massive Title and Mortgage Fraud Scheme

from press release
   

George Barnard, 45, of Newtown Square, Pennsylvania, owner of a mortgage lending business and several title companies, has been indicted and charged with 24 counts of wire fraud, four counts of bank fraud, and three counts of filing a false tax return.

The indictment alleges that Barnard, who from 2005 to March 2013 was one of the two owners of Capital Financial Mortgage Corporation (“CFMC”), based in Delaware County, Pennsylvania, and also was the owner of several title companies, defrauded banks out of almost $13 million dollars and instead of using the money to fund mortgage loans for borrowers and pay off the borrowers’ existing mortgages, he took the money for his personal benefit, including buying yachts, luxury cars, multi-million dollar beach homes in Avalon, New Jersey, paying the salary of a yacht captain, gambling, luxury suites in a sports arena, and other personal expenses. The indictment further alleges that in order to continue to have access to a large pool of money to fund his extravagant lifestyle, Barnard orchestrated a massive fraud scheme, which included selling other banks the mortgages that CFMC had written and representing to the lenders who purchasing those mortgages that they were first mortgages, when in reality they were worthless second mortgages.

The indictment alleges that while the tax returns Barnard filed with the IRS showed hundreds of thousands of dollars in losses, in reality Barnard had more than $2,300,000 in unreported income, and in order to convince other banks to issue mortgage loans to him so he could purchase yachts and multi-million dollar beach homes, Barnard gave false tax returns to the banks with inflated income figures, and on at least one occasion, told the bank that he was buying the beach home for more than $3,000,000 when in reality the sales price was $2,000,000. The indictment alleges that Barnard was able to conceal this deception by using his own title company to handle the closing of that loan and falsifying closing documents.

The indictment alleged that as a result of Barnard’s actions, lenders suffered losses of more than $12,700,000, and more than 25 borrowers who obtained refinance loans from CFMC were stuck with two mortgages on their homes after Barnard’s companies failed to pay off the borrowers’ existing first mortgages.

Barnard faces a maximum sentence of 669 years’ imprisonment, a five-year period of supervised release, a $12,300,000 fine, a $3,300 special assessment, and a likely advisory sentencing guideline range of 135 – 168 months’ imprisonment.

The case was investigated by the Federal Bureau of Investigation, the Department of Housing and Urban Development, Office of Inspector General, and the Internal Revenue Service, Criminal Investigative Division, and is being prosecuted by Assistant United States Attorney Michael S. Lowe.

 

Air Right Sales Soar To New Heights

You have never seen it all in real estate, as it is a constantly morphing industry.  I just ran across an article in the New York Times on the sale of Air Rights where a developer paid $40 million to a church for its air rights in order to build a 51 story building in New York.

One real estate broker commented

“They’re building what I call a Viagra building, a tall slender tower with great views at a great location.   … What difference does it make if you pay $100 more per square foot if you’re selling condos for over $4,000 per square foot?  But there aren’t many sites where you can do this.”

Read the full New York Times article

Bank requires few mortgage documents: Seems like housing deja vu

Excerpt from CNBC 6/9/16

 They were a hallmark of the U.S. housing crash: Mortgages that required little or even no documentation.

During the boom, they were called “stated income” loans, but advertised as “low-doc” or “no-doc” loans. When the damage was done, they were deemed “liar loans.” Both lenders and borrowers alike would write basically anything on the mortgage application to get the deal done. Now, nearly a decade after the financial crisis began, a new version of the stated income loan is making a comeback.

“Lite Doc.” That is what Quontic Bank, an FDIC-insured community lender in New York City is calling its product. It requires only verification of employment and two months worth of bank statements. For self-employed borrowers, it requires documentation of one year of profit and losses. The Lite Doc loans are five-year adjustable-rate mortgages with interest rates in the low- to mid-5 percent range, according to the bank. Thirty-year fixed-rate loans, which when fully documented can offer rates in the high-3 percent range, are not part of the offering.

Read full article here

Title Insurance Costs Exceed Estimates by Thirty Percent

RedVision/Accenture have put out a study on the changing costs for Title Insurers due to what it aptly calls “Multiple Disruptive Forces” including such things as regulatory changes, digital operations, industry convergence, and a subdued economic outlook. The benchmark study focuses on the true costs of title insurance origination and finds that the true cost is about 30% higher than their study participants estimated.

From my perspective, it’s a thoughtful analysis. I think the ultimate thought would be to have all the information simply digitally dumped into an automated system that would spit out a title commitment. But, as we all know, as the chain of title is put together, there are many stops involved and many places to collect data, all with different systems:Treasurers, Auditors, Assessors, County Recorders, Cities, plats/surveys, etc.etc. And while I know there are inefficiencies in manually obtaining data, and I recognize that much of the information can be downloaded, I believe we are light-years away from a one-stop automated process.

In order to have a “good” title product, someone has to actually LOOK at the data as it will not simply download into the appropriate category. There are too many variables. A good search needs to verify the physical signatures on that deed, look for recitals in documents, review divorce decrees, etc. Yes, streamlining is very important, but so is the knowledge of those persons who examine the instruments. On the other hand, if the industry wishes to become completely automated, it could choose to do so and become like a casualty underwriter – don’t check past history, just prepare and reserve for much higher claims.

HOA Payment Status Will Show on Credit Reports

Equifax, one of the three major credit reporting agencies, has announced that it will begin collecting HOA payment histories and account status though Sperlonga, a credit aggregator. Equifax says the HOA payment reporting will go live in October.

Thoughts on TRID

The “TRID Rule” is short for the TILA-RESPA Integrated Disclosure where the Consumer Financial Protection Bureau (CFPB) consolidated the number of required disclosure forms from four to two. Under the original Truth in Lending Act (TIL) and Real Estate Procedure Act (RESPA), consumers received four different disclosure forms that were federally required and had overlapping information. The multiple forms led to more confusion for consumers and missed the mark of making the information more understandable. These two new mandatory disclosure forms – the Loan Estimate and Closing Disclosure – are required on most residential mortgages. Their goal is to reduce paperwork and eliminate confusion for the consumer

The LE The Loan Estimate form replaces the Good Faith Estimate and initial Truth-in Lending form and is intended to guide consumers by highlighting important information. The first page of the form shows the interest rate, monthly payment, and total closing costs, allowing for an easy comparison of mortgage loans, so consumers can select the best loan for their situation.

The CD The Closing Disclosure form replaces the HUD 1 Settlement Statement and the final Truth-in Lending form on many loans. It does not apply to loans such as HELOCS or CASH sales. The CD outlines the costs of taxes and insurance, information about changes that can occur to the interest rate and payments, and includes warnings to consumers about prepayment penalties and other important items. This information can effectively be used to assist potential home buyers in deciding how much they can afford to spend on a new home and what loan fits them best.

Thoughts – What do you think, are your customers saying they have used it successfully, or are they still relying on “professionals” to help them get the right loan? Certainly, the intent is good, but until we can get the hundred plus pages of loan documentation to a manageable level, I’m not convinced that it will be used by most borrowers. The typical loan process is still too complicated for the typical consumer to wrap their heads around.

Closing Agents Not Solely Liable for TRID Errors

Clarifying comments from Richard Cordray of the CFPB on Closing Liability where Closing Agents have agreed to share in responsibility for TRID.

RESPA NEWS:

“The Know Before You Owe mortgage disclosure rule (TRID) places responsibility for the accuracy and delivery of the integrated disclosures on the creditor,” Cordray wrote. “But, as discussed in the preamble … creditors and settlement agents are free, as they have always been, to decide how to divide responsibility and risk most efficiently and to implement those mutual decisions via contract.

“While creditors may enter into indemnification agreements and other risk-sharing arrangements with third parties, creditors cannot unilaterally shift their liability to third parties and, under the Truth in Lending Act, alone remain liable for errors on the Know Before You Owe mortgage disclosures,” Cordray continued.

See the entire article

 

FEMA Flood Maps Can be Appealed to Lower Flood Insurance Costs

Harrisburg, PA – Insurance Commissioner Teresa Miller today issued a consumer alert telling homeowners about a process by which they can appeal their property’s placement in a flood zone by the federal government, which in many cases requires them to purchase flood insurance.

“The Federal Emergency Management Agency (FEMA) recently re-mapped most of the country using 100-year flood projections, resulting in many homes being designated in flood zones which were never there before, despite many of these homes never or rarely having experienced flooding,” Commissioner Miller said. “If the mortgage on a home is backed by the federal government, which many are, then the homeowner must buy flood insurance.”

To appeal a home’s placement in what is officially called a Special Flood Hazard Area, the homeowner must show the lowest adjacent grade, or the lowest ground touching the structure, is at or above what is called the Base Flood Elevation. The Base Flood Elevation is the computed elevation to which flood water is anticipated to rise during the base flood used in determining the land is in a Special Flood Hazard Area.

Commissioner Miller noted that it is the homeowner’s responsibility to provide this information in a letter to FEMA. For this type of appeal, called a Letter of Map Amendment, there is no charge to the consumer.

Homeowners can get more information on how to appeal a flood zone designation, get a flood map, and find answers to other questions, by going to https://www.fema.gov/information-homeowners. Homeowners can also call 1-877-FEMA-MAP (1-877-336-2627) to get information on appealing a flood zone designation.

As NFIP premiums have risen and more homes have been re-mapped into flood zones, more private insurers have started entering the flood insurance market. However, private companies may not cover higher risk properties, leaving the NFIP as the only option for some homeowners.  Homeowners who now have NFIP insurance with a subsidy, and switch to a private policy, will likely not be eligible for any subsidy if they later go back to the NFIP. Currently, only those homes insured through the NFIP are eligible for federal grants to help cover the cost of flood mitigation work, such as raising a home to lessen the chances of flooding in the future.

“In many cases, we have found comparable private flood coverage is much less expensive than the NFIP product,” said Commissioner Miller. “I encourage consumers who need or want flood insurance to shop and find the best coverage for them at the best price.”

Title Agent Could Spend Fifteen Years in Prison

Another sad tale for the title industry. A Jacksonville FL title agent has been charged with defrauding clients of nearly $400,000 while operating an unlicensed title agency.

The Florida Department of Financial Services Division of Insurance Fraud arrested 41-year-old Kristine Ann Spahr, who is accused of illegally defrauding clients of nearly $400,000; illegally operating  Signature Title and Trust LLC;  and profiting from escrow monies belonging clients.

The investigation started in January, when the Florida Division of Insurance Fraud got a complaint about Spahr’s operations.  Investigators soon learned Spahr had forfeited her title agency to work for another title company, Grace Title, but she was allegedly still operating Signature Title without a license.

Spahr is accused of defrauding clients on at least seven separate occasions by keeping their real estate escrow funds and not giving clients the title insurance they paid for. Those funds exceed $391,000, according to investigators.  Spahr was booked in to the Nassau County Jail for a felony count of organized schemes to defraud and could face up to 15 years in prison if convicted.

Info On Home Closing

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