Builders Should Not Own Title Companies

Another hat tip to our friends at http://www.caare.org/ for another article explaining the lack of transparency with builders and their customers.

Builders want to continue to force consumers to use their in-house title companies. Allowing a builder to own a title company is little different than allowing a builder to determine if his own title is any good. Builders recently pummeled HUD with a mountain of letters and a lawsuit to protect this anti-competitive, anti-consumer and manipulative arrangement.

New construction closings are likely the most complex and risky transactions a consumer or lender will ever do. The title issues are enormously complex, fraud abounds and the potential for coercion and bait and switch is huge. And it is the title company that must sort through the complex purchase agreements to properly represent them on the settlement agreement. It is the title company that must uncover title defects created by the builder, mechanics liens that the builder hasn't paid and handle situations where the buyer and builder disagree. Of course builders want to own the title companies that make these decisions. What better way to protect their investment.

It doesn't take long to imagine a routine real life scenerio where a builder might abuse his ownership of a title company. Here are a few:

• Sub-contractors have filed mechanics liens on the property and the builder disputes them.


• There is a blanket underlying mortgage on the entire development and the builder doesn't want to payoff the part due to release the subject property.


• The builder is in financial difficulty and the title company is a perfect bank to "borrow" money.

Residential new construction is already a problem for consumers in that the purchase agreements are best described as contracts of adhesion and offer consumers no meaningful protection whatsoever. The forms are typically custom forms in excess of 20 pages that would cost a fortune to even have an attorney review. Consumers are already at a severe disadvantage.

In addition, title companies are responsible to collect and disburse funds in an unbiased manner that follows the instructions in the purchase agreement. Is there any possible way to call a builder's title company unbiased?

And if the builder is trying to cover up title defects such as unpaid mechanics liens or unpaid mortgages, what better way to do that than by owning your own title company?

The other problem is that builders coerce buyers to use their biased title companies by offering fake discounts that exceed the price of the title work often by a factor of 5 or more. Free rooms, $10,000 in discounts, free granite counter tops are all things that we have seen. When the title fees are only $1200 or so, the so called "incentive" to use their title company becomes more of a demand than a choice.

And if the builder is capturing all of the buyers' title work that comes through the door, what does that do to competition? Competing title companies that offer title work for less won't be considered because they would essentially have to pay the buyer $8,000 to match the benefit the consumer is getting from the builder. The discount is nothing more than a stick to whack the buyer with if the buyer refuses to subject himself to the risky proposition of allowing the builder to examine his own title.

Allowing builders to own a title company allows the builder to neutralize the safeguards that the title company is there to provide. If you're going to allow that to happen, it is CAARE's position that you would be better off not even examining title at all.

How much is your property really worth?

Knowing the value of your home is critical to making key financial or family planning decisions. The real estate market is on the rebound and some areas are recovering faster than others, so it’s important that your property analysis be local. There are several ways to research your home’s true value.

Check with local real estate experts

Check with an agent or broker who is familiar with comparable properties in the local area. They’ll know what you can expect for a home with similar features, age and location as yours. They’ll also know which property features are hot in the current real estate market, and you might even consider updating your home with those features to enhance its appeal. Local real estate experts might also have a good idea of when the market will be in even better shape than it is now, thus bringing a better price for your property.

Professional appraisal

A professional property appraisal will cost at least a few hundred dollars, but this detailed analysis could prove worthwhile if home value will play a part in making a major life decision. The appraisal is based on a combination of comparables and an in-person inspection. Known as “appraised value,” this estimated value of your property may be more or less than the “market value,” which is the dollar amount suggested by local real estate experts you’ve consulted. Unlike the appraised value, the market value takes into consideration such variables as buyers’ incentives and how quickly the seller needs to sell the home.

Network

Get out and visit open houses. This will be a great way for you to see first-hand the style and features of comparable properties. You will also be able to research the asking prices of these properties, and also meet realtors or brokers to help you sell your own property. Getting outside the “bubble” of your own home is a great way to figure out whether you can get more from the sale of your property – or in some cases, whether you’re expecting too much.

Research online

The Internet is full of resources to help you figure out your home’s value. Check the multiple listing service to see the values of comparable properties, if a realtor or broker isn’t already researching that information for you. There are also fee-based sites with software to provide property comparisons and home valuations.

When pricing your property and deciding whether to sell or wait, knowledge is power. Fortunately, a variety of tools are at your disposal to help ensure you get what your property is really worth.

CFPA proposal launches congressional tug-of-war

In the midst of the healthcare reform battle, another war is raging between President Barack Obama and Congressional Democrats. Consumer finance took center stage in early July with the Consumer Financial Protection Agency Act of 2009, a scaled-back version of Obama’s previous proposal.

The House Financial Services Committee proposal is structured very similarly, with a few key differences. Like Obama’s proposal, it will grant the new CFPA power to create and monitor regulations for products offered by the financial industry. Unlike Obama’s proposal, congress proposes to leave enforcement of the Community Reinvestment Act in the hands of offices like the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), as opposed to the newly formed CFPA. Furthermore, congress does not propose a merger of OTS and OCC into a new regulatory agency called the National Bank Supervisory, as Obama proposed.

The congressional CFPA proposal is not without some internal squabbling among Democrats. Those serving on the House Energy and Commerce Committee protest that the Federal Trade Commission, which falls under that committee’s oversight, should retain regulatory power over non-bank financial products. Losing control over mortgage brokers and finance companies will significantly restrict the role of the FTC and thus the Energy and Commerce Committee, argued former committee Chairman Frank Dingell (D-MI).

Supporters of CFPA counter-argued that one agency with one mission to oversee the financial industry will repair some of the past damage done by the FTC’s historic lack of oversight. The bill, HR 3126, is currently under review by the committees of finance and energy and commerce.

I Believe (reprinted from Mike Pryor at ALTA)

(Reprinted with permission from Mike Pryor at ALTA - http://www.mikepryor.net/)

I was recently asked why I am so adamant about the need for a good title search.

Because…..

• I believe the cornerstone of property rights in the United States is based on a transparent and reliable method of providing constructive notice regarding those precious rights.
• I believe a good title search brings attention to areas of the public record that need correction, satisfaction or curative action.
• I believe that without the scrutiny and curative action resulting from a good title search, critical public real estate records in our country will fall into disarray.
• I believe that failure of confidence in the public records will inevitably lead to increased fraud and false claims against legitimate property rights.
• I believe corrupted public records will result in a reluctance or refusal of credit.
• I believe once the public records are damaged beyond any ability to prove unimpaired ownership, title insurance will become unaffordable for most consumers.
• I believe when a loan is conditioned on an unaffordable title insurance product or an unattainable proof of lien priority, economic prosperity is threatened.

Do you still wonder why I am so adamant about the need for a good title search?

Because….

• I believe the quality of a title search should be more than an “occasional” requirement for issuing title insurance.
• I believe consumers are entitled to disclosure of all title impairments of record, regardless of the insuring decisions.
• I believe a title policy issued on a poor (or non-existent) title search provides an illusory near term savings at a catastrophic long term price…both for consumers and title insurers.
• I believe our individual and corporate responsibility to the economic future of our children and grandchildren is violated every time we forego a good search in favor of a quick profit.
• I believe, as an industry, we should be protectors of good standards, not just servants to the avarice of mortgage markets that require “quick” at the expense of “good”.
• I believe those in the title business should learn from current business examples that the consequences of short cuts, regulatory failure and improper attention to risk are devastating.

Finally, I believe a good title search of good public records unleashes the power of asset leveraging and securitization in a way that, with restored diligence, can keep the American dream of home ownership alive for future generations.

That’s why I am so adamant about the need for a good title search.

Thanks for asking!

Mike Pryor
www.mikepryor.net

"Making Home Affordable" offers a solution for homeowners in distress

Homeowners who are struggling with their mortgage payments may soon find an affordable solution, thanks to a new initiative by the Obama administration. Making Home Affordable is a plan to help such homeowners refinance, even if they are "upside down" in their mortgage, owing more than the home is worth. It is expected to help between 4 to 5 million homeowners refinance, who would otherwise have great difficulty doing so.

Mortgage refinance criteria

To be eligible for a mortgage refinance through the Making Home Affordable plan, homeowners must meet certain qualifying criteria. Over the previous 12 months, they must have paid all mortgage payments no later than 30 days past the due date.

Furthermore, their mortgage loan must be owned or guaranteed through Fannie Mae or Freddie Mac. Homeowners can determine whether they meet this requirement by calling their lender or by contacting Fannie Mae at (800) 7FANNIE or www.fanniemae.com/homeaffordable, and Freddie Mac at (800) FREDDIE or www.freddiemac.com/corporate.

Benefits of MHA mortgage refinance

There are several reasons homeowners should consider a mortgage refinance through the Making Home Affordable plan. Most significantly, Fannie Mae and Freddie Mac offer considerable flexibility with applicants' credit scores and histories. The traditional lending market, on the other hand, is still relatively rigid as the housing market slowly recovers.

Many Homeowners have been forced to move due to economic reasons or career relocation, and need help meeting payments on the home they left behind. The Making Home Affordable plan would benefit them because it applies to residential properties other than the applicant's current primary residence, like rental or vacation properties.

"Ensuring that responsible homeowners can afford to stay in their homes is critical to stabilizing the housing market, which is in turn critical to stabilizing our financial system overall," said Treasury Secretary Tim Geithner. "Every step we take forward is done with the imperative in mind."

How to sell your home fast

Whether you’re facing a job transfer, impending foreclosure, or an escalating adjustable rate mortgage, there are many reasons you may need to sell your home quick. Unfortunately, selling a home can be a discouraging process, although taking the right steps can speed the process along. Even in a slow housing market, you can sell your home faster with a few basic strategies.

Take quality photos

A vast percentage of modern-day home searches start on the Internet, so high-quality photos are essential. Rent a wide angle photo lens to make rooms appear larger. Open curtains on a sunny day to let in plenty of natural light and show off your home’s best features. You may even recruit a professional photographer to capture your home’s best side.

Market your home

Marketing is critical. The personal connections and resources of realtors can help, but homeowners can even market and sell their own home with the help of web sites like FSBO.com or ByOwner.com. Yard signage and a listing on the multiple listing service is available through such sites. Other avenues include social media like Twitter, Facebook, and You Tube videos.

Price it correctly

Look at comparables, get an inspection, and consult an appraiser and realtor before setting the price on your home. However, when the housing market is in a slump, you are much less likely to get full value for your home, so get ready to compromise. If your home stalls on the market, act fast and slash the price by 10 percent. Incremental decreases are not drastic enough to catch attention. Lower the price and sell it faster.

Remove all clutter and personal effects

Family photos, kids’ artwork, knick-knacks, pet bowls, general clutter, and anything else that speaks about your personal life should be removed. Enable visitors to envision your home as their own. Consider hiring a professional home stager for an objective eye to help make your home more appealing.

Buyer Incentives

Offer to pay closing costs, or one year’s worth of property taxes or homeowner’s association fees. More creatively, you could spring for a maid or landscaping service. Incentives can increase the number of looks you’ll get, thus increasing the odds of getting an offer and selling your home fast.

Tax benefits for first-time home buyers

If you have been waiting for the right time to buy your first home, 2009 is your year. There have always been many tax benefits to home ownership, but recently passed legislation makes the deal even sweeter for first-time home buyers. In response to the housing market decline, the federal government is offering first-time purchasers a tax credit of up to $8,000 that does not have to be repaid if the home is owned for at least three years.

The tax credit is equivalent to 10 percent of the home’s purchase price, capped at $8,000. Eligible taxpayers must purchase their first home before December 1, 2009 and their adjusted gross income must not exceed $75,000 per person, or $150,000 per married couple.

In addition to the new tax credit, first-time home buyers may be quite surprised at how many other tax benefits await. The interest on a first-home or second-home mortgage is fully deductible up to $1 million. The interest on up to $100,000 of home equity debt is also tax-deductible, regardless of what the loan is used for. This is a tremendous benefit because interest payments consume the vast majority of payments over the first several years.

Loan discount points and origination fees, commonly grouped into closing costs, are tax-deductible for home buyers – even if the seller pays closing costs. In terms of loan origination fees, for example, this typically means you could deduct 1% or more of the home’s purchase price.

Best of all, profit of up to $250,000 per individual ($500,000 per married couple) off the sale of a home is non-taxable income. Any profit beyond that is subject to capital gains tax. The caveat is the taxpayer must have lived in the home at least 24 months out of the previous five years, but the 24 months do not need to be consecutive. Add to this the fact that homeownership-related tax deductions often allow taxpayers to reach a point where they can itemize other smaller deductions like charitable giving, and homeownership begins to look quite profitable. When handled correctly and within your financial means, buying a home can truly be a winning deal.

OAITA and ELTA file lawsuit against ODI

TO: Press, TV and Radio stations in Cleveland, Columbus, Cincinnati, Dayton, Akron, and Toledo.


Contact person: Robert B. Holman, Esq.
OAITA (440) 232-9911

SUBJECT: INDEPENDENT TITLE AGENTS FILE NEW LAWSUIT AGAINST OHIO DEPARTMENT OF INSURANCE.

FOR IMMEDIATE RELEASE

The Ohio Association of Independent Title Agents (OAITA) (http://www.oaita.org/) and Eagle Land Title Agency, Inc. have filed a new lawsuit in the Franklin County Court of Common Pleas against Mary Jo Hudson, Director of the Ohio Department of Insurance. OAITA, an association of independent title insurance agents in Ohio, and Eagle Land Title Agency, Inc., an independent title insurance agency licensed by the Ohio Department of Insurance seek to prevent the spread of kickbacks and referral schemes in the real estate industry by asking the Franklin County Court of Common Pleas to declare that the Director of the Ohio Department of Insurance must enforce currently existing rules prohibiting banks, real estate companies and mortgage brokers and their subsidiaries from engaging in the business of title insurance pursuant to Ohio law.

OAITA and Eagle are represented in the newly-filed lawsuit by E. Bruce Hadden, Gregory W. Happ and Robert B. Holman. The lawsuit alleges that Director Hudson failed to enforce current administrative rules based on long-standing Ohio statutes that prohibit banks, real estate companies or mortgage brokers, or any of their subsidiaries, from unlawfully steering Ohio homeowners and their real estate transactions to title insurance agencies owned all or in part by those same banks, real estate companies or mortgage brokers. The suit alleges that ownership of title insurance agencies by banks, real estate companies or mortgage brokers, known as controlled business arrangements, creates dangerous conflicts of interest by allowing those banks, real estate companies and mortgage brokers to obtain kickbacks and referral fees for steering Ohio homeowners to their own controlled title agencies. The lawsuit alleges that such conflicts of interest violate Ohio statutes and that Director Hudson has failed to construe newly enacted rules in accordance with the long-standing law.

The suit is an important step towards reducing the overreaching power and influence a bank, real estate company and mortgage broker have over a homeowner’s real estate transaction and, in particular, a homeowner’s statutorily protected choice of title insurance provider. The lawsuit is important since many homeowners do not even realize such a choice exists. By permitting banks, mortgage brokers and real estate companies to move into the title insurance business, the lawsuit alleges that the ODI’s inaction has helped to feed the pervasive greed that has overwhelmed the real estate industry in recent years. Considering the well-known impacts of the mortgage industry meltdown and the rise in foreclosures across the country, homeowners across Ohio are well-served by the filed action.

Independent title insurance agents serve as important checks and balances on the power of banks, real estate companies and mortgage brokers to unlawfully steer homeowners’ real estate transactions to controlled entities. Members of OAITA and Eagle Land Title Agency, Inc. are independent title insurance agents and independent real estate settlement service providers who refuse to give kickbacks or referral fees to banks, real estate companies and mortgage brokers for the real estate transactions they close. Instead, independent title agents: (1) help to reduce the cost of title insurance by not engaging in elaborate schemes to reward referral parties at the homeowners’ expense; (2) help to lessen the likelihood of real estate related litigation involving homeowners by not allowing referral party pressure to dictate closing requirements; and, (3) help restore trust and integrity in the fiduciary relationship that exists between homeowners and their settlement providers by insuring that only disinterested title agents provide title insurance services, not their referral parties.


-END-

OAITA Complaint - Declaratory Judgment

Department Assures Third-Party Title Escrow Accounts Are Safe for Ohio Consumers

COLUMBUS – Ohio Department of Insurance Director Mary Jo Hudson announced, today, that Ohio consumers can feel protected because of a recent interpretation of federal law by the Federal Deposit Insurance Corporation (FDIC).

The FDIC has granted account guarantee program coverage to Ohio Interest on Trust Accounts (IOTA) by determining that IOTA accounts had the same status as Ohio Interest on Lawyers’ Trust Accounts (IOLTA). This positively impacts consumers because title agents routinely deposit client funds into their IOTA accounts on a temporary basis during real estate transactions. Those funds will now be protected while in the bank or depository institution in the same way that the consumer’s checking, savings, and certificate of deposit funds are protected, but will not be subject to the $250,000 maximum limitation.

This result may or may not apply to accounts maintained by title insurance companies in other states.

Anyone with questions about their insurance should call the Department’s consumer hotline at 1-800-686-1526 and visit www.insurance.ohio.gov for information.

Ohio Department of Insurance Contacts:

Robert Denhard, Public Information Officer (614) 644-3366
Jarrett Dunbar, Public Information Officer (614) 644-2475

MORTGAGE MELTDOWN Was Caused by Elimination of Safeguards

A hat tip to our friends at http://www.caare.org/ for writing the simple truth of the meltdown below (I wonder why you won't find this on 20/20 or 60 minutes?):

There are multiple real estate related industries that provide a safety net to real estate transactions. It is their job to uncover problems and disclose them to all interested parties. You could even say that it is their job to provide information that might “kill a deal” when the transaction is a bad one. If their ability to independently determine problems becomes compromised, then the entire infrastructure of residential real estate becomes compromised. Welcome to the Mortgage Meltdown of 2008.

Most consumers rely heavily upon Realtors in the selection process of services that provide safeguards to the integrity of the transaction. But does it make sense to have Realtors involved in that selection process? Should any professional who has a large financial stake in the outcome of a residential transaction be permitted to provide or select inspection, appraisal, mortgage, title or legal services?

If a Realtor has a $30,000 commission riding on a transaction, is he going to select a law firm or home inspection, mortgage or title company that is going to protect the integrity of the transaction or is that Realtor more likely to pick a service that is going to protect their commission by making sure that the transaction closes? How many bad loans never would have funded had the lender not been in a position to select the appraiser? How many bad loans are funding today because lenders who own foreclosed properties are insisting that buyers use their title company for the closing?

The fact that lenders can sell their mortgages, like commodities, to distant and detached investors contributed to the crisis because no one cared about the integrity of the loan that was being sold. However, is it really a bad thing to sell those mortgages? What if there were safeguards in place in the form of independent and unbiased determination makers who are untroubled by threats of boycotts or firing?

It was the removal of important safeguards that enabled the mortgage crisis. If those safeguards had not been intentionally nullified by a real estate industry accelerating out of control in a race for more and more unfair profits, those safeguards would have more than likely have uncovered the problem loans and killed them before they ever could have damaged anyone. We must get the real estate industry out of the supporting industries.

One stop shopping does not belong in a marketplace where some “shops” are supposed to be scrutinizing the other “shops.”

Our theory is that commissioned service providers should never have been allowed to have ANY involvement in the selection of the service providers whose job it was to find and disclose problems with the transaction. And by all means, they should NEVER have been permitted to have an ownership interest in those safeguard industries. Yet, that is exactly what happened and what is happening today.

Most supporting safeguard indus

There is really nothing complicated about this concept: It is even worse than the proverbial fox guarding the hen house because the are no consequences if the Realtor gets caught steering their clients into their hen-house (sp) title company. Even worse, the Realtors who are most successful in betraying their clients’ chickens (sorry, I meant trust) are portrayed as heroes and will have no worries when it comes time to negotiate their commission split with their broker.

The real estate industry vigorously protects and deceptively promotes the ownership of these safeguard industries as something that somehow benefits consumers and society. They have even gone so far as to provide tainted data to highly compensated research firms for “studies” that are then disseminated to governmental authorities in support of their conspiracy. They have taken this fox/chicken coop concept and spun it with appealing names like One Stop Shopping, Bundled Services and Affiliated Business Arrangements. They even got Congress to change the old term of Controlled Business Arrangements because it had “negative connotations.” Their persistence should come as no surprise once it is pointed out that ownership of these safeguard industries practically guarantees that almost all transactions will close and that they can charge whatever they want on these services that are largely misunderstood by consumers.

Unfortunately, their persistence in preserving their controlled business arrangements has also resulted in the near destruction of our economy. Home inspectors, appraisers, lenders, title companies and even lawyers have all been compromised. If they do their job and find problems with a transaction, they are never hired again. Replacing unbiased independent decision makers with chumps who rubber stamp transactions under the threat of being fired or boycott is today’s real estate mantra.