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Unlawful Inducements, according to Florida’s Department of Financial Services, are what exactly? DFS’ Proposed Rule includes the traditional “printing mailing labels for real estate brokers” and “paying for referror advertising,” but it also includes “charitable contributions on behalf of purchasers” and “entering into an affiliated business arrangement in an attempt to provide a kickback.” Hmm. I thought HUD allowed monetary benefits for the ‘consumer’ in a RESPA transaction, no? Perhaps I misunderstood. I find the AfBA language interesting because it seems that regulators will look at your ‘intent’ in setting up an AfBA, not just your actions. “Say, did you form this AfBA to pay an owner for the referral of business”? Sshhh . . .
Fortunately, many members of the Florida Land Title Association will be in Tallahassee for the September 20th hearing on this Proposed Rule. If you are not a member of the FLTA, this is an excellent reason to join. These folks are working for YOU.
In addition, there is some great information in the most recent FLTA newsletter (Summer 2010), including an update on fraudulent checks, and what to do if you are closing a VA loan and the VA’s instructions conflict with HUD’s instructions of what charges to show on the HUD-1. The newsletter is posted on the flta.org website for all to view, but starting in 2011, much of this information will only be available to members.
Join the FLTA now to be sure you receive the latest news and to support your colleagues who are fighting to protect your business. Go to: http://www.flta.org to sign up now!
Does it matter if you buy property from a lender that insists it will only deliver “insurable” title, not “marketable” title?
Not if the buyer obtains a certain form of owner’s title insurance. In the 1980s, an owner’s title insurance policy was approved in Florida that covers defects that affect the marketability of title (Form B policy). The previous form of owner’s title insurance policy provided “insurable” title coverage (Form A policy). What’s the difference?
The Form B policy insures against loss as a result of the unmarketability of the title, defined as something that affects title to the land which would entitle a purchaser to be released from the obligation to purchase by virtue of a contractual condition requiring delivery of marketable title (that’s quoted from the policy – no WAY could I have come up with that wording :O).
Let’s say a judgment lien was discovered that was not an exception in someone’s owner’s title insurance policy. If the policy is an insurable policy, the title insurer does not have to do anything until the judgment creditor tries to foreclose its lien. If the policy is a marketability policy, as soon as the judgment lien is determined to be a defect that would allow a prospective purchaser to back out of a purchase contract, the title insurer must take action – even if the judgment creditor has not tried to foreclose its lien.
So if you represent a buyer whose seller refuses to contract for marketable title, be sure the buyer obtains a marketability owner’s title insurance policy.
Thank you to a real estate agent for bringing this issue to my attention after reading an article in the Florida Realtor Magazine !
Everyone knows that the fraud industry never seems to crash, it just morphs into different appearances. The traditional mortgage fraud, with loan applications containing false employment, income, and other information, and the artificially inflated appraisals fraud, were going strong for several years. Now that lenders are more cautious, and many potential buyers have poor credit, the latest fraud is on the individual. Not only people with good credit who are being duped into acting as straw buyers, but current borrowers who are in default on their loans become fraud victims, paying thousands of dollars to people who promise to “stop their foreclosure” or ”repair their credit” or “modify their loan.” The homeowners’ lenders are also afraid of being conned, suspecting artificially lowered property values.
With all of this activity, a forensic financial auditor can stay plenty busy. I interviewed Cindi Dixon, President of Mela Capital Group, to find out exactly what a forensic financial auditor does. Cindi has overseen the auditing of over $5 billion dollars of mortgage loan products, has created and enforced underwriting policy for over two decades, and continues to provide expert witness testimony and consumer advocacy training nationwide. Mela Capital Group provides forensic financial audits and reporting for attorneys and law enforcement throughout the U.S.
Q: Why is it so critical for attorneys to work with experienced lending experts when defending lenders, services and private parties in foreclosure cases?
A: There are intrinsic originator, compliance, and investor issues which are industry specific. These include mortgage backed securities, reps and warrants, and servicing contract breaches. The contracts to buy and sell mortgage pools, and even the lender guidelines applicable for the closing of one loan, contain hundreds, if not thousands of pages. Knowing where to efficiently begin evaluating breaches of these contracts takes an industry expert. As a valuable member of the legal team, a forensic financial auditor identifies document fraud, federal and state compliance errors, and breaches of the pooling and servicing agreements for mortgage-backed security certificates. An expert with decades of experience adds value to the law firm and its clients through legal knowledge, research efficiency, and reduced billing rates.
Q: The term forensic audit is being heard more often these days when discussing mortgage foreclosure and loan buy-back defense. Can you explain what a forensic audit is and why it is important to the legal team?
A: A forensic loan audit is a complex review and analysis of the mortgage loan contract, along with the underlying mortgage sales agreements which govern the sale of the pooling of said loan into a mortgage backed security.
Generally speaking, a mortgage is funded by a bank lender through a line of credit issued to the originator/mortgage broker. The lender then sells the loan to a purchaser, usually in a “pool” of like mortgage loans. The bidder willing to pay the highest spreads on the loan wins. These investors are the Wall Street firms, Fannie Mae and Freddie Mac, who then bundle these pools into mortgage backed securities products and offer them as investments to institutional investors, such as insurance companies, retirement plans, and other investors. To complicate matters, subservicing and outsourcing of risk management and other pieces of this puzzle involve still more agreements that are very detailed and lengthy.
Each of these steps along the way is governed by a number of contracts detailing the specifics of what the loan should look like credit-wise, how money collected on the loan or security is to be disbursed, and how the loan will be transferred and serviced. Throw into the mix the necessary compliance with federal, state and local regulation, and you have at a minimum of 600 pages of contracts detailing every aspect of that loan.
Defending a homeowner against foreclosure requires an advanced level of expertise and knowledge of these underlying contracts so that breaches can be identified and the parties involved can be held accountable.
Repurchase defense is a process used by an investor, lender, or broker who has been ordered, under the terms of the aforementioned agreements, to repurchase, or buy back, a defaulted loan from an investor. The costs involved include the face value of the mortgage, plus reimbursement of all compensation, plus legal and other fees, the total of which can be very high. Understanding the underwriting and securitization contracts allows the entity ordered to repurchase a loan to defend itself through identification of errors and omissions throughout the loan sale process. For example, did the entity purchasing the loan comply with all of its representations and warranties involving the quality control review of the loan prior to the purchase?
When deciding on a forensic auditor it is very important to know with whom you are dealing. Many auditing companies have surfaced recently that are simply technology products. They input data from loan documents and run automated reporting on compliance errors, relying on the standard verbiage found in these documents. Successful defense relies on a true understanding of the underlying contracts and entities involved, and the ability to work each case individually. Although these cases are very paper intensive, there are many layers of issues that must be taken into consideration, including mortgage and appraisal fraud. Attorneys should do their homework when hiring a forensic auditing firm, making sure they select an auditor with the expertise to handle and defend all aspects of their case.
Q: Thanks, Cindi! How can people contact you for expert witness or other investigation assistance?
A: Email me at cindi@melacapitalgroup.com or call me at 954-675-2319. Glad to help!
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You protect your clients’ and customers’ personal nonpublic information. You train your staff to keep all information confidential. You shred, delete, and use sophisticated computer systems to prevent identity theft. Yet you still may be letting information out of your office.
If you have not seen the CBS report about copy machines containing private information, please click below. What an eye opener! It is critically important for people in the real estate business to be sure that their copy machines do not leave their offices with any customer or client information.
Thanks to the attorneys who told me about this issue after I spoke at the FUND Assembly, including Parker Lawrence who sent me this link.
[you have to watch a brief commercial before the video starts]
http://www.cbsnews.com/video/watch/?id=6412572n
PLEASE stop! Stop talking about people being underwater, upside down, or whatever cute word is used when homes are worth less than their mortgage debts. So what?? Live in your home and pay your mortgage. Who cares how much your house is worth? In fact, I prefer my home to be worth zero dollars while I live here, and I hope my neighbors’ homes are worth zero, too! Why? So my taxes are low.
Of course, when I want to sell or take out equity, then I want my home to be worth a billion dollars. But in the meantime, who cares what my house is worth today? Real estate is not for day traders. If you are an experienced real estate investor, know what you are doing, and have the capital to lose money or to wait until the market is better for sales, then I applaud you. To the rest of you? Stop it!
I heard of a hairdresser who bought FOUR houses to rent and then to sell at a great profit. Well, guess what? She lost her renters and could not sell the houses for her mortgage debt amounts, so she also lost the homes to foreclosure. I have no sympathy.
This rant is certainly NOT directed at folks who used to be able to pay their mortgages and did so but cannot at this time due to emergency situations. It is directed at people who think they should “strategically default” just because their homes are supposedly worth less than their mortgage debts at this particular moment. You borrowed the money – pay it back! Stay in your home – some folks would say you’re lucky you have a place to live.
Readers, what do you think? Comment, below.
And if you really do need to sell? Be aware that the latest fraud schemes are all about taking advantage of desperate sellers. More on those frauds in the next blog.
While researching real property bills filed by the Florida legislature this year, one of the bills the computer found was titled Pain Management! HAH! Was this the legislature being sympathetic to real estate folks? Or was it meant for everyone who is dealing with the new HUD-1 form? Too bad it didn’t pass. You might need some pain management if you care about the following topics – JUST kidding!
One good law that passed confirmed DOR’s prior ruling that the forgiven debt from a short sale would not be included as taxable consideration (see CS/HB109 and CS/HB7157, the latter contains a lot more re. tax).
If you are a real estate licensee, you will want to review CS/CS/CS/HB713 that amended a lot of DBPR-regulated statutes, including Ch. 455 regarding distance learning, Ch.475, and Ch. 468 regarding home inspections.
CS/CS/CS/HB303 amended Ch.475 by adding regulation of appraisal management companies. VERY interesting – a result of the Home Valuation Code of Conduct, yes?
Several bills were filed regarding foreclosures. Two that passed involved timeshares and not-for-profit associations, like condominium associations. See CS/CS/HB1411 for modifications to Ch.721. See CS/CS/CS/SB1196 for changes to Ch.617 as it relates to not-for-profit associations, and more.
CS/CS/HB927 added an example of when a transfer of homestead does not constitute a change of ownership, for Ch.193/DOR purposes.
CS/CS/SB1516 creates the “comprehensive state-owned real property system.” Now THAT is a good idea!
A bill defining and regulating reverse mortgages did not pass but it may come up again, so read SB1532 and HB0845 for reference.
Neither bill that attempted to change Florida’s title insurance rules and structure passed. Expect both to be filed again next year, one trying to implement the Title Insurance Study Advisory Council’s recommendations and the other trying NOT to implement those recommendations.
And here are a couple of bills that did not become law but I thought they were interesting.
One bill (SB1820) specified a 6-month statute of limitations for the enforcement of a deficiency judgment. Whoa!
Another bill set up rules to redevelop “antiquated” subdivisions. Wow – that’s kind of harsh, isn’t it? Antiquated? And I read that right before my birthday! :O(
That’s all for now. Stay in touch!
Hi, everyone! Sorry for the delay in writing you but I have been revising my website so I can ’blog’ you – and you can comment! And, yes, I also have the ability to edit your comments (you know who you are :O).
This way I can send you information more quickly and you can share your experiences with each other. Legislative updates and great information about mortgage fraud auditing are coming in the next few days. For now, check out my posts about – what else – the new HUD-1 and GFE.
I hope you enjoy the new site!
Are you working with lenders that are not sending you GFEs? Instead they are saying all of the information you need is in their loan closing instructions? Is that legal?
On page 53 of HUD’s latest FAQs, HUD says:
“The lender is required to transmit the information necessary to complete the HUD-1. The instructions for completing the HUD-1 state that the lender must provide information to the settlement agent in a format that permits the settlement agent to simply enter the necessary information to complete the loan terms section on page 3 of the HUD-1 without having to refer to the loan documents.”
I don’t have a problem with lenders sending the information closing agents need in a different format; HOWEVER, I do see a concern with completing the GFE column on page 3 of the HUD-1 because the closing agent does not know for sure that the numbers inserted are GFE numbers. In addition, you know that charges on the GFE go in the borrower’s column on page 2 of the HUD-1 – how do you know what charges were on the GFE?
Some agents with whom I have spoken are adding a notation either to the HUD-1 form or on a separate piece of paper that the closing agent did not receive a copy of the GFE and the numbers on the HUD-1, including those in the GFE column on page 3 of the HUD-1, were provided by the lender in its closing instructions, per the lender’s direction. You may like this idea.
Yes! HUD says in its FAQs:
Each loan must have a separate GFE and a separate HUD-1. However, the principal amount of the second loan and a brief explanation of the second loan should be listed on Lines 204 – 209 of the HUD-1 for the first loan.
From HUD:
Q: Does voluntarily using the HUD-1 in a transaction that otherwise is not subject to RESPA result in RESPA applying to the transaction?
A: No, using the HUD-1 form does not subject a transaction to coverage under RESPA.
Check out the Florida Title Insurance Study Advisory Council’s Final Report at http://www.flgov.com/pdfs/tisac_final_report.pdf
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