Chicago Real Estate Lawyer - Rachell M. Horbenko

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Saturday, October 29, 2011

New Scams Targeting Real Estate Lawyers

From the Illinois Bar Journal:

Scammers are using smartphones and apps to steal home-sale proceeds.

In a post on ISBA's online Elder Law Section discussion group, Chicago lawyer Kurt LeVitus recently warned his colleagues of a new fraud targeting lawyers handling real estate transactions. Here's how it works.

At the end of the closing in a lawyer's office, the lawyer hands the seller a check for the sale proceeds. The seller leaves the office, but, a few minutes or a few hours later, returns and asks if the lawyer can wire the money to the seller's bank account instead. The unsuspecting lawyer agrees, whereupon the seller returns the original check. The lawyer then orders the wire transfer from her bank to the seller's account.

Having the check back in her possession, the lawyer cancels or destroys it. It doesn't occur to her to notify her bank to stop payment on it. Unbeknownst to her, though, while the seller still had the check, he photographed it with his smartphone and, using a mobile deposit app, deposited it into his bank account.

A day or so later, the lawyer learns that her account has been debited - twice. The result: the seller, who is impossible to locate, ends up receiving double the proceeds from the lawyer, and the lawyer is left with a large loss and no recourse.

Ronald Trubiana, senior vice-president and chief financial officer of Attorneys' Title Guaranty Fund in Chicago, says a colleague organization in Florida has warned of this fraud. "This scam is very easily done. The scammers don't even have to leave for a couple of hours - they can do it right at the closing table."

If the lawyer acts quickly, there's one possible avenue of recovery, Trubiana says. "The agent could contact the bank and say, 'Kick this check back because we wired the funds.'" That would be a long and involved process, he says, but it could provide a way to recover the money.

The counterfeit-cashier's-check variant

Trubiana warns of a variant fraud in which the purported overseas buyer of a property sends a counterfeit cashier's check, usually drawn on a foreign bank, to the lawyer for deposit in the lawyer's trust account.

"It takes a while for a cashier's check drawn on a foreign bank to work its way through the system," he says. "The fake buyer will send an e-mail asking the lawyer to confirm the deposit, and the lawyer will respond that he has. Then, the buyer will ask that a portion of the funds be wired to a business partner in, say, Japan. The remainder is enough to cover the fees and the initial down payment on the property, so the lawyer will go ahead and wire the funds without checking to make sure that the check actually cleared. About two weeks later, the lawyer finds out that the check was forged."

Banks are required to give depositors access to funds even though the checks have not completely cleared, Trubiana explains. "But when they receive notification that a check is bad, they'll debit your account."

Two of ATG's members in Illinois were swindled by one group of fraudsters perpetrating this scam, Trubiana says. In each case, "the property buyer was [allegedly] from Canada and submitted a phony real estate contract that looked like the real thing. The checks were drawn on Toronto-Dominion Bank in Canada and labeled as cashier's checks. One member lost $95,000; the other lost $280,000."

To add insult to injury, "The second time the group really became bold. They sent the agent an e-mail telling him that he got scammed and gave him a reference to a website that talked about this very fraud." And the agents weren't novices, but experienced and careful lawyers, Trubiana says. (For more about such schemes, see LawPulse, "Beware the Chinese E-Mail Scam" in the October 2009 IBJ.)

The old story: beware e-mail solicitations

Trubiana provides some advice for lawyers on spotting potential fraud. "In how many instances do you get a real estate matter that's been initiated by an e-mail? Multiply that by a factor of one hundred if it's from overseas."

Though the best course of action may be simply to delete the e-mail, if you think the matter might be legitimate, Trubiana recommends, "Send an e-mail back and ask for a phone number so you can contact them. Do your due diligence to ensure that the person is who he says he is and has the matter he says he has."

Trubiana knows of no insurance that will cover losses resulting from the mobile phone check deposit scam. "Once the money leaves the country, there is no chance of recovery." The best response to someone asking to replace a check with a wire transfer is, "Sorry, the transaction is over and I can't do it."

In his post, LeVitus noted that the potential for fraud isn't limited to real estate transactions. "This same type of scam can happen anytime a client is given a check, so be on the lookout."

11:26 am cdt

Tuesday, October 25, 2011

Foreign Buyers Scooping up U.S. Homes

International purchases of American homes are ramping up, and a new Senate bill designed to boost the ailing real-estate market would encourage globe-trotting investors to buy even more.

The bill, co-sponsored by Charles Schumer (D-N.Y.) and Mike Lee (R.-Utah) would grant a U.S. visa to international investors who agree to spend at least $500,000 on residential real estate here.

If passed, the legislation could add to a surge in homebuying by international purchasers over the past year or two that's already given some local U.S. markets a welcome boost.

Foreigners spent $82 billion buying up U.S. homes in the 12 months ended in March, up 24 percent from a year earlier, according to the National Association of Realtors (NAR). That represents 8 percent of total U.S. sales.

In places like South Florida, international buyers already account for a whopping 25 percent of the market. California, Texas and Arizona also attract many foreign buyers, as do Hawaii and New York.

South Florida condo sales have been surprisingly strong, said Brad Hunter, chief economist for Metrostudy, a housing analytics company. "And the majority of those sales are to South Americans and Canadians," he said.

All that international buyer activity has been a tonic for the anemic Florida market. Housing starts were up nearly 20 percent in the three months ended Sept. 30, according to Metrostudy.

In Manhattan, there's been a steady baseline of foreign condo buyers, said Jonathan Miller, CEO of Miller Samuel, a New York appraisal firm. They generally account for about 15 percent of investors, but in recent years, the buyer mix in New York City has shifted, he said.

When the euro was strong in the mid-2000s, buyers from Western Europe -- and particularly Ireland -- dominated.

The Irish "economy was so strong back home -- the 'Celtic Tiger' years -- that many were flush and wanted to invest and take advantage of the spread between currencies," said Miller. "There were marketing groups that would go to Ireland and sell packages of condos here."

Now, said Miller, the New York market now attracts more Asian and Latin American buyers than in the past.

Wei Min Tan, a real-estate agent with Charles Rutenburg Realty who specializes in selling Manhattan real estate to Asians, said his volume has more than doubled this year.

"I tell [ buyers ] it's going to be a stable investment that should go up 10 percent a year," he said. That's "not as much as they might get in Hong Kong or Shanghai," but there's less volatility, he said.

Even better for homeowners, foreign sales can be very easy: The buyers are often affluent and buy more expensive homes. The median sale price of $175,000 they pay in Florida, for example, is well above the median sales price of $136,500 for all transactions.

There's also no hassle over financing or waiting around for a mortgage lender to approve the deal: Overwhelmingly, international buyers pay cash.

Indeed, the Senate bill would require buyers to pay cash for the homes to qualify for the new "homeowner" visa. They'd also need to pay U.S. taxes and spend at 180 days a year in the country, and can't work here or take out home-equity loans against the properties. In return, they'd get to live here for at least three years.

The program could improve the housing market nationwide, said Schumer.

"We think a very significant number of people will be brought in," he said. "They'll sop up the extra supply of homes we have right now that has been dragging down the economy."

Foreigners seem to have more confidence in the U.S. real estate market than Americans do. Almost half of buyers surveyed by NAR cited the profitability or safety of their investments as the main factor that persuaded them to buy.

"With the economic distress in Europe," said Miller, "people are still looking for safe havens for investing and the U.S. is perceived globally as safe."

11:32 am cdt

Wednesday, October 19, 2011

Improper Property Tax Exemption Costs County Millions

One of the most popular ways to lower property tax bills is also one of the most misused — benefiting thousands of people ranging from mayors to landlords and snowbirds.

The homestead exemption is supposed to lower taxes only for a taxpayer's primary residence. But a Tribune investigation found some Chicago-area taxpayers have incorrectly received two, three or even more of the exemptions. It's part of a tax system that has cut breaks through vague rules, little oversight and almost no penalties.

Nobody knows just how many people are getting the extra exemptions, or how much it costs in lost tax revenue. Area assessors estimate it's tens of millions of dollars a year. One thing is clear: Those costs are passed on to other taxpayers who must make up the difference.

"The effect of one fake exemption spread across an entire region is negligible," said Kane County Supervisor of Assessments Mark Armstrong. "But the effects of hundreds of them become real."

Those getting improper exemptions typically save only several hundred dollars a year per property. But for those who collect on several properties over several years, the savings can add up. Records show that:

•Olympia Fields Village Trustee Willis Pennington saved nearly $1,600 over four years with an extra exemption he didn't request.

•Chicago tax consultant Andrea Raila saved $8,000 over nine years. She said she didn't know she had the extra break for years but thought she deserved it anyway.

•And Cook County Commissioner Jesus "Chuy" Garcia saved $8,500 over eight years. He said he was unaware of the exemption and will pay it back.

Many who received the additional exemptions say they didn't ask for the tax breaks and didn't realize they were getting them. Tax officials say others purposely abuse the system because there's little chance of getting caught or being penalized.

"People figure out a way to save some money," said Cook County Assessor Joe Berrios, who is pushing get-tough legislation. "People actually go out there and brag about it, which is nuts."

Guessing game

Homeowners save money because the exemption artificially lowers the assessed value of their homes — typically by $6,000 to $8,000. Taxes are then based on the lower value. If one homeowner pays less, neighbors must pay more because schools and other taxing bodies receive a set amount.

A Tribune analysis of tax data from Cook, DuPage, Kane, Lake and Will counties suggests about 17,000 properties may be improperly getting the exemption.

About 13,000 were in Cook County, netting those property owners an estimated $7 million a year. But Berrios said he believes the Tribune's estimate is conservative. He pegs the number of properties at double the newspaper's figures and the costs at nearly triple.

The Tribune linked properties if the tax bill for one was mailed to another property also getting an exemption, and the last names on both tax bills matched. That may count some properties where both exemptions are legitimate — such as cases where an elderly parent's tax bills are mailed to a son or daughter — but authorities said it's a good indicator of questionable exemptions, and likely an undercount.

Through the analysis, the Tribune found the case of Pennington. The village trustee, also a Metra board member, lives in Olympia Fields but has a "getaway home" nine miles south in rural Will County. Pennington said he never knew he had the exemption on the Monee home, and Will County officials confirmed they gave it to him in 2007 without him asking, assuming he deserved it.

He saved $330 that first year, and the annual savings grew to $470 last year, according to Tribune calculations based on records. Pennington said he shouldn't have to pay the $1,600 total back because it wasn't his fault.

Garcia, a former state senator and newly elected Cook County commissioner, has vowed to pay back the $8,500 he collected since 2003 after learning from the Tribune that an exemption had been placed on the home he inherited from his parents. He said the exemption must have remained on the property when he became owner.

"I know you can only claim where you live. That's why it's a homeowner exemption," he said. "I didn't know I was getting an exemption (for his parents' former house) because I'm not eligible."

12:04 pm cdt

Monday, October 17, 2011

Lack of Inventory is Latest Issue in Housing Market

From today's WSJ:

The housing market, which has struggled with an oversupply of homes for years, is facing a new problem: a lack of attractive inventory. There were more than 2.19 million homes listed for sale at the end of September, down 20% from a year earlier, according to a new report from the real-estate website Realtor.com. That is the lowest level since the company began its count in 2007.

WSJ's Nick Timiraos joins the News Hub to discuss an ironic new headache facing the housing industry: low inventory. AP Photo/Chris Carlson

The report is the latest sign of how the U.S. housing market can't seem to catch a break. While falling inventories are typically a sign of health, because reduced competition can boost prices, that isn't the case right now.

nstead, real-estate agents say, people are pulling their homes off the market rather than try to sell them at today's discounted prices. At the same time, banks have been more slowly moving to take back properties through foreclosure ever since processing irregularities surfaced last fall, temporarily reducing the supply of foreclosed properties. The shrinking supply isn't driving up prices because demand is soft.

Yet there is still a substantial "shadow" supply of foreclosures and other distressed homes, estimated to be more than one million, that is likely to stream onto the market in the coming years. The pent-up supply is another constraint on any of the price gains that might normally occur when supply falls.

The decline in inventory also suggests that there are fewer opportunities for buyers and sellers to strike deals. That can further chill sales, as buyers become afraid to overpay while sellers are similarly cautious about underpricing their homes.

"The inventory is low, so it's hard for buyers to find their dream home," said Joan Downing, a real-estate agent in Bloomfield Hills, Mich., a suburb of Detroit. "That's been our challenge more than anything: finding the inventory for the clients. Nobody's complaining about the pricing or the interest rates."

In Detroit, the inventory of homes for sale was down by 28% from a year earlier, according to Realtor.com. Listings were down by 49% in Miami, by 48% in Phoenix and by 46% in Orlando, Fla. Housing inventory was down from one year earlier in all 146 markets tracked by Realtor.com except for Denver and El Paso, Texas.

"On paper, all of the conditions are great for buying, but the reality doesn't seem to match that," said Ross Kutash, a 37-year-old attorney who has looked at more than three dozen homes in different suburbs of Los Angeles. "I wouldn't describe it as a buyer's market so much as no market at all."

Mr. Kutash and his wife, who recently had a baby, are looking to move out of their one-bedroom apartment in West Hollywood. "For our sanity, we're in a hurry," he said.

The Realtor.com data include only single-family homes, townhouses and condominiums listed for sale on more than 900 multiple-listing services across the country. They don't include unsold homes listed as "for sale by owner" or other properties that don't find their way onto the multiple-listing services.

The National Association of Realtors calculated that there were 3.58 million single-family homes, townhouses and condos for sale at the end of August, down 28% from a year earlier, though still above levels seen in the first quarter of 2011. The calculation differs from Realtor.com's because it estimates the entire universe of single-family homes for sale. The NAR is in the process of recalibrating its methodology. Both sets of data show housing inventory at a historic low.

Mortgage rates have fallen to their lowest levels in decades, but demand remains weak and credit standards tight. Mortgage applications for home purchases were 3% below year-ago levels during the first week of October, according to the Mortgage Bankers Association.

Industry executives say shortages of well-priced and attractive homes are a bigger drag on sales than sluggish demand.

"As weak as demand is, inventory has been weaker," said Glenn Kelman, chief executive of Redfin Corp., a Seattle real-estate brokerage firm that does business in 13 states. "Right now, the absence of inventory is the limiting factor on sales volume."

12:51 pm cdt

Tuesday, October 11, 2011

The Economics of Refinancing

Every week seems to bring more good news on mortgage rates, and a new group of consumers starts calling around, seeking to capitalize on record-low or near-record-low mortgage rates by refinancing their loans.

Refinancings are accounting for as much as 80 percent of weekly application volume and as one wave of potential refinancers follows another, a few market trends and realities are emerging.

One, everyone thought 4 percent would be the great psychological breaking point spurring refinancings of 30-year, fixed-rate loans. That, as it has turned out, has just been more icing on the cake.

The threshold actually was 4.5 percent, said Greg McBride, a senior financial analyst for Bankrate.com, because that enabled a lot of borrowers to save at least one half of one percentage point.

"When mortgage rates got below 41/2 percent, that opened the door for people who previously (refinanced) at 5 and 51/4 percent," he said. "Even at 43/4 percent, if you can snag a rate below 4, it makes sense."

Two, 15-year, fixed-rate loans are hot.

According to a report issued by Freddie Mac last month, of borrowers who refinanced during the year's second quarter, 37 percent went into a 15- or 20-year loan, the highest such share since 2003's third quarter.

The reason? It's not just about cutting the monthly payment anymore, mortgage professionals say.

"I think people are more conservative," said David Pendley, president of Avenue Mortgage. "They aren't looking for bigger and better. The mind-set is, 'I have to get my house paid off and shore up my finances because no one is going to do it for me.'"

Say a consumer takes out a fixed-rate, conventional 30-year, $100,000 mortgage at 4 percent. With a monthly payment of $477, that consumer is paying $172,000 over the life of the loan.

Shrink that loan term down to 15 years, at an interest rate of 3.25 percent, and it equates to a payment of $702 a month. Higher, yes, but over the life of the loan the consumer is paying only $126,000, or $46,000 less than would be paid on a 30-year loan at the higher interest rate.

"It depends on what you're trying to accomplish," said Ken Perlmutter, president of Perl Mortgage. "Do you want a lower payment? You want to go to a 30-year. If you're at a different point in your life and you want to accumulate wealth (a 15-year means), you're paying down the principal faster, you're building equity faster."

Three, no one expects a silver bullet to help all homeowners enjoy the low rates.

That means the same rules that applied at 5 percent still apply at 4 percent. For the best rate quotes, you've got to be pristine on paper and the higher the consumer's credit score over 700, the better. Homeowners should use the weekly rates announcements from Freddie Mac and the Mortgage Bankers Association as a guide only because they are dated by the time they are announced. Also, the rate quoted to a homeowner will also move up slightly higher if the borrower rolls the closing costs into the loan.

Homeowners also have to have sufficient equity in their home to refinance, and that level may not be the same as it was the last time they refinanced. The size of home price declines may have moderated a bit, but they are still trending downward.

In its most recently monthly report, the Illinois Association of Realtors said August home prices fell 10.4 percent from a year ago for the Chicago area as a whole and were down 3.8 percent within the city of Chicago.

That does little to help underwater or financially stretched consumers who have higher rates and would greatly benefit from a refinancing. Either their homes are appraising too low, or their creditworthiness is such that the extra fees required to get the loan don't make the transaction financially advantageous. Lending experts don't expect that the federal government will conceive any mass refinancing program to help all of those borrowers. After all, that was the goal of the voluntary Home Affordable Refinance Program, which has not met expectations.

The good news, according to loan officers, is that it's easier to get holders of second liens, such as for a home equity loan, to sign off on the subordination agreements necessary to refinance a principal mortgage in which there is also a line of credit. Getting that agreement may take a while, but they are getting done.

10:35 am cdt

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