Chicago Real Estate Lawyer - Rachell M. Horbenko

Monday, February 6, 2012

Pockets of Hope in Some Chicago Markets

From today's Chicago Tribune:

The market has not been kind to the home seller.

The bad news continued last week when the S&P/Case-Shiller home price index reported that Chicago-area homes prices fell in November for the third month in a row, to a level not seen since May 2001.

Still, there are pockets, small pockets, where at least in the fourth quarter of 2011 the housing market looked better than it did a year ago. The telltale signs: an increase in median sales prices, an increase in the number of closed sales and a decrease in the number of days on market.

There is no guarantee that the positive signs will continue in the more than a dozen ZIP codes that showed improvement in all three areas, and experts want to see another three months of statistics before they label an area as recovering. A rash of distressed properties also will send the market downward. But given five years of bad headlines about the housing market, even the smallest inkling of positive news may be welcome for homeowners and industry watchers.

"Real estate has become a spectator sport because of the Internet," said Russ Bergeron, CEO of Midwest Real Estate Data LLC, the local multiple listing service provider. People "want to know what's going on in their neighborhood. The (greater) number of units means stuff is at least moving. If you can string together six to nine months (of good numbers), then you've really got something to be excited about."

Many communities showed improvements in the average number of days it took to sell properties, according to data provided to the Tribune by Midwest Real Estate Data. And many also showed a greater number of closed sales than last year's fourth quarter.

Far fewer showed higher median selling prices, but pricing is expected to remain under pressure until distressed inventory is cleared from the market.

"There's no magic formula on anything like this to say we've accomplished a turnaround," said Zillow senior economist Svenja Gudel. "If you have a fairly tight (housing) stock, that will help put a floor under prices, because people are snapping up houses."

Among those areas are the communities of McHenry, Johnsburg and Lakemoor. When gasoline prices topped $4 a gallon, Toni Wardanian, a real estate agent at Stedman's Real Estate, saw homebuyer interest wane because no one wanted an expensive commute.

With both gas prices and mortgage rates far more attractive, she is again seeing interest in starter homes as well as getting calls from existing homeowners who want to take advantage of the overall low prices and trade up to larger homes.

"We have houses listed for $50,000, and that's just crazy," she said. "They need work, but some are diamonds in the rough."

Indeed, of the 49 homes sold in the 60051 ZIP code during the fourth quarter, 15, or 30 percent, sold for between $50,000 and $99,999, according to Midwest Real Estate Data.

In many cases, real estate agents say homeowners are finally coming to grips with the reality that if they want to sell their home in the current market and in a timely fashion, they have to price it competitively.

After 14 years of living in Naperville, homeowner Kathy Schutz wants to move to Chicago with her 11-year-old son by late summer. Having recently put her home on the market, she's encouraged by what she hears but remains a little apprehensive. She listed the home in 2009 at the same price, $419,000, but took it off after a few months. She's kept the same price, reasoning that it's similar to the recent comparable home sales she's seen.

"You mentally get a number in your head, and I don't know how much I'm going to have to adjust it," said Schutz, an equity analyst. "I think I'm in the ballpark, but we'll have to wait and see. I deal with economic data all day. I don't feel as bullish as these Realtors do, but you do hear people saying, 'Boy, there are some great deals out there.'"

The mild winter certainly has helped showings and buyer interest, said Erene Panos of Re/Max Action. Panos still has conversations weekly with sellers about pricing, but list prices aren't being dropped as quickly as they were a year ago.

"We aren't getting as saturated by the foreclosures as before, and that's definitely helping the resale market," Panos said. "And if you have a home that has been very well taken care of, it's not going to be there that long."

Michael and Ilana Sherman made an offer on a Highland Park home the day after it came on the market, before Michael had even seen it. The couple sold their Lincoln Square condo at a loss in 2010 and began renting in Wilmette while they began watching the residential markets along the North Shore, waiting for the right opportunity. After walking away from one offer and losing out to a higher bid on another, the couple went under contract on a four-bedroom split-level a few hours after Ilana toured it, at the list price of $325,000.

"We kind of expected going into it that we would be able to take our time," Michael Sherman said. "But the reality is, the houses that are priced accordingly to their real value and that are in structurally good shape go very fast. When you see it, and we'd been looking for a while, if you want to own your own home, then you have to react fast."

1:23 pm cst

Wednesday, February 1, 2012

Congrats to New First Time Homebuyers!

Congrats to Michael N. and Melissa M. who closed yesterday on their first new home! It was a pleasure working with you and all the best!

11:29 am cst

Old Mortgages Rise from the Dead to Haunt Homeowners

By Michelle Conlin, Reuters

February 1, 2012

In July 2009, Roy and Sheila Bowers refinanced the mortgage on their suburban ranch home in Topeka, Kan. The couple wanted to take advantage of the low interest rates that were all the rage at the time.

Roy, a truck driver, and Sheila, a former hotel housekeeping supervisor, knew their new loan from Wells Fargo would enable them to save $198.86 a month, a nice chunk to help with gas and groceries.

But what the Bowers never imagined was that their old loan, the one Wells Fargo told them was paid off, would resurrect itself, trashing their credit report, scotching their son's student loans and throwing the whole family into foreclosure. All, they say, even though they didn't miss a single mortgage payment.

The Bowers are not alone.

More and more, homeowners say that mortgages they thought were dead and buried are springing back to life, sometimes haunting them all the way into foreclosure.

"It's the most egregious manifestation of an industry that's seriously broken," said Ira Rheingold, a lawyer who is the executive director of the National Association of Consumer Advocates.

Diane Thompson, an attorney with the National Consumer Law Center, said she has defended hundreds of foreclosure cases, and in nearly all of them the homeowner was not in default.

"The record keeping on the part of the mortgage servicers is not to be trusted," Thompson said.

The problems grew from a lot of sloppy record keeping that began during the housing boom, when Wall Street built a quick-and-dirty back-office operation to process mortgages quickly so lenders could sell as many loans as possible. As the loans were later sold to investors and then resold around the world, the back-office system sidestepped crucial legal procedures.

Now it's becoming clear just how dysfunctional and, according to several state attorneys general, how fraudulent the whole system was.

Depositions from "affidavit slaves" depict a surreal, assembly-line world in which the banks and their partner firms hired hair stylists, young employees from fast-food restaurants and Wal-Mart floor workers, paying them $10 an hour, to pose as bank vice presidents, assistant secretaries and corporate attorneys.

These "robosigners" became a national sensation in the fall of 2010 when it was revealed that they faked titles, forged documents and backdated affidavits so they could make up for the bypassed procedures and foreclose on properties. They passed around notary stamps as if they were salt. They did all of this, they testified, without verifying a single word in any of the documents, as is required by law.

And it was all done, they say, to foreclose on as many homeowners as fast as possible.

No one collects statistics on wrongful foreclosures or how many people are facing phantom mortgage debts. But as the industry enters its fifth year of unwinding its mortgage morass, consumer groups, homeowner attorneys and foreclosure-fraud investigators say they are seeing more cases in which people who don't owe the banks a dime are getting ensnared in the same hell as those who have missed payments.

They add that such problems are likely to intensify. Former industry employees have testified that they knowingly pushed through foreclosures on the wrong people.

The attorney for the Bowers, the couple from Topeka, said their credit woes stem from an "Erroneous Release of Mortgage" document stating that the Bowers' first mortgage "has not been fully paid, nor satisfied, nor discharged, but, instead, continues to exist." The document was signed by a robosigner after the first mortgage had, in fact, been paid off by the new mortgage they obtained in their refinancing, they say.

It all casts a pall over a housing market in worse condition than it was during the Great Depression. By some estimates, 12.5 percent of U.S. homes with mortgages are either in foreclosure or the loans are at least 30 days past due, representing about $1 trillion in value.

"This is an epic problem that the economy hasn't even begun to digest," said Florida foreclosure analyst Lisa Epstein.

In some cases, mortgages that were supposed to die off in a refinancing are popping back up, while in others the loans were paid in full. Homeowners who pay off their houses through bankruptcy programs are also falling prey. So are homeowners who never even had a mortgage to begin with.

Homeowners say the banks' repo men sometimes show up at work. Banks also hector them with threatening letters and phone calls.

11:24 am cst

Thursday, January 12, 2012

Mortgage Rates Hit Record Lows - Again

From Chicago MarketWatch:

CHICAGO (MarketWatch) — Mortgage rates dropped to record lows this week, with 30-year fixed-rate mortgages falling to 3.89%, its sixth week below the 4% mark, according to Freddie Mac’s weekly survey of conforming mortgage rates.

The mortgage averaged 3.91% last week and 4.71% a year ago.

Rates on 15-year fixed-rate mortgages averaged 3.16% for the week ending Jan. 12, down from 3.23% last week and 4.08% a year ago.

Adjustable-rate mortgages also dropped, with 5-year Treasury-indexed hybrid ARMs averaging 2.82%, down from 2.86% last week and 3.72% a year ago, according to the survey. One-year Treasury-indexed ARMs averaged 2.76%, down from 2.8% last week and 3.23% a year ago.

To obtain the rates, 30-year mortgages and 5-year ARMs required payment of an average 0.7 point, 15-year fixed-rate mortgages required an average 0.8 point and 1-year ARMs required an average 0.6 point. A point is 1% of the mortgage amount, charged as prepaid interest.

“Although the economy added 1.6 million jobs in 2011, which was the most since 2006, the unemployment rate remained historically elevated. The 2009 to 2011 period had the highest three-year average unemployment rate since 1939 to 1941,” he said. The government’s official jobless rate for December was 8.5%.

Nothaft also pointed to the Federal Reserve’s regional economic review known as the Beige Book, released Wednesday. It indicated most industries “saw limited permanent hiring at the end of last year,” he said.

For more, click here.

11:55 am cst

Monday, December 5, 2011

When Renting Out Your Home Makes Sense

Chicago Tribune's latest real estate article that I found interesting:

It takes a leap of faith, not to mention a little investment in time and money, but the idea of renting your home to strangers is catching on.

People are coming to town for the holidays or on vacation or to visit their kid in a college near you. Why not open your doors to pick up some extra cash?

"We have had many great experiences renting our home for the summer months," said Michelle, a real estate agent who rents out her primary residence, located in Maine, every summer and lives with family and friends while her place is rented. She asked that her last name not be used.

For her, the decision was financial.

"At first we were very apprehensive about renting out the house," she said. "Believe me, it was not an easy decision to allow strangers to come in our home a week at a time. However, financially we had no other options. … The (rental) money allowed us to pay the mortgage."

"(The rental website) HomeAway sponsors a survey every year, and the most recent said, on average, people who make their vacation property available for rent take in between $30,000 and $35,000 a year," said Emily Glossbrenner, a rental expert (www.fullybookedrentals.com) who wrote "How to Make Your Vacation Property Work for You!" (FireCrystal Communications) and rents out her second home, a one-bedroom riverfront cottage in Bucks County, Pa.

HomeAway is one of several sites that match property owners with potential renters: VRBO, Wimdu and airbnb are among the others. The growing popularity of the idea can be seen in numbers from HomeAway Inc.'s network of online vacation rentals. The websites' global listing count at the end of 2008 was 338,396. A year later, it was 433,295, and 2010 ended with 527,535 listings. As of early November, the number was more than 625,000.

So the money and demand are there. But before you take the plunge, follow this advice:

Do your homework. Go to rental websites and scout the competition. See what amenities are offered, how the property is decorated and what the asking price is.

Is your property something that people want to come to? Beach cottages, summer cabins, even a condo in the heart of a big city will draw people. A two-bedroom ranch in Kansas or a tiny apartment in rural Kentucky might not be as desirable.

Even if you live well outside a big city, you may have something people want.

"If someone has a house 35 miles or more outside a city, I would encourage them to rent anyway," Michelle said. "Lots of people prefer to be a little bit away from all of the summer crowds and traffic.

"For the holidays, someone close to you may have a large family (visiting) that they do not have the room for, and your house may be just what they are looking for."

Legal considerations. Let your insurance company know you're going to be offering your place as a rental and be sure you have the proper liability coverage and damage insurance.

Are there any local regulations or homeowner association rules that prohibit renting out your home? Just because the neighbors do it doesn't mean it's legal. Also, you may be required to collect state and county occupancy taxes.

Depersonalize. Suppose you're going to rent to a party of 10 for a week.

"They're going to expect to be able to hang their clothes in the closet; they're going to look for empty drawers," Glossbrenner said. "Living out of a suitcase doesn't cut it in today's world. People expect dresser tops they can put things on; bathroom vanities for their things."

"We had to depersonalize the house," Michelle said. "Took out all the kids' pictures and little knickknacks and things that had personal meaning for us. We made space in the basement for all the extra stuff that we move out every year. We have streamlined the process and can do most of the changeover from our house to others' in a day or so."

Appliances don't have to be top of the line with all the bells and whistles — most guests won't be able to decipher a high-tech coffee maker anyway — but they have to do what they're supposed to do and operate efficiently.

Other things travelers appreciate: flat-screen TVs, quality sheets and towels, fans, an ironing board, lawn furniture and a work space for using a laptop or writing.

12:46 pm cst

Tuesday, November 15, 2011

A Special Saturday - a Civil Union and a Wall Street Journal Mention

This past Saturday I had the pleasure of attending a civil union ceremony for some very dear friends who have been together for almost 18 years. The two ladies had had a commitment ceremony many years ago, but now, finally, they were able to make it "legal" in the State of Illinois. I was happy to be part of such a special day.

I also had a mention in the Wall Street Journal for an article they ran over the weekend about nightmares in landlording. The article is printed below and can be seen if you click here.

The pitch is compelling: Buy a vacant house or apartment building and rent it out to some of the throngs of Americans who have lost their homes to foreclosure. With interest rates near record lows and property values still slumping, getting into the landlord business is cheaper than it has been in years.

Investors turned off by paltry bond yields and the mercurial stock market are intrigued. Kimberly Foss, president of Empyrion Wealth Management in Roseville, Calif., says she has seen a surge of clients looking to purchase distressed homes and apartment buildings. Her clients have an average net worth of about $4 million, she says.

U.S. home prices inched 0.2% higher in August, according to a closely watched index released Tuesday. That prompted one economist to see a "modest glimmer of hope" for the downtrodden housing market. Mitra Kalita has details on The News Hub.

"Many of my clients are looking to use part of their portfolios to scoop up properties," she says. "They see it as an alternative retirement plan."

But aspiring property owners need to watch out for a slew of traps. Among them: prolonged vacancies, surprise costs, deadbeat tenants, difficulty refinancing and overestimating the rental potential.

It is easy to overlook those risks when the market conditions appear so ripe. Home prices have fallen to 2002 levels nationwide, according to the latest data from the S&P/Case-Shiller index, and financing remains cheap. For the week ending Nov. 10, the average rate on a 30-year fixed-rate loan was 3.99%, not far from the Oct. 6 record low of 3.94%, according to Freddie Mac data going back to 1971.

Rents are improving, too. The average monthly rent for all categories, including apartments and single-family homes, was $846 nationwide in the third quarter, up 2.5% from the same period a year earlier, according to Local Market Monitor, a Cary, N.C., firm that analyzes real-estate trends. That is lower than the long-term average gain of 3.5% a year, but better than the 3% decline in calendar year 2009.

photo illustration byJeffery Mangiat

Even the Obama administration is considering getting involved in the rental markets. Government officials have been soliciting ideas for how to convert some of the foreclosed homes owned by Fannie Mae and Freddie Mac into rentals, in order to cut the mortgage giants' losses on those homes.

All of this is attracting interest among investors. Brian Davis, who runs ezLandlordForms.com, a website for property investors, says traffic is up 20% this year.

"Most people think I'm crazy to buy now," says Jason Walker, a marketing director in Washington. But the numbers were too good to pass up, he says. Mr. Walker is closing this week on a town house in Baltimore, for which he paid $275,000. He says he put down 20% of the purchase price, locked in a 4.5% rate on a 30-year fixed mortgage and expects to net $1,000 a month in profit.

Here is what you need to know before taking the plunge.

Cheaper homes aren't always a good investment. Even if a property is selling for half the price it fetched during the boom, that doesn't mean it will generate enough income to make the deal pay off, says Wayne Copelin, a financial planner in Sugar Land, Texas.

The key is to figure out how much rental income the property will generate. A good rule of thumb: Make a deal only if you can collect at least 1.25% of the purchase price each year in rental income, says Jason Reed, a real-estate agent in St. Paul, Minn., who works exclusively with investors.

Determining the rental potential can be tricky. Some properties already have been rented out, and the owner can furnish records. Others have no rental history.

One way to examine the rental market is to use websites like FinestExpert.com, which tracks occupancy rates and rents across the country.

In certain sweet spots, rents are rising even as home prices fall. Take Nashville, Tenn., where rents have jumped 6% over the past 18 months, while home prices have dropped 3%, according to Local Market Monitor. Other markets where that is happening: El Paso, Texas; Houston; Omaha, Neb.; Raleigh, N.C.; Pittsburgh; and Washington.

Markets in areas that have been battered by foreclosures, such as Las Vegas and Phoenix, remain unstable. They might have low prices, but they also are suffering from high unemployment. That could leave aspiring landlords with empty homes, which then could fall even further in value, according to Local Market Monitor President Ingo Winzer.

Local Market Monitor cites Austin, Texas; Akron, Ohio; and Dallas as among the most attractive markets overall, and calls Detroit, Las Vegas and West Palm Beach, Fla., "dangerous."

When looking at properties, act like a renter, says Jeff Cronrod, president of the Boulder, Colo.-based American Apartment Owners Association. Tour the neighborhood to see if landlords seem desperate to lure tenants. Are there lots of vacancies? Are buildings offering deals like living rent free for a couple of months in order to drive up demand? If so, be wary, Mr. Cronrod says.

Carrying costs add up. Another pitfall for real-estate investors: not accounting for unexpected expenses.

Besides closing costs, which generally average between 3% and 6% of the purchase price, general maintenance expenses like taxes, insurance and repairs can be much higher than many investors expect, says Jason Post, president of Los Angeles based Post Investment Group, a boutique real-estate investment firm that buys and operates apartment buildings.

You should allot roughly $2,000 a year for insurance, taxes and any association fees for neighborhood pools and the like, Mr. Reed says. To ensure that a major repair doesn't break you, set aside at least six months' worth of expected rent, he says.

"You can't even fathom some of these strange costs," says Jerry Garretty, who runs a property-management firm in San Jose, Calif. Six months ago, Mr. Garretty says, he found a nasty surprise after overseeing the eviction of tenants who were three months behind on rent in a Cupertino, Calif., home: They had poured quick-drying cement into the sewer pipes—a $1,000 repair—and defaced the walls with graffiti scrawls, he says.

Jumps in property insurance premiums also can dent your investment profits, says Jason Holtz, a real-estate lawyer with Kevin Jursinski & Associates in Fort Myers, Fla. This is particularly common in states like Florida that are prone to tropical storms.

Kathleen Farmakidis, owner of a three-unit apartment building in Winter Haven, Fla., says she has seen her property insurance jump 50% this year, to $110 a month.

Venturing far from home can be dicey. It is a good idea to buy rental properties only in your immediate geographical area, Mr. Cronrod says. Although it might be tempting to venture far from where you live for better deals, those properties can be difficult to manage.

As an owner, you need to be ready to repair leaky faucets, collapsed roofs and all other middle-of-the-night disasters—or pay someone to do it.

Hiring a local property manager can help. Such managers perform maintenance, collect rent and even screen tenants. But they typically charge 8% to 10% of the annual rent for their services.

And some are much better than others. Michael Epstein bought a single-family home in Pompano Beach, Fla., in 2009 even though he lived more than an hour's drive away in Jupiter and the house needed work.

Mr. Epstein, a small-business owner, hired a property manager to rehab the house, which he scooped up at a foreclosure sale, and maintain it. But because Mr. Epstein didn't visit often, it took him months to discover the manager hadn't been overseeing construction and that the work was botched. He had to spend an additional $40,000 to bring the property up to building codes.

"That was a risk I didn't even factor in," Mr. Epstein says.

It pays to plan conservatively. Don't assume you will be able to attract renters immediately. If a neighborhood is littered with foreclosures, those properties aren't going to be any more attractive to would-be renters than they are to buyers, says Jim Evans, president of real-estate investment firm Bruce G. Pollack & Associates and president of the nonprofit Institute of Real Estate Management.

The best tactic, say financial advisers, is to build in a cushion. Assume you need at least three months to find a tenant, and keep that much cash in reserve.

John Interdonato wishes he had foreseen the dry spell he would suffer after buying an investment property in Cape Coral, Fla., for $280,000 in 2005. The electrical engineer planned to rent it out for enough to cover the $2,200 mortgage payments. But after the property sat empty for more than a year, starting in 2009, Mr. Interdonato fell behind.

Last December, after having sunk 50% of his savings into the property, he was forced to sell.

"It felt like I was staring down the barrel of a shotgun," he says.

Refinancing can be difficult. With interest rates so low, many homeowners have been able to refinance their mortgages recently. But lenders are reluctant to take on refinances of investment properties, says Matt Englett, a real-estate lawyer in Orlando, Fla.

Banks view such owners as more of a risk, he says, because they can walk away from the property more easily than owners of primary residences can.

Mark Cheplowitz, the owner of an international event-planning firm in Aurora, Ohio, says he is losing roughly $24,000 a year on two properties in Collier County, Fla. Last week, a lender declined his applications to refinance the mortgages.

Mr. Cheplowitz says he despairs whenever he flies down to check on the properties.

"Here I am, staying in a crappy motel," he says, "as tenants live in these beautiful carriage houses I am losing money on."

Screen tenants with care. Renting out your property to unreliable people can be a costly mistake. Eviction proceedings can take months, and owners can't rent out the property until the eviction is final.

Chris Ourand, a chief marketing officer for a technology company, says he battled for nearly 10 months to evict a tenant who had stopped paying rent in February on a four-bedroom town house in Arnold, Md.

Mr. Ourand, who lives in nearby Severna Park, says he trekked to court three times to get the tenant to pay up. In October, he says, he was able to oust the delinquent tenant, whom he says trashed the place.

Mr. Ourand says the ordeal cost him roughly a third of his annual investment income on the property. "This is the worst experience with investment properties I have ever been through," he says. "It was a nightmare."

Even tenants with clean credit can turn out to be unsavory. Attorney Rachell Horbenko says she had to boot tenants from her Chicago building after waking up in the middle of the night to the smell of marijuana. The tenants were consuming so much, she says, that the smoke had seeped into her six-month-old daughter's room.

"The room was cloudy," she says. "I could barely see the crib." The eviction process took more than three months, she says.

12:28 pm cst

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

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