Naples Daily News August 8, 2004
Raymond Bowie: RESPA: Silent partner to home buyers and sellers
By RAYMOND J. BOWIE, Special to the Daily News August 8, 2004
Home buyers and sellers have a "silent partner" accompanying them in most real estate transactions, but he's so silent, they seldom know he is there. Buyers and sellers who do recognize him, however, have a powerful ally on their side in securing independent, lower-cost settlement services.
This silent partner's name is RESPA, an acronym for a federal law known as the Real Estate Settlement Procedures Act. RESPA governs how settlement services are provided to buyers and sellers in the 87 percent of all residential real estate transactions financed with "federally-related mortgages." Passed by Congress in 1974, the idea behind RESPA is that buyers and sellers should be free to choose their own settlement service providers - such as real estate brokers, lenders, attorneys, inspectors, closing and title agents - without being improperly influenced by other settlement service providers.
RESPA is very broad as to the types of activities it covers, specifically including real estate brokerage, all aspects of mortgage lending, mortgage brokerage, title and closing services, attorney's services, credit reports, appraisals, property inspections, property insurance, surveys, and any other services a buyer or seller is required to pay for in a residential real estate closing. RESPA calls all these activities "settlement services," and the parties who perform these services are called "settlement service providers."
The abuse targeted by RESPA is compensated referrals, which occur when a buyer or seller is referred by one settlement service provider to another provider who pays the first provider for the referral.
RESPA prohibits compensated referrals on grounds that they may limit competition, drive up the cost of settlement services, and restrict the right of buyers and sellers to choose providers best representing their own interests. For example, if the seller's real estate broker is paid a referral fee by a title company to steer the buyer there for his closing, other closing agents may not be able to compete for that buyer's business; the buyer may wind up paying higher closing fees to cover the cost of the title company's paying a referral fee to the broker; and the title company may owe greater loyalties to the seller or his broker than to the buyer.
RESPA covers the vast majority of the nation's residential real estate closings. It applies to all closings on residential properties of up to four family units financed by a "federally related mortgage" - defined as any mortgage made by a lender regulated by or insured by the federal government, or sold or serviced on the secondary mortgage market to institutions like "Fannie Mae" or "Freddie Mac". Included are construction loans if the loan is to be converted to permanent financing, or if the loan finances the purchase of a new home by the initial buyer.
As a general proposition, RESPA is violated by any of the following types of schemes: First, any time one settlement service provider requires a buyer or seller to pay for and use the services of another provider; second, any time one provider gives or receives a kickback or any "thing of value" from another provider as part of an agreement to refer settlement business; and third, where any settlement service provider pays unearned or excessive fees to another provider who does not provide actual, fairly valued services.
RESPA also bans home sellers from requiring buyers to buy their title insurance from any particular title company or to pay the seller for providing title insurance to the buyer. It is allowable for the seller to pick the title insurer only if the seller, rather than the buyer, pays for the buyer's title insurance policy without passing the cost on to the buyer. While for many reasons it is not a wise practice, it is, in fact, customary in many areas of the country, including in some parts of Florida, for the seller to pay for and provide the title insurance to the buyer - a practice entirely legal under RESPA.
Problems may, however, arise under RESPA with certain closing practices prevalent in new home sales contracts used by many builders. In the Naples area, many builders require in their sales contracts that new home buyers must use the builder's attorney or title company for their closing and pay a "closing fee" - usually equal to 1.5 percent of the property's sales price - for the closing services and title insurance provided to the buyer. This builder contract clause may be subject to challenge under RESPA if the buyer is getting a federally-related mortgage to finance the home's purchase.
In that situation, the builder will likely be violating RESPA if he charges the buyer a fee tied directly or indirectly to the required use of the builder's designated closing agent, or if the builder otherwise either rewards the buyer for using the builder's title insurer or penalizes the buyer for choosing another title insurer. In the case of such a violation, the buyer may recover from the builder a civil penalty under RESPA equal to an amount three times all the title insurance charges paid by the buyer. Further, title insurers who kickback anything of value to a builder or other home seller in exchange for requiring a buyer's use of their title services may incur RESPA's criminal penalties of a $10,000 fine per incident and imprisonment for up to one year.
Buyers aware of their rights under RESPA may, if they are getting a mortgage, use the law's clout to negotiate with builders to delete the "closing fee/required use" clauses from new home sales contracts. Doing so allows the buyer to preserve the important prerogative to select his own closing agent and title insurer to represent him in the purchase of new construction.
In recent years, RESPA's blanket prohibition on compensated referrals has been somewhat loosened by regulations of the U.S. Department of Housing and Urban Development (HUD), the agency that administers RESPA. These liberalized HUD regulations came about as a result of lobbying by Realtor and mortgage industry groups seeking to offer various different settlement services to the customers in a single package, a movement called "one-stop shopping."
Increasingly, buyers and sellers may now encounter real estate brokers, mortgage lenders and title insurance companies offering "affiliated business arrangements" with other settlement service providers to whom buyers and sellers are referred and for which compensation is paid. Under HUD regulations, these arrangements are lawful provided certain strict requirements are met.
First, the compensation paid by one service provider to the other cannot be based on the amount of referrals made or the dollar volume of the referrals. Rather, the first provider is required to have a bona fide ownership interest - called an "affiliate relationship" - in the second provider receiving the referral. Any profits paid to the first provider must only be in the form of a return on the first provider's ownership interest in the second provider, proportionate to the first provider's actual investment in the second.
Second, the settlement provider receiving referrals from an affiliated provider cannot be a sham operation totally run by and dependent upon business from its affiliate. A proper affiliated business must be independently capitalized, staffed and operated, and actually itself perform the settlement services for which it charges.
And lastly, any buyer or seller referred by any settlement service provider to an affiliate must receive a written "affiliated business arrangement disclosure." This disclosure must inform the buyer or seller of the nature of the affiliation between the providers and the shared ownership interests, an estimate of the referred provider's charges, and notice that the buyer or seller is not required to use the services of the referred provider and is free to choose another provider.
Affiliated business arrangements are becoming ever more prevalent. Real estate brokers are regularly setting up mortgage and title insurance affiliates, and sometimes property insurance, home inspection, and home services affiliates as well. Many mortgage companies have title agency affiliations. And the Financial Services Modernization Act allows commercial banks to own title agencies and insurance agencies as bank subsidiaries.
For this reason, buyers and sellers need to take seriously the notice as to their rights provided in any affiliated business arrangement disclosure they receive. They should indeed shop around and compare prices between the referred settlement service provider and other providers.
And a buyer or seller should always ask whether a settlement service provider affiliated with another entity is truly going to be representing him best as his agent or fiduciary.
RESPA is intricately involved in almost all residential real estate transactions financed by institutional lenders, from contract to closing. As a silent partner, this federal law sits, usually quietly and unnoticed, at the closing table next to every buyer and seller in such transactions, protecting their rights to choose their own settlement service providers, hopefully at lower cost and with better service than if someone else did the choosing.
Raymond J. Bowie is a Naples area attorney and civil-law notary, board certified in real estate law, who has practiced law for 24 years in Florida, Virginia and New York, specializing in real estate transactions, representing buyers and sellers in contracts, closings, title insurance, tax-deferred exchanges, land trusts and financing. He is also a licensed real estate broker, mortgage broker, association manager and real estate instructor. Bowie invites real estate-related questions or suggestions for columns to be addressed to him, c/o Real Estate Editor, Naples Daily News, 1075 Central Avenue, Naples, Fla. 34102.
If you would like information on Naples Area Real Estate please go to www.bestrealestatenaples.com or you can email Jackie Belcher at JBelcher@AmerivestRealty.com
Naples, Florida News By Amerivest Realty
June 23, 2006
RESPA: Silent Partner to Home Buyers & Sellers
What Home Buyers Don't Know about Morgages can Really Hurt
What homebuyers don’t know about mortgages can really hurt
By Holden Lewis, bankrate.com
Sunday, January 29, 2006
You wouldn’t believe what homeowners don’t know about mortgages. No, scratch that. Yes, you would.
Recent polls show that consumers don’t feel knowledgeable about home loans and they don’t know what to do if they fall behind on their monthly payments. Furthermore, they view their homes as secure piggy banks — a notion with some merit, as long as they realize that loans against equity have to be repaid with interest.
The most refreshing message coming out of these polls is this: People are aware of their gaps in knowledge. What’s less clear is whether they know where to go to get the information they need.
In a survey conducted by Radian Guaranty, a mortgage insurance company, 52 percent of the homeowners said they didn’t know much about the mortgage options that were available when they bought their homes.
Although they felt like they didn’t know enough, these homeowners weren’t dummies. Homeowners were asked what two pieces of advice they would give to prospective homebuyers. More than half of the respondents would tell homebuyers to figure out how much house they could afford. Another 45 percent would suggest that the buyer find out about all the various mortgage options, and 36 percent would recommend getting pre-approved for a mortgage before looking for a house.
While about half of homebuyers say they didn’t know about all of their mortgage options, things are worse for those unfortunate homeowners who fall at least a month behind on their payments. More than 60 percent of these delinquent borrowers don’t know of the various workout options that are available to them, according to a survey commissioned by Freddie Mac, the mortgage funding giant.
People don’t know their options because they don’t call their loan servicer. Three-quarters of delinquent borrowers recall being contacted by their servicers, but fewer than half of the delinquent borrowers responded. Presumably, they let the answering machine pick up, and they never called back.
Bad move. Freddie Mac and rival Fannie Mae require mortgage servicers to explore workout options with delinquent borrowers. Sometimes something can be worked out, and sometimes it can’t. But if you have fallen behind by one or two months, it can’t hurt to call the company that collects the mortgage payments and see if something can be worked out.
“That’s the key thing,” says Brad German, spokesman for Freddie Mac. “How do we get more borrowers to follow up on those opportunities, on those contacts?”
Freddie Mac is changing its guidelines to persuade loan servicers to reach out earlier to delinquent borrowers, German says.
It’s best to contact late payers before they get desperate. And you can’t rule out what some people would do in desperation after you read “Living With Debt,” a report written by Robert Manning, a professor of finance at the Rochester Institute of Technology and author of the book “Credit Card Nation.”
“Living With Debt,” underwritten by LendingTree.com, examines peoples’ attitudes about personal finance in six stages of life — college students, young singles, young families, mature families, empty nesters and seniors. Research subjects took part in focus groups.
Manning found that young singles tend to want to buy a home first, then do long-term financial planning afterward, and they say they will use home equity to bail themselves out of any trouble. Manning quotes a 29-year-old named Jason as saying, “the equity in my house provides a little comfort blanket, and you definitely take that into consideration in your consumption habits.”
Regardless of age or life stage, consumers are still coming to grips with what Manning calls the democratization of credit — the introduction of financial products that weren’t widely available a generation ago. Examples include piggyback mortgages, home equity loans and home equity lines of credit.
The need for consumer education underlies all three of these surveys. But who should do the educating? Radian recommends “lenders and others in the financial services arena.” Freddie Mac devotes a section of its Web site to consumer education, including tips on avoiding foreclosure. LendingTree has a section of its Web site called the Knowledge Center. Doug Lebda, chief executive of LendingTree, says Manning’s report is the first part of a multiyear program to teach people money-management skills.
For his part, Manning has no quick solutions. He has helped develop financial literacy programs for college students, and he concludes his report by writing that “it’s never been more important for borrowers to arm themselves with knowledge and build sound financial-management skills.”
But getting consumers to arm themselves with knowledge is a difficult task.
If you would like information on Naples Area Real Estate please go to http://www.bestrealestatenaples.com/ or you can email Jackie Belcher at JBelcher@AmerivestRealty.com
Why Hire a Real Estate Attorney
Naples Daily News April 25, 2004
Charles Kovaleski: Why hire a real estate attorney?
By CHARLES J. KOVALESKI, Special to the Daily News April 25, 2004
Most financial planners agree that real estate is still one of the best investments around, especially in Florida. Fortune magazine, in fact, recently identified the state as one of the hottest three real estate markets in the country, with its relative affordability and desirable balance of current value and growth potential.
Whether you are a renter hoping to buy your first home or a veteran homeowner looking for a change, it's still a fine time to make a move. If you're like most buyers today, you have an abundance of real estate information at your fingertips, including on the Internet and on the shelves at the local bookstores.
Whatever your real estate information resource, the best initial advice for every prospective homeowner is to locate a good real estate attorney. The earlier in the process you involve the attorney, the more value you gain from him or her to represent and support your interests only. Remember, your real estate attorney is the only person at the table looking out solely fro your interest.
How does a real estate attorney protect clients from potential problems that can range from the merely annoying to the very costly? By doing the following:
- Reviewing all written communications and contracts. Your real estate attorney reviews everything that requires your signature, including binder agreements and sales contracts drawn up by the seller's attorney. Many Realtors today use standard contracts, and though much of the language is fairly straightforward, it's in the buyer's best interest to have an attorney explain the terms of the contract before it is signed. Your attorney's primary concern is that these contracts contain provisions and contingencies that benefit and protect you, and will negotiate any changes to that end. He is also on the lookout for language that favors the seller or builder, and will eliminate vague or unenforceable terms. Your attorney can also draft an agreement requiring money to be put aside in case the parties don't live up to their agreements, protecting both the buyer and the seller.
- Making changes to generic construction contracts. One of the most common consumer complaints today involves problems with new home construction and home-improvement work. If you are having a home built or are buying a brand-new home from a builder/contractor, you have a unique set of legal issues. Construction contracts can vary in complexity, but they're written by builders' attorneys and are always written to protect the builder's interests. A typical builder's contract says the home will be built "substantially" according to the model's plans. But changes can be made, for example, to the home's layout or the type of materials used and should be included in the contract. Your attorney will also include language that spells out consequences for builders who do not fix problems within a certain time frame, usually 30 days from the initial walk-through.
- Obtaining a title search. A thorough search of the property's title must be completed on all real estate to uncover any defects that might preclude the buyer from a marketable title. Issues can include liens or other outstanding judgments against the property, such as back taxes, lost or forged deeds, claims of undisclosed heirs or simple clerical errors. Your attorney will evaluate the status of the title and pursue appropriate legal remedies to clear any title defects. He'll also advise you on what your title insurance policy does and does not protect against, emphasizing marketability of the title when you sell. Many people confuse title insurance with a home warranty, but the two are unrelated. If the title company misses a lien, the insurance is there to cover it. Your attorney will also interpret and counsel you about all legal documents related to the title and transaction, including deeds, mortgages and closing statements.
- Preparing for closing. Once there is a mortgage commitment, your attorney will set a closing date with the seller's attorney. Prior to that date, he will prepare or review the closing statement, and discuss with you any contingencies that might affect your interests. Most real estate attorneys also encourage their clients to do a final inspection of the house to make sure it is in the same condition as when the sales contract was signed. Your attorney will likely review with you what to expect during the closing, tell you which certified checks to bring to cover closing costs and prepare a bill of sale to cover any personal property that you and the buyer agree shall remain in the home. Real estate attorneys are key players to any real estate transaction, and can be of assistance long after the deal closes. Refer to your attorney for questions about property taxes, the affect of a death or divorce on homeownership or specific property disputes. One of the best ways to find a good real estate lawyer is word of mouth: Ask friends and colleagues whether they were satisfied with the lawyer who handled their closing. Real estate agents or mortgage brokers can also make excellent recommendations. Be sure to ask whether the lawyer specializes in real estate; you don't want a lawyer whose primary work is litigation and who only does a few closings a year.
Charles J. Kovaleski is president of Attorneys' Title Insurance Fund, Inc
If you would like information on Naples Area Real Estate please go to www.BestRealEstateNaples.com or you can email Jackie Belcher at JBelcher@AmerivestRealty.com
Home Appraisals - Determining that Magic Number
Naples Daily News February 28, 2004
Charles Kovaleski: Home appraisals Determining that magic number
By CHARLES J. KOVALESKI, Special to the Daily News February 28, 2004
An accurate home appraisal - an estimate of a property's value on the open market - is one of the most critical components in the home-buying process. For the seller, the appraisal can justify the asking price. For the buyer, it can help in negotiations. For the lender, it guarantees that the home is worth the agreed-upon sales price.
New federal guidelines regulating independent appraisals go a long way in protecting both borrowers and lenders from unscrupulous appraisal practices. The regulations prohibit appraisers from having conflicts of interest, such as direct ties to specific transactions or cozy relationships with the bank's lending department, and recognize that more complicated appraisals require experienced professionals.
The goal of the new guidelines is ultimately to make sure the appraisal is fair and honest, and that it accurately reflects the property's true value, the property type and condition, its utility for a given purpose and value at its highest and best use.
The significance of the appraisal can't be overstated; for that reason, the selection of a qualified and experienced appraiser is essential for all parties involved. Appraisals are often ordered by lenders, not the consumer, but consumers have the right to approve the appraiser before agreeing to use him or her.
Before you agree to use a specific appraiser, be sure to ask for his or her professional affiliation, such as the Appraisal Institute, the National Association of Independent Fee Appraisers or the National Association of Master Appraisers. Ask for a list of credentials, training, areas of specialization, and how long they've been in business. Licensed appraisers must have 2,000 hours of experience, 90 hours of classroom education and pass a state exam. Certification requires an additional 30 classroom hours. In many cases, your real estate agent or attorney can provide recommendations on qualified appraisers with whom they've previously worked.
Once you have agreed upon an appraiser for you home, keep in mind that he or she will consider just about every aspect of a home when estimating its value, and will be looking at the home in much the same way as does a potential buyer.
To get the most out of your appraisal, make sure your home is in excellent condition before the visit. Although clutter and junk in the yard shouldn't affect the home's fair market value, it's a good idea to present a clean environment so the appraiser feels positive about the home. Appraisers will also photograph the home's interior and exterior for their appraisal report, and many will include a photo of the neighborhood.
The appraiser's checklist includes:
- The home's exterior. What will a prospective buyer think when he first sees your house from the street? Does the general condition of the home and lot contribute to the home's attractiveness, or "curb-side appeal?" Is your home on a busy or secluded street? Is the street paved? Does it have a sidewalk?
- The home's interior. How will a prospective buyer feel when entering your home? Does the overall condition reflect pride of ownership? Does the floor plan provide a comfortable traffic flow? What about closet space? Is the kitchen spacious and up-to-date? The appraiser will also record the number and dimensions of rooms. Quality of construction, floor coverings, paint, wallpaper, age, type and condition of kitchen appliances will also be a factor in the appraisal.
- Supply and demand. How many homes are for sale in your neighborhood, and how quickly are they being sold? The number of people buying homes and the number of homes on the market affect property values.
- Current economic climate. Single-industry economies or outgoing corporations can have a negative impact on property values. Conversely, new business openings, incoming corporations or locally-awarded contracts can increase the value.
- Local political factors. State and local governments can affect property values. School bonds, zoning changes, property reassessment, new school appropriations, municipal salary increases, as well as taxes, all have an impact on housing prices.
- Comparison with similar homes. How does your home compare with similar homes either on the market or recently sold? Appraisers usually look at several comparable properties for comparison in the same neighborhood, similar in size, style and construction.
- Other factors. Fireplaces, lot size, attached or detached garages, a screened porch or an open deck, a swimming pool, tennis court and even the method of heating as well as energy savers, such as insulation all factor into the appraised value.
Consider giving your appraiser a list of your home's features as well as any information you might have about recent home sales in your neighborhood. Although most complete appraisal reports include at least three "comps," it's possible that current information is not yet in the appraiser's database.
Finally, make sure you get a copy of the final appraisal report. Remember that although you pay the loan application fee, which includes the appraisal cost, the appraiser works for the lender, which uses an appraisal as the last qualifier for finalizing the loan. If you have any questions about the results once you have seen the report, you may want to engage your own appraiser for a second opinion or discuss the results with your real estate attorney.
Charles J. Kovaleski is president of Attorneys Title Insurance Fund Inc.
If you would like information on Naples Area Real Estate please go to www.BestRealEstateNaples.com or you can email Jackie Belcher at JBelcher@AmerivestRealty.com
Avoid Closing Encounters of the Worst Kind
Naples Daily News July 25, 2004
By JOYCE GANNON, Pittsburgh Post-GazetteJuly 25, 2004
After touring the house in McCandless, Pa., negotiating a price with the sellers and setting a date for a home inspection, the engaged couple was thrilled - and relieved. They would have their own home to settle into after their upcoming wedding.
Then things starting going wrong.
Days before the inspection, the sellers wanted out of the deal. The sellers' friends and family showed up to try to intimidate the buyers when they arrived for the inspection, and the sellers placed phone calls to the buyers' agent warning of "consequences" if the prospective buyers pushed ahead with the transaction.
But the buyers, who threatened to sue, didn't back down. So when the day arrived to close on the sale, the buyers and sellers, not surprisingly, didn't want to speak to each other. Their respective agents arranged for them to sit in separate conference rooms and shuffled between them with stacks of closing documents they had to sign.
Most home sales aren't nearly so contentious, with harassing phone messages and intimidation tactics. "But it's a rare closing when there's no tension," said Diane Cipa, general manager of The Closing Specialists in Ligonier, Pa.
Buying and selling a home ranks right up there with marriage, divorce, childbirth and death of a spouse or loved one as one of the biggest emotional events people experience in a lifetime, Cipa and other real estate experts say. Adding to the stress are in-depth inspections that cover so many details about the home's condition that many buyers expect even old homes to be flawless when the deal is done.
"Inspections are so tough that consumers forget they're buying a home that might not be brand new," Cipa said. "They're thinking the seller can make the house perfect before they close."
Cipa, whose company handles about 1,500 closings a year throughout Western Pennsylvania, tries to ease the process along by assigning "closers" to handle deals based on each of her four closers' personality types. For instance, if an elderly person living in a nursing home is upset about selling off the family homestead, Cipa will send a closer with a gentle demeanor who can exude compassion.
And when there are belligerent parties involved - perhaps sellers in the midst of a messy divorce or buyers and sellers squabbling over inspection repairs - Cipa assigns the closer she affectionately calls, "the enforcer." "He's a big guy and he just gives them a squeeze with his handshake ... and takes control of the table."
Then there's the element of last-minute surprises, such as failure to make clear who owns certain items such as draperies or light fixtures the seller may or may not leave behind. "It can be contentious when two or three parties get to the closing and nobody understands where the chandelier is going," said Howard "Hoddy" Hanna III, who runs O'Hara, Pa.-based Howard Hanna Real Estate.
When buyers and sellers continue to argue over the closing table, Cipa advises her staff to "close their briefcase, get up and leave the room and tell the parties they have five minutes to figure it out. Then people usually do. You have to stay nice, stay calm and take command."
Besides looking for an agent who is meticulous about getting all the paperwork in place ahead of time, there are some ways to reduce the stress level ahead of time.
For starters, buyers and sellers shouldn't try to become friends, said Janet Wickell, a broker in Brevard, N.C. "That can just cloud your judgment later on" when you have to negotiate over an unresolved issue, she said.
Also, try to realize that almost every property has flaws, she added. "We see a lot of buyers looking for perfections and that's not realistic."
If you can, take a deep breath and revel in the satisfaction that you're getting a house you like or you're selling a property in order to move on to another stage in life.
If you would like information on Naples Area Real Estate please go to www.BestRealEstateNaples.com or you can email Jackie Belcher at JBelcher@AmerivestRealty.com
How Not to Behave at an Open House
Naples Daily News May 22, 2005
By TERI KARUSH ROGERS, New York Times News Service
NEW YORK There is trouble plaguing the open house, that weekend institution intended to mate buyers with desirable properties. The trouble, according to some brokers, is that more and more attendees belong not in someone else's perfectly coiffed apartment but in an etiquette or anger-management seminar.
"The whole open house thing has gotten out of control," said Richard Orenstein, a senior vice president at the Halstead Property Co. "People waltz into these properties with a total lack of respect that they are in someone's home, snooping, touching, breaking lamps, letting their kids run amok."
As some brokers see it, displaced anxiety or even rage is causing a higher proportion of buyers battered by high prices, low inventory and jugular bidding wars to act out, especially when desperation drives them to tour properties far above their price range. "They want to see an apartment that's a million more than they can afford because they want to see something they actually like," Orenstein said. "But they're not buying the apartment, so there's a different mindset."
Stories of tasteless and even bizarre behavior abound. One stormy Sunday in mid-March, Barry Silverman, a senior vice president at Halstead Property, held an open house in a two-bedroom, two-bath Chelsea duplex. Despite the weather, the $715,000 apartment drew 65 people during its 90-minute debut, a crowd Silverman said was typical for a property offered at such a reasonable price. Among them were two women who started to enter the apartment with a pair of sodden German shepherds. "You just want to say, 'What, are you an idiot?'" said Silverman, who instead asked the women to take turns baby-sitting the dogs in the hallway. Another shopper carrying her venti-sized Starbucks drink tossed her rain-soaked persimmon slicker over the back of an upholstered chair.
Wandering through the apartment to keep an eye on the public, Silverman discovered two men in the master bedroom hoisting up the queen-sized mattress in an attempt to locate a manufacturer's label on the sheets, which they admired. "They weren't the least bit embarrassed," Silverman recalled, saying it reminded him of the two times he encountered buyers rummaging through medicine cabinets.
Also at the Chelsea open house, Silverman said, a buyer in his 20s yelled to a friend, "I don't know how anyone can live here." The loud commentary proved to be a pre-emptive tactic, intended to deter other buyers; later that day, the loud visitor e-mailed a full-price offer for the apartment. (Other brokers report a rash of similar, though ultimately ineffective, attempts by buyers to scare off the competition.)
At the end of February, Kara Kasper, a vice president at the Corcoran Group, held an open house at a small new condominium on East 118th Street. Buyers lined up along the block and were admitted to a second-floor model office. Within the first five minutes, all eight units, priced at $225,000 to $685,000, netted 10 to 15 offers apiece.
"What happened was that afterward, people were still there and kept coming," Kasper said. "I guess it was some sort of irrational behavior, because people kept taking things from the office."
"They took irrational things," Kasper said, including books and magazines on the coffee table clearly not intended as giveaways. "Afterward, we were sort of cleaned out." She added, "It was as if they believed if they could just get more stuff out of the office, they would somehow be closer to getting an apartment. The ultimate irony is that at the end of the first week one of the unit's contracts did not go through, and it is actually today still on the market."
Window shoppers seem to commit the most serious lapses. "People who have nothing better to do with their lives but look at apartments on the weekend those are the people who come in and use the bathroom," Orenstein said. (Note to buyers: Always ask permission to use the bathroom, and never repeat, never draw olfactory attention. Parents, this includes diaper changes.)
Complaints about bathroom use and lax supervision of children top brokers' lists of peeves, followed by pets (leave them at home) and inconsiderate placement or actual indoor use of strollers. But other kinds of behaviors irk, too. One that "really gets me crazy is when people who are walking around with coffee, food or drinks come into other people's homes," said Judith H. Saunders, a senior vice president at Halstead Property. And sometimes, said Susan Gerard, an associate broker at Halstead Property, they expect her to pick up after them.
The decor becomes a subject of conversation, so it's probably a good thing that the sellers are sent off to do something else for the day. "I hear these people making comments about family photos," said Lauren Cangiano, a senior vice president at Halstead Property. "They make snide comments about how they look and who got divorced and is this his second wife."
Joanne Tavis, a senior associate broker at Halstead Property, observed one well-heeled buyer sample from a bowl of cherry tomatoes and then stuff his pockets with them on his way out. "What was I going to say, 'Stop, thief, tomatoes'?
If you would like information on Naples Area Real Estate please go to www.BestRealEstateNaples.com or you can email Jackie Belcher at JBelcher@AmerivestRealty.com
Pros and Cons of Title Insurance
Naples Daily News June 20, 2004
Robert Bruss: The pros and cons of title insurance
By ROBERT J. BRUSS, Inman News Features June 20, 2004
"Title insurance is a big waste of money. What a racket!" That's what a friend who recently refinanced his home mortgage told me as he complained about paying more than $1,000 for title insurance.
To agree with him and hopefully make him feel better, I then pointed out that title insurers pay out less than 10 percent of the premiums they collect for title policy claims. "You mean they earn 90 percent profit?" he asked.
Although it's virtually impossible to determine exact net title industry profits, I then felt obligated to point out the biggest expense for title insurers is researching property titles before insuring them. Although title insurance is very profitable for the insurers, they probably net somewhere around 10 percent of premiums collected.
When I ask my college real estate law students if they have ever heard of any property owner having a title insurance claim, each semester I receive blank stares. Having been a real estate investor since 1967, I have yet to have a title insurance claim or even hear of one (except by reading the few title insurance court decisions).
The reason is title insurers try to minimize claims by carefully researching titles before issuing title policies. However, occasionally legitimate title insurance claims arise and title insurers then must pay their insureds.
As a percentage of the cost of real property, title insurance premiums probably average about one percent. However, when a title loss occurs, it is usually a big loss.
The largest cause of title insurance policy claims is forged signatures. Even the world's greatest title searcher or abstractor usually can't predict when a forged signature will appear in the chain of title.
The most common cause of forged signatures involves husband and wife disputes where one spouse forges the other's signature. Other forgery situations involve mortgage payoffs when the loan really wasn't paid in full.
I used to invite the local manager for a major title insurance company to speak to my college real estate classes. He regaled us for hours with stories of situations involving title insurance claims and why every property owner and mortgage lender needs title insurance.
Before explaining how to save on title insurance premiums, it is important to understand the two types of title insurance:
1. Lender's title insurance. Every institutional mortgage lender insists on receiving a lender's title insurance policy paid for by the borrower (or in some cases by the property seller). These lender title policies protect lenders from insured title risk loss. But they offer zero protection for the borrower.
Lender's title insurance policies protect against title risk losses from many causes, such as forged signatures, recording errors, deed indexing mistakes, unpaid property taxes and other recorded liens, improper foreclosures, title search errors, undisclosed easements, and even title claims by heirs and ex-spouses.
Property surveys can usually be insured too.
2. Owner's title insurance. For a one-time title insurance premium, the property owner's marketable title equity can be insured as long as that owner or heirs owns the property. But as time goes on, the owner's title policy becomes more valuable. For example, suppose a property buyer purchases a $100,000 property with a $10,000 cash down payment and a $90,000 mortgage. The lender's title policy initially protects the $90,000 mortgage. The owner's title policy insures the buyer's $10,000 equity.
However, as the mortgage is gradually paid down, the owner's insured equity interest gradually grows until the owner has $100,000 title protection and the mortgage lender has zero protection after the mortgage is paid in full.
Although not as inclusive as a lender's title policy, the owner's title policy insures against most major title risks. For an extra premium, owners can receive the same full title insurance as lenders receive.
If title to the property was insured within the last few years, most title insurers will give a discount. The reason is they rely on the previous title insurer to have researched the title up to the date of prior title insurance issue.
If you bought your home or other property within the last few years, or if the property was sold within a few years before your purchase, be sure to ask if the title insurer will discount the premium. Depending on state insurance law and the date of last title insurance issuance, a substantial discount might be available.
Refinancing homeowners should also ask for a title insurance discount, often called a "reissue rate" or a "bring down rate." Whether buying or refinancing a property, it never hurts to ask for a title insurance discount.
Here's another title insurance secret title insurers don't want you to know. If you plan to hold title to your property for one, two or even three years, ask the title insurer about a "binder rate." In many states, title insurers offer this discount rate for short-term holdings.
For example, suppose you plan to fix-up a property and "flip" it for a quick resale profit within a year or so. If you ask for the binder rate, you will then pay an extra 10 percent owner's title policy premium but you will receive a windfall when you sell.
To illustrate, suppose the owner's title insurance premium is $500. For an extra $50 you can get the "binder rate." Then, when you sell within one, two or three years, you will receive a refund of the $500, but not the $50 binder rate premium.
Recently, I received an e-mail from the buyer of a brand new town home condominium. She asked if she needed an owner's title insurance policy since it was a new town home and there was no title history for it.
I politely answered she is especially vulnerable and needs an owner's title policy more than most home buyers. The causes of possible title risks for her include improper title conveyance to the developer, mechanics' liens by the contractor and subcontractors, unpaid property taxes, encroachments, and even forged signatures.
However, title insurance buyers should understand they are obtaining an "indemnity policy." That means the title insurer need not pay a title claim unless an actual title loss occurs or is threatened.
To illustrate, if evidence in the chain of title to a property shows there was an apparent forged signature of an ex-spouse, until that ex-spouse actually sues the current owner of the property, the title insurer need not get involved or make payment on the possible title claim.
Title insurance offers many benefits for both mortgage lenders and property owners. When purchasing any property, buyers should always insist on obtaining an owner's title policy because the mortgage lender's title policy offers no protection to the buyer.
If your property is being refinanced, or if you expect to hold title for just a year or two, be sure to ask the title insurer about available discounts.
If you would like information on Naples Area Real Estate please go to www.BestRealEstateNaples.com or you can email Jackie Belcher at JBelcher@AmerivestRealty.com
June 19, 2006
To Disclose or Not to Disclose
Naples Daily News March 13, 2004
Raymond Bowie: To disclose or not to disclose - That is the seller's dilemma
By RAYMOND J. BOWIE, Special to the Daily NewsMarch 13, 2004
"To be, or not to be: that is the question," wrote the Bard of Avon in "Hamlet." But the real dilemma for Florida's property sellers is that posed by the state's courts: To disclose or not to disclose.
The disclosure dilemma has to do with a seller's potential liability for property defects that are known to the seller but perhaps not readily observable to a buyer. Should the seller disclose the existence of such property defects to potential buyers upfront? How obvious does a defect have to be in order to assume that a buyer will notice it himself? Do all known defects in the property, no matter how small, have to be disclosed? What if the seller fails to disclose? And whatever happened to the old rule of "caveat emptor" - buyer beware?
In olden days, which in Florida means prior to 1985, the rule of caveat emptor or "buyer beware" did prevail in the state's real estate transactions. Under the old rules of tort law, Florida courts drew a distinction between sellers who affirmatively misrepresented property conditions on the one hand, and sellers who simply failed to disclose such defects on the other. Sellers engaging in active misrepresentation could be held liable to buyers they deceived, but not sellers who simply kept silent. As late as 1982, in a case where home sellers knew about but failed to disclose a leaky roof, a Florida appellate court reaffirmed that "in Florida, there is no duty to disclose when parties are dealing at arm's length." Under this old rule of law, a property seller could avoid liability for known property defects just by keeping his trap shut.
Then, in 1985 came a judicial event of revolutionary impact. It was one of those events where a high court decisively overturns years of old legal precedent, simply because the old rule no longer serves today's needs. In Florida, this happened on Oct. 31, 1995 when the Florida Supreme Court handed down its decision in the case of Johnson vs. Davis.
The case started out as a fairly typical property condition dispute between a home buyer and seller. Upon discovering a seriously defective roof after signing a sales contract, the buyers refused to close on the property and demanded the return of their deposit. The lower courts sided with the buyers. The sellers appealed to the Florida Supreme Court hoping that the high court would reaffirm the old "caveat emptor" rule in their favor.
Instead, the Supreme Court rejected the old rule and said "these unappetizing cases are not in tune with the times and do not conform with current notions of justice, equity and fair dealing. One should not be able to stand behind the impervious shield of caveat emptor and take advantage of another's ignorance.... The law appears to be working toward the ultimate conclusion that full disclosure of all material facts must be made whenever fair conduct demands it."
The Florida Supreme Court reviewed case law in other states that had broken with the caveat emptor tradition, such as in Illinois (basement flooding), West Virginia (cracked basement walls), Louisiana (termite infestation), New Jersey (roach infestation) and Colorado (soil contamination). The Florida court then concluded: "We are of the opinion... that the same philosophy regarding the sale of homes should also be the law in the state of Florida."
There, on that day in 1985, in one swift action, the law in the state of Florida flip-flopped. Caveat emptor died as regards home sales. The new law, as stated by Florida's Supreme Court, would be: "... where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer. This duty is equally applicable to all forms of real property, new and used."
The court has said several conditions must exist for a property seller to have a duty of disclosure to a prospective buyer. First, the sale must involve residential property. Second, the seller must know that a certain adverse condition affecting the property exists as a matter of fact - and not as past history, rumor, superstition, hearsay or speculation. Third, the condition must be a latent defect, meaning that the condition is basically hidden from the ready observation of the average buyer. Fourth, the buyer does not, in fact, personally know about the existence of the defect. And finally, it must be a "material" defect - meaning a defect that would, if known to the average buyer, cause that buyer either not to buy or to offer a lower price for the property.
Since the Florida Supreme Court's landmark Johnson vs. Davis decision, Florida law in this area has continued to evolve as various courts have refined sellers' disclosure duties, sometimes with peculiar twists and turns.
In the Dorton vs. Jensen case, the sellers failed to disclose to buyers a problem with water ponding against the rear of their house, stating it was because they felt the condition was "minor", that is, not a material defect. A Florida appellate court, however, held that the correct disclosure standard was whether the problem was one that would concern the average buyer, not whether the sellers were personally concerned with it or viewed it as minor. "The appropriate test is whether the sellers should have foreseen that buyers would have found the information relevant," ruled the court, "not whether the sellers viewed it as problematic."
The Florida Supreme Court, in Gilchrist Timber Company vs. ITT Rayonier Inc., expanded upon its earlier decision and held that a seller could be liable for negligently providing false information about a property to a buyer who reasonably relies upon it. The high court said: "One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability... if he fails to exercise reasonable care or competence in obtaining and communicating the information." Note that the liable party under this test may be the property seller, his real estate broker, or any other party working for the seller who negligently supplies false information to a buyer about an adverse property condition.
And there is one other very interesting development in the Gilchrist case: While previous disclosure decisions of the Florida Supreme Court had all dealt with residential properties, the property involved in the Gilchrist case was commercial real estate.
In another case (Billian vs. Mobil Corporation), a Florida appellate court ruled on what adverse conditions are deemed to "materially affect" the property and require seller disclosure. The court held that the standard is not based upon each particular buyer's subjective evaluation of what that buyer considers important to know. Rather, a defective condition is "material" only if it would objectively diminish the market value of the property.
Other Florida court decisions have helped define the extent of the buyer's responsibility when a seller fails to disclose or makes a negligent misrepresentation about a material property defect.
In Nelson vs. Wiggs, an appellate court held that the buyer in such situations cannot remain passive, but must use his own powers of observation and ascertain the material facts if they are reasonably available. The Florida Supreme Court recently ruled (Schottenstein Homes vs. Azar) on the question of whether a buyer can reasonably be presumed to "know" of all matters recorded in the local public records pertaining to a property. The court stated this might be too much to expect of a buyer as a general rule but should be determined on a case-by-case basis, hinting however that a buyer may be held responsible for knowing those facts revealed in a property's direct chain of title.
While Florida's courts have been over the years developing the law of seller property condition disclosure, Florida's legislature has remained largely silent on the subject. In some two dozen other states, legislatures have enacted statutes requiring residential property sellers to provide buyers with specific property condition disclosures, sometimes on statutory disclosure forms that must be used for that purpose.
The Florida Legislature has instead moved in the opposite direction, legislating only last year that sellers are not required to disclose deaths, suicide or felonies occurring on the property or whether a property occupant has suffered HIV or AIDS.
In the absence of statutory guidance in Florida as to the form and content of required property condition disclosures, real estate professionals around the state have developed their own disclosure forms and contracts for this purpose. The wisdom of sellers utilizing written disclosure forms is underlined by several Florida court decisions holding that sellers cannot avoid their disclosure obligations by attempting to sell a home "as is." In other words, a seller cannot simply have a buyer agree to purchase a home "as is" without first disclosing materials defects known to the seller.
Naples area Realtors and real estate attorneys have, for example, developed a comprehensive Seller Property Disclosure Statement for use in residential transactions, in which sellers are asked to disclose in writing any known defects in the property's site, structure, systems and equipment. While sellers are not legally required to complete any such disclosure form, a seller may protect himself from liability by doing so. If a seller accurately completes a disclosure form and provides the form to prospective buyers in advance of any sales contract, under the terms of the sales contract the buyer will be deemed to accept all the conditions disclosed by the seller - and the seller will be free of any further liability to the buyer.
We've come a long way. In less than 20 years, Florida law has evolved from caveat emptor, buyer beware, to requiring seller disclosure of known material defects, to holding sellers liable for certain negligent disclosures, to defining the level of the buyer's responsibility. Fasten your seat belts. The ride may not be over.
Raymond J. Bowie is a Naples area attorney and civil-law notary, board certified in real estate law, who has practiced law for 24 years in Florida, Virginia and New York, specializing in real estate transactions. Bowie invites real estate-related questions or suggestions for columns to be addressed to him, c/o Real Estate Editor, Naples Daily News, 1075 Central Avenue, Naples, Fla. 34102.
If you would like information on Naples Area Real Estate please go to www.BestRealEstateNaples.com or you can email Jackie Belcher at JBelcher@AmerivestRealty.com
June 13, 2006
Naples MLS Stats for May 2006
Closings For The Month Of
May 2006: 522
May 2005: 972
Pendings For The Month Of
May 2006: 467
May 2005: 842
YTD Closings
2006: 2,477
2005: 4,414
YTD Pendings
2006: 2,150
2005: 5,482
Inventory: 9,700 (approx. an 18 month supply) - Active (active and active with contract status) residential inventory in all Naples areas as retrieved from SunshineMLS today.
Prior Reports: August 2005 - September 2005 - October 2005 - November 2005 - December 2005 - January 2006 - February 2006 - March 2006 - April 2006
Reported By: Joe Ballarino, Broker
Amerivest Realty, Naples Florida