Real Estate News and Commentary

December 30, 2008October 5, 2019

Don’t become a victim of a real estate crime

You might think that since the real estate market has slumped, incidents of real estate related crimes (including mortgage fraud) would have decreased also. However, the Federal Bureau of Investigation (FBI.gov) reports that “mortgage fraud continues to be an escalating problem in the United States.” Real estate related scams are a common form of white collar crime that is constantly being investigated by the FBI and the office of the Maryland Attorney General (www.oag.state.md.us).

Maryland has been a hot spot for real estate related scams and mortgage fraud for years. In fact, the FBI included Maryland in the “top 10 mortgage fraud states” as reported by the 2007 mortgage fraud report, and rated within the top 5 states by the Mortgage Asset Research Institute’s Quarterly Fraud Report for the first quarter of 2008 (marisolutions.com). Among mortgage fraud types, Maryland ranked first in “tax return and/or financial statement misrepresentation.”

Additionally, Baltimore City seemed to be ground zero for mortgage fraud during the flipping scams of the 1990’s; but through coordinated efforts of many agencies, including HUD, FBI and the Maryland Attorney General, the incidences of real estate scams and mortgage fraud decreased significantly. However, law enforcement was not the only intervention; the Greater Baltimore Board of Realtors (GBBR) assisted in the reduction real estate related fraud activities due to a massive campaign to educate the public called, “Know Real Estate Fraud When You Hear It.”

Real estate related scams vary, but often include theft, fraud, and ponzi schemes. Earlier this year, the Washington Post (Wiggins, Ovetta. “Home Builders, Broker Charged With Theft” October 10, 2008; B02) reported on a local builder and mortgage broker who were charged in theft of $1 million for new homes that were never built in Prince Georges County. Along with mortgages, buyers allegedly lost large deposits for homes which were never built. Such complaints against home builders are common enough that the Maryland Attorney General office of Consumer Protection published a handbook called, “Buying a New Home; Consumer Rights and Remedies under Maryland Law.”

Another scheme to defraud consumers is illustrated by the demise of the Metropolitan Money Store. This local company promised to help home owners facing foreclosure along with credit repair and other mortgage related activities. In mortgage fraud schemes, defendants (presently being prosecuted) were accused of (among other things) stripping bulk equity of home owner’s proceeds, not making mortgage payments, and the use of straw buyers which resulted in charges to some of wire fraud, mail fraud and money laundering for their “foreclosure reversal scheme” (Baltimore.fbi.gov).

Ponzi schemes are more prevalent and local than you might think. Earlier this year, a Baltimore man was sentenced to 188 months in prison arising from a twenty-seven counts of wire and mail fraud. His scheme promised high returns to investors from short term purchase money loans to home buyers and refinance loans to home owners. New investments were alleged to pay previous investors.

As many home owners and home buyers become desperate for solutions, they become targets of schemers. The saying that “if it sounds too good to be true, it probably is” holds true. If you are approached by someone offering you a solution to your real estate problems, do your due diligence and don’t become a statistic!

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of December 15, 2008. Copyright © 2008 Dan Krell.

December 23, 2008October 5, 2019

Pick a bailout plan (and stick to it!)

Everyone is talking about government bailouts these days, so how about bailing out the real estate industry? Ok, now that I have your attention, let’s consider a plan to stabilize the economy. Many agree that housing is a key indicator to our economy; so in an effort to stimulate the sluggish real estate market, Realtors among others are looking for solutions.

In an effort to stabilize and invigorate the real estate market, the National Association of Realtors (NAR) unveiled a four point plan in October. The plan is a proposal to Congress that includes eliminating the repayment requirement of the home buyer tax credit (an incentive created as part of the Housing and Economic Recovery Act of 2008), making higher mortgage loan limits permanent (also created as part of the Housing and Economic Recovery Act of 2008), prompting the US Treasury to compel banks to increase consumer lending, “improve the short sale process and expedite REO (homes owned by banks) sales,” and preventing banks from conducting real estate brokerage (NAR.org).

Additionally, rumors of a possible U.S. Treasury buy down of mortgage interest rates were floating around last week due to media reports linking the possible short term incentive plan to a November meeting with representatives of the National Association of Realtors (NAR). In response to these reports, NAR president Charles McMillan issued a statement saying, “We strongly encourage the Treasury to move quickly with its plan to lower interest rates to encourage current buyers to act rather than continue to wait” (Realtor.org). Although the NAR would like to have the subsidized interest rate buy down for home buyers, it is unclear how such a plan would be applied if passed by Congress.

Unfortunately, persuading people to purchase homes may only be the lesser problem of the current state of the real estate market; the greater problem may be perceived value. Even with current tax incentives and relatively low interest rates, many home buyers feel the economy is uncertain and continue to wait for the real estate market to bottom out.

Another angle on the problem was approached by Sheila Bair, Chairman if the Federal Deposit Insurance Corporation, who proposed to help home owners in danger of losing their home through foreclosure. This Fall, there were media reports of her idea to possibly use funds from the initial $700 billion rescue package to stem the tide of foreclosures, which could help stabilize the real estate market.

However, the dilemma in the present market place is not localized to the real estate market. Much like the U.S. auto industry, value not affordability is a main factor; providing incentives to purchase items perceived to have lower value does not always increase sales.

Why not a two pronged approach to the problem, provide incentives to home buyers and prevent foreclosures? There is no simple solution, as the problems are many, deep and wide spread.

Unfortunately, debate, dissention and criticism among policy makers continue to stall any clear path to recovery. Additionally, there is no guarantee that any implemented plan will be successful. Time will tell us if incentives spur home buyer activity and if delinquent home owners continue to be delinquent (even with renegotiated mortgages).

December 17, 2008October 5, 2019

Smile, your home is on candid camera!

Have you seen people in your neighborhood drive up to a home, pull out a camera and take some pictures? You might wonder if they’re casing your neighbor’s home, or if they’re terrorists. Certainly, it may seem disconcerting to have strange people take photos of homes in your quiet neighborhood. Who are these people and why are they taking pictures?

Most likely, these nosey folks are just your neighborhood real estate agents preparing a broker price opinion (bpo). A broker price opinion is a report that a lender will ask for to determine the marketability of a home in which they are the mortgagee (the lender). The report is used to assist the lender to understand market conditions by having the real estate agent provide recent sale and listing comparables for the home. Additionally, the lender asks for photos to note the condition of the home and the neighborhood.

A bpo is not an appraisal and should not be confused with one. An appraisal is provided by a licensed appraiser to ascertain a home’s value. A bpo, on the other hand, is provided by a real estate agent or broker with the intention of assisting buyers or sellers or prospective buyers or sellers in deciding the listing, offering, or sale price of the real property. (There is a controversy within the industry over the use of bpo’s.)

The lender uses the bpo for a number of reasons which include selling mortgages, eliminating private mortgage insurance, and loss mitigation. Although we now have a bad taste for the bundling and selling of mortgages on Wall Street, nevertheless this is how a majority of mortgages are sold. The broker price opinion is often used by investors to place a current market value on the mortgage asset by interpreting the bpo.

If you have asked your lender to reduce or eliminate your private mortgage insurance, there is a good chance your lender used a bpo in their decision process. A lender will look at current market conditions and recent sales to decide if a home has the potential of falling below the 80% loan to value threshold.

In the current market environment, loss mitigation is a more common reason for a bpo. Every lender has a loss mitigation department to determine how much they may lose if the home goes to foreclosure. Believe it or not, your lender may order a bpo if your payment is one week late!

Additionally, the loss mitigation department is the office you would communicate with in order to ask for a short sale on your home. So if you are asking for a short sale, you may see these surreptitious agents driving by and snapping photos. Sometimes, the lender may ask for an interior bpo, and you will have to invite the agent in your home.

So, if you see these folks poking around your neighborhood taking pictures, it is likely to be your local real estate agent; however, to be sure you should ask for their card. In taking their photos and inspecting properties, they should be law abiding (which means they do not peek into windows nor should they trespass). However, the police should be called if you have doubt about their identity, or you feel unsafe.

December 10, 2008October 5, 2019

Charity begins with a home; donating real estate

You may be aware that charities accept cash and even automobile donations, but did you know many charities will accept your real estate donation too? As market conditions continue to confound home sellers, many are looking for alternate ways of disposing of their homes. Donating your real estate can be a way for you to free yourself of a property you no longer have use for, help a charity, and possibly receive tax benefits in return.

Donating real property is not a new phenomenon. People have been donating real estate to reduce their taxes liabilities for many years. Depending on how your donation is structured, you could receive tax benefits now or possibly in the future (to reduce estate taxes). In a sluggish and unresponsive market, donating homes may become a more popular solution for frustrated home owners and cash strapped charities.

Although most real estate donations come in the form of non-owner occupant homes (such as vacation home, second home, or investment property), some charities will accept farms, vacant lots, “double wides” and even commercial property. Although you may have to own the home outright for an immediate donation, some charities have mechanisms to accept real estate donations through wills and living trusts.

Of course, the tax and financial implications of such a donation would require you to consult with your accountant, CPA, and/or attorney to determine if this is a viable option. The IRS has specific guidelines on real property donations; the tax law describes what types of donations qualify for tax deductions as well as describing what charitable entities are eligible to provide tax deductions for your property donation. Maryland and local tax laws will also impact your donation decision; Maryland has specific laws guiding charities and contributions, while local and State transfer taxes can have an influence on your donation.

Once you determine this is a practical option for you, consider consulting with the Maryland Office of the Attorney General (www.oag.state.md.us/nonprofits/index.htm) and the Maryland Office of the Secretary Of State Charitable Organization Division (www.sos.state.md.us/Charity/Givewise.htm) for information on charities and charitable giving. The respective offices (and websites) provide information about requirements for charities as well as consumer information including donor’s rights and “how to spot deceptive practices.”

Although not all charities accept real estate donations, many do. Giving charity is a personal endeavor, as you would likely support organizations which represent your ideals and morals. You can verify and receive information about specific charities and non-profit organizations from the Maryland State Charitable Organization Division (listed above).

What does the charity do with your property after they receive your gift? It depends on the type of property; however, some charities seek to convert homes into group homes for the disabled or the less fortunate and homeless, while other charities anticipate liquidating real estate gifts to obtain cash to support their organizations.

In this season of giving, real estate donations can be a way to give back to the community as well as the organizations that have impacted your life. However, before you decide to give, please consult with your accountant and attorney to determine if this is appropriate for you and to verify that your charity meets the requirements to accept such gifts as well as providing tax deductions.

December 3, 2008November 23, 2021

Home Energy Audit: facilitate your sale and save money on utility bills

by Dan Krell
Google+

If you are planning to sell your home, you may want to begin to search for your last twelve months of utility (gas, electric, and/or oil) bills. As of January 1, 2008, the county will require a home seller to provide home energy efficiency information, which includes utility costs and any efficiency improvements or opportunities for energy efficiency improvements.

According to Montgomery County Bill 31-07, enacted into Montgomery County Code Real Property 40-13b earlier this year, a home seller must provide potential home buyers the last twelve months of utility bills and information approved by the Montgomery County Department of Environmental Protection (DEP) about home efficiency improvements including the “benefit of conducting a home energy audit” before entering into a sales contract. If you have a rental property, however, you must provide the information only if you have lived in the home anytime during those twelve months.

The law was actually scaled down from an additional requirement of conducting a home energy audit as part of a home inspection. Although the home energy audit is not required, it may be a good idea for a home owner to have one anyway. Information about conducting a home energy audit can be obtained form the Montgomery County Department of Environmental Protection (montgomerycountymd.gov) and The Residential Energy Services Network (RESNET; natresnet.org).

According to the DEP, a home energy audit will help identify inefficient energy consumption by appliances and systems as well as drains on heating and air systems created by holes and leaks. Addressing home energy efficiency issues can help you reduce utility costs, create a more comfortable home environment and help the environment.

According to the DEP, a home energy audit can be conducted by a professional or on your own. A professional energy audit can vary in scope and depth as well as price (estimated between $300 and $700). Programs offering certified energy auditors include the Maryland Home performance program with Energy Star (mdhomeperformance.org) and RESNET (resnet.us).

The Maryland Home Performance program is sponsored by the Maryland Energy Administration (MEA) and is part of Governor O’Malley’s EmPOWER Maryland initiative, which has a goal to reduce Maryland’s electricity consumption by 2015. The program offers MEA trained contractors to perform energy audits, as well as inspections on any improvements completed by the contractors.

The RESNET program is a non-profit organization that has created national standards for energy efficiency ratings. The program is recognized by the Federal Government, the mortgage industry, and states where there is minimum code compliance. RESNET certified auditors subscribe to RESNET’s code of ethics, standards of practice, financial interest disclosure, and complaint resolution process.

Although a professional energy audit may be more detailed, you can conduct your own energy audit as described by the US Department of Energy’s “A Consumer’s Guide to Energy Efficiency and Renewable Energy” (apps1.eere.energy.gov/consumer). The guide describes how you can identify and locate air leaks, check your home’s insulation, and discusses how to reduce your utility bills.

As States and local communities are moving towards requiring energy audits to increase home energy efficiency, why not start today and find out how your home rates? Who knows, you may end up with a more comfortable home and save money in the process.