June 2, 2009
Dear Real Estate Professional:
Federal/DC: Fannie Mae Tightens Condo Financing. Fannie Mae's coveted guaranty of condo financing is now limited to those projects where more than 70% of the units have been conveyed under a bona fide contract (used to be 51%). The guaranty is also not available if more than 10% of the units are owned by one entity, or if 15% or more of the units have delinquencies in condo fees or if more than 20% of the space is not residential or if Fannie considers the sales price of the financing offered by the developer to be excessive. Fannie will only lend if the owner-occupancy ratio is at least 51% at the time the loan is originated (purchase or refinance) if the mortgage loan being delivered is secured by an investment property. Established projects where borrowers will occupy the unit or use the unit as a second home are not subject to any owner-occupancy ratios. Fannie Mae had already announced that it will no longer count vacant, bank foreclosed and bank real estate owned units as non-owner occupied. It also appears that Fannie Mae is not working on any loan modifications on non-owner occupied properties (but is considering short-sales).
Federal: Fannie Mae Will Lend to Investors Who Have Up to 10 Properties: Fannie Mae had previously declined to finance to anyone who had more than 4 investment properties. That number has been raised to 10. At the same time documentation requirements have been tightened so that all rental income must be documented; there can be no bankruptcies or foreclosures in the past 7 years; new requirements for a reserve.
VA: Jackson & Campbell, P.C. Scores Victory for Title Insurance Industry and Consumers: In a recent victory for the title insurance industry and consumers alike, Judge O'Grady, United States District Court Judge for the Eastern District of Virginia, upheld a common law cause of action arising from surety bonds issued under the Virginia Consumer Real Estate Settlement Protection Act ("CRESPA") (Va. Code sections 6.1-2.19 et seq.). First Am. Title Ins. Co. v. Western Surety Co., No. 1:09-cv-403 (May 27, 2009). Prior decisions by Virginia courts had held that CRESPA does not give rise to any private cause of action and, as such, a surety challenged the right of a private litigant to make claim upon a surety bond, claiming that such claim must be exclusively brought by the state licensing authority. For the first time a Court made a clear demarcation as to certain kinds of direct claims which may proceed, thereby upholding the right of Plaintiff First American Title Insurance Company, represented by Jackson & Campbell, P.C., to maintain a private cause of action against the surety. Judge O'Grady wrote: "There is no doubt that actions for statutory violations of CRESPA must be brought by the state licensing authority. That does not, however, address the real issue in this motion; whether Plaintiff may bring a common law claim against the surety bond ... the Court cannot impute a statutory abrogation of common law rights." This decision will no doubt be instrumental in making recovery under surety bonds more available to title insurers, the general public, and other aggrieved parties. Later this year, the Supreme Court of Virginia is anticipated to rule on the same issue in the Main Street Title case.
All Jurisdictions - Use Powers of Attorney Sparingly: All too often, settlement companies routinely accept documents executed by attorneys at fact, without further inquiry, even though the preference in the industry is for "live" documents. We recommend that settlement companies implement an approval form, to be executed by a senior official, authorizing the settlement agent to accept a POA rather than require a live document. The authorization form should include a reason why a POA is needed, that a telephone call or other verification was made to the party who executed the power of attorney, that the person has not revoked the power and confirms where the money is to be delivered. If the signer is going to the trouble of having a POA executed before a notary, it seems to be a small additional effort to have a deed notarized at the same time. One should be careful about accepting the responsibility of acting as the attorney at fact, because of the concomitant risks and possible conflicts of interest. Real estate agents and employees of settlement companies should be particularly resistant to agreeing to act as attorney in fact.
DC Lower Income Abatement Program Qualification Income Levels: Exemptions under 47 D.C. Code 3502(a)(1) are:
| Persons in Household | Household Income Limit |
| 1 | $57,760 |
| 2 | $64,440 |
| 3 | $69,120 |
| 4 | $76,800 |
Federal: New IRS Procedure for Releasing Tax Liens for Short Sales and Refinancing: To apply for a tax lien discharge, applicants must follow directions in Publication 783, Instructions on How to Apply for a Certificate of Discharge of a Federal Tax Lien. There is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication 4235 for address information.
IRS presently tries to reply within 30 days of receipt of request and strives to reduce this turnaround time.
DC: WASA Holding Hearing on Impervious Area Fee: The Board of Directors of WASA will hold a hearing on June 10, 2009 on storm water fees that are proposed to be charged as a flat fee to residences and on other property based upon the percentage of the lot that is impervious (i.e. building, sidewalk, tennis court, parking area, etc.). For more on the proposed legislation, click here.
DC: Notary Seals - Legislation Pending to Permit Rubber Stamp Seals: Recognizing that embossed seals are unreadable by scanners in courts and at the Recorder of Deeds, legislation has been proposed to permit rubber stamp seals. See Bill 18-262 in list of pending DC legislation, below. The proposed legislation needs tweaking, but is certainly a step in the right direction.
DC: TOPA Notices Required in Foreclosures - Legislation on Hold: A Bill has been introduced that would require a TOPA "Notice of Transfer" be issued when there is a foreclosure. The Bill was introduced by Councilmember Graham (see Bill 18-262 in list of pending DC legislation, below) and, after a lengthy hearing before Councilmember Barry, he indicated that it appeared that the matter needed much more consideration before the Bill left committee.
DC: Budget Support Act of 2010: Subtitle K would tax co-ops (less than $400,000 would result in recordation and transfer taxes being 1.1% each; over that would be 1.45% each). Subtitle D simplifies Class 2 tax rates at $1.65/$100 for first $3 million of assessed value and $1.85 above that. Subtitle I addresses the calculation of the Homestead exemption and makes it clear that the exemption continues through the half-year in which a sale takes place to a non-homesteader. OTR appears not to have submitted any input to either the Mayor's Office or to the Council justifying the return of any of the $4,000,000 taken from the DC Recorder of Deeds Surplus Fund in last year's Budget Support Act.
All Jurisdictions: Four Tips to Settlement Companies to Avoid Claims: The unscrupulous try several tactics. You can minimize your exposure, as well as that of the underwriter.
Gap Fraud: The problem: during the "gap", the borrower obtains and records an additional mortgage. The longer the "gap", the greater the risk. The solution: although the 2006 ALTA policies provide coverage, your documents should be recorded as quickly as possible. Recording more than 10 days late can have very serious repercussions, especially if the borrower declared bankruptcy in the future. The Recorders' offices should keep the gap as short as possible. The gap at the DC Recorder of Deeds is down to 2 weeks.
Foreclosure Consultant and Rescue Scams: The problem: The homeowner claims he did not realize he was deeding his property away . The grantee under the deed obtains a new loan, goes into default, the lender starts foreclosure and the homeowner claims that he was conned into signing a deed. The warning sign: a notice of foreclosure in recent past. Solution: Do not handle these transactions without the seller and buyer being present. Does the seller understand the documentation? Has the buyer spoken with anyone in possession and are there any claims of such parties? Remember, rights of parties in possession are generally exempted from policies, but the inquiry may flush out a problem.
Forgery: The problem: Someone forges a deed unto himself, and then transfers the property. The warning signs: the deed to the grantor is recent, maybe for low consideration, may be quit claim, no lender involved, property may be vacant, owned free and clear, back taxes may be owing. Solution: contact the original grantor or notary to verify. You may find out quickly that the notary does not exist.
Identity Theft: The problem: someone uses another person's identity to purchase or sell property. In the event of a purchase, funds are diverted to a third party. The warning signs: Funds paid to a third person that would otherwise be payable to seller or buyer on settlement sheet. Funds payable to a contractor when there is nothing to verify that any work was done on the property. Solution: When it doubt, ask for a second piece of identification, like a credit card, etc., just to make sure that the person before you has not appeared with a single, fake ID. Take extreme caution in sending settlement funds to third parties. Many lending instructions forbid this, and for good reason.
All Jurisdictions: Settlement Agents and Lenders Suffer when "Notice of Right to Cancel" ("NORTC") is botched during Refi's: Borrowers are increasingly becoming able to pose problems for settlement agents, lenders, and title underwriters because someone has not overseen the proper execution of the NORTC. Often the fault lies with a title agent who makes copies of documents before they are signed. A reminder of the three common errors: giving the NORTC to the borrower without the proper date filled in; forgetting to get signatures; not providing the TWO completed copies to the borrower. It has been suggested that this document be the last document executed, to emphasize its importance. The key is that the two copies in the borrower's possession are complete, because those copies are the ones that will be produced for litigation.
Federal: New DC Bankruptcy Website: Click here to read the Clerk's message.
Federal: FDIC Insurance Changes: We last reported that FDIC coverage had been temporarily increased to $250,000. The temporary coverage has now been extended through December 31, 2013 and after that, the coverage will revert back to $100,000. See our earlier newsletter (March 3, 2009) for details here.
Federal: Foreclosures, Protecting Residential Tenants When Landlord has been foreclosed upon and Amplifies Rights of Homeowners Facing Foreclosure: While DC recognizes the rights of residential tenancies to survive a foreclosure, the Federal Helping Families Save Their Homes Act of 2009 provides similar protections nation-wide. For more about the Act, click here. For more about Helping Families Save Their Homes Act of 2009, click here.
DC: Tax Sale Dates: We have been informed that the tentative dates for this year's tax sale are July 27 through 31, 2009.
Federal: Mortgage Modification "Cram Down" Legislation Dies in US Senate: Proposed legislation died that would have permitted a Bankruptcy Court to re-write the mortgage loan down to the market value of the property and to alter community association dues obligations. No legislation has been reintroduced on this topic, to our knowledge.
Federal: Change in Gift Tax: For 2009, the non-reportable tax-free gift has been raised to $13,000 per individual. That means that a husband and wife can gift to child and child's spouse a yearly amount of $52,000.
DC: WASA Bills - Formal Method for Obtaining Final Bills: The DC Land Title Association, after years of work, reports that it and WASA have agreed upon a process for requesting outstanding lien / balance information. This new process will allow title companies / settlement agents to rely upon a written certificate from WASA of all outstanding balances that must be collected from the current property owner. A copy of this form is found here (email to tpayoffs@dcwasa.com). DCWASA will then email the form back to your office with the outstanding balance information in this format . Note, however, that the settlement agent is still required to send a final bill request.
MD: Prince George's County, Judgment Creditor Can Suffer if Clerk Incorrectly Codes a Dismissal into Land Records: A judgment creditor bears the burden of making sure that its judgment is correctly indexed. It has been reported that PG County court personnel may have been "closing" cases statistically by using the code "Dismissed" instead of the code "CXMJD" (Case Disposition: Money Judgment Entered). With the incorrect coding, a settlement might occur without payoff. Judgment creditors should ensure that any incorrect coding is corrected. See Greenpoint Mortgage Funding Inc. v. Schlossberg, 390 Md 211, 888 A.2d 297 (2005).
MD: Only Licensed Title Insurance producers may handle trust accounts and initiate wires: Effective May 7, 2009, law Chapter 381, SB 86 amended the Maryland Code Insurance Article 10-121. Only licensed producers may exercise control over trust money. Trust money is defined as “a deposit, payment, or other money that a person entrusts to a licensed title insurance producer in connection with the provision of escrow, closing, or real estate settlement services” and the earnest money deposit paid to a real estate brokerage is not trust money. There is an exception for lawyers and titled insurers. It has been opined that the exercise of control would include the signing of checks and the issuance of wires. The Maryland Insurance Administration has plans to issue guidance in the future. Further, this act increased the fidelity and surety bond from $100,000 to $150,000. For more information, click here.
Virginia: Tax Amnesty Period: There will be a 60-75 day amnesty period during which all tax payers (including business entities, trusts, partnerships, etc.) may pay back taxes and otherwise come into compliance. All civil or criminal penalties assessed or assessable and one-half of the interest resulting from nonpayment, underpayment, nonreporting, or underreporting of tax liabilities would be waived upon payment of the taxes and interest. The Department of Taxation will establish the precise dates. Click here to read the Act.
DC: Jackson & Campbell, P.C. makes available a Chart of Pending D.C. Legislation.
UPCOMING SEMINARS OF INTEREST TO THE REAL ESTATE COMMUNITY:
DC Land Title Association's Summer Seminar - The New RESPA Rule. DC Land Title Association (DCLTA). June 18, 2009 at 9:00 a.m., at Maggiano's Little Italy at Friendship Heights, Washington. Topics include RESPA overview, new FGE, new HUD-1, Average charge pricing, Servicer responsibilities, Escrow accounts, Prohibition of kickbacks and referral fees, Unearned fees, Affiliated business arrangements, Title insurance, REO, and RESPA. To register, complete this form and remit to DCTLA.
OTHER LEGAL UPDATES:
Jackson & Campbell, P.C.'s Trusts & Estates Legal Update
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Jackson & Campbell, P.C.'s Employment Law Alert
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Sincerely,
Roy L. Kaufmann of the Real Property and Asset Management Group
Jackson & Campbell P.C.
email: Roy L. Kaufmann at rkaufmann@jackscamp.com
voice: (202) 457-1600
web: www.JacksCamp.com
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