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SHOULD THE REAL ESTATE BROKER ORDER TITLE?
Traditionally, real estate attorneys in the metro Chicago region have contractually agreed to let the Seller’s attorney order the Title Commitment for the real estate transaction. The physical closing would then take place at the same Title Company which would produce the Commitment.
Recently, some Real Estate brokers have attempted to circumvent this tradition by attempting to control the Title ordering process. These brokers have inserted a clause into the Purchase Contract dictating Title should be ordered from a particular Title Company. Some brokers also have a preferred attorney list. If the attorney does not allow the broker to direct the Title, the attorney is off the preferred list. Other brokers are rewarded by their companies with various “perks” if they can direct the Title order.
The Attorney Approval period, which is usually 5 business days, allows either the Seller’s or Buyer’s attorney to modify the contract and change among other items the ordering of the Title. Attorneys who allow real estate brokers to order Title jeopardize the role of the attorneys in a real estate transaction. A review of the case Chicago Bar Association v. Quinlan and Tyson 34 Ill. 2d 116 (1966) 214 N.E. 2d 771 reminds real estate attorneys that this is not an overreaction.
Prior to the Quinlan case, Real Estate brokers supplanted the attorney’s participation in real estate closings by reviewing the documents and preparing the documents involving the Deeds Bill of Sale Escrow Agreement, clearing Title objection and preparing affidavits.
The Chicago Bar Association sued, claiming the unauthorized practice of law. The Illinois Supreme Court affirmed the Appellate Court and opined as follows:
…[W]hen the broker has secured the signatures on the usual
form of preliminary contract or offer to purchase, completed
by the insertion of necessary factual data, he has fully performed
his obligation as broker. The drawing or filling in of blanks on
deeds, mortgages and other legal instruments subsequently
executed requires the peculiar skill of a lawyer and constitutes
the practice of law. Such instruments are often minuments of title
and become matters of permanent record. They are not ordinarily
executed and delivered until after title has been examined and
approved by the attorney for the purchaser. Their preparation is not
incidental to the performance of brokerage services but falls outside
the scope of the broker’s function.
Quinlan and Tyson is still good law in Illinois. Allowing the Real Estate broker to
encroach upon the legal portion of the transaction, not only violates Quinlan and Tyson, but also
jeopardizes the interest of the Buyer and Seller, and the attorney’s role in the real estate
transaction. Since the attorney must produce marketable Title, and examine and clear Title
objections, he should be the party to choose the producer of the Title insurance. This is more
important than ever now that attorneys are title agents and actually examine the search and
documents to waive title objection.
A few attorneys have advised us of buyer’s attorneys and some national lenders
attempting to bifurcate the Title and closing, i.e. whereby the Seller produces the Owner’s Policy
and the Buyer produces the Lender’s Policy and closing company.
We recently reviewed a draft, whereby the Illinois legislation is considering an informed
bifurcation bill, which discourages or prohibits bifurcation. We are attempting to obtain more
information and will keep everyone informed.
The 1099, Appendix, and FIRPTA Explained
The IRS’s reporting requirements and regulations have never been easy to understand, which is why entire areas of study exist in both the legal and tax fields to understand and navigate the over 10 million words that make up the federal tax laws and regulations.
While we are required to report all property sales to the IRS, we don’t want to bore you to death by going over all the little details that involves. Instead, we’ve dedicated this month’s newsletter to explaining which documents you will need specifically for your transactions and when each applies.
Figuring out whether the appendix or a 1099 should be used is simpler than it appears. The appendix document lists out 4 requirements that must be met in order to use the appendix over a 1099. If ANY of the 4 requirements are NOT met, then a 1099 MUST be used.
Below we’ll go over the four requirements and explain a little more about them to make sure you know whether or not each requirement has been met.
The only time you can use the appendix alone, is if all 4 of the requirements are met. IN ALL OTHER CASES the 1099 must be used.
Has the seller owned and used the residence as their principal residence for an aggregate of at least 2 years during the last 5 years prior to the sale?
The IRS wants to know if the seller of the property has lived at the property being sold for at least 2 of the past 5 years prior to the sale date.
Has the requirement been met?
The 2 years that the seller has lived at the property does NOT need to be consecutive. As long as the total time the seller has lived in the property aggregates out to at least 2 of the past 5 years, the requirement has been met.
Has the seller sold or exchanged another principal residence during the 2-year period ending on the date of the sale or exchange of the residence?
Selling or exchanging another property that the seller has indicated to be their principal residence within the past 2 years will exclude a seller from being able to use the appendix and will have to use a 1099.
Has the requirement been met?
As long as the seller HAS NOT sold or exchanges another property within the last 2 years, then this requirement will have been met.
Has any portion of the residence been used for business or rental purposes after May 6, 1997?
If the residence has been used for income purposes (business or rental), then the seller will be excluded from using only the appendix and will need a 1099.
Has the requirement been met?
As long as the seller has not used the residence being sold for generating income (business or rental) after May 6, 1997, then this requirement has been met.
Is the sale or exchange of the entire residence for $250,000 or less?
Is the seller married and the sale or exchange of the entire residence for $500,000 or less, and the gain on the sale or exchange of the entire residence $250,000 or less?
Is the seller married and the sale or exchange of the entire residence for $500,000 or less and:
a.The seller intends to file a joint return for the year of the sale or exchange
b.The seller’s spouse also used the residence as his or her principal residence for the periods aggregating 2 years or more during the 5-year period ending on the date of the sale or exchange of the residence
c.The seller’s spouse also had not sold or exchanged another principal residence during the 2-year period ending on the date of the sale or exchange of the residence.
a.If the seller is single - if the sale or exchange is UNDER $250,000, then this requirement has been met. If it is over $250,000, then the appendix can NOT be used.
b.If the seller is married: then the sale or exchange of the residence must be UNDER $500,000 AND the gain on the sale must be under $250,000 to meet this requirement. If the gain is over $250,000, then this requirement can still be met if the sale is still under $500,000 and ALL THREE of the requirements listed under points A-C are also met
Has the requirement been met?
As long as one of the three scenarios applies to your seller, then the requirement has been met.
REMEMBER! If ANY of the above requirements are not met, then your seller is excluded from using only the appendix and must use a 1099.
The appendix document lists all these requirements out in a “Yes” or “No” format, and if your seller must mark “Yes” on all sections to be able to use only the appendix.
The 1099 Solicitation
If your seller(s) does not meet ALL of the 4 requirements listed on the appendix document, then the IRS requires that they use a 1099 instead and must fill out the 1099 solicitation form. The 1099 is sort of a “catch-all”, because the appendix describes the only situation in which it can be used instead of a 1099 and IN ALL OTHER CASES the 1099 must be used.
Who needs to be 1099’d?
If the appendix alone cannot be used for the transaction, then everyone on title must be 1099’d.
What if not everyone in title is taking consideration?
Even if everyone on title is not taking consideration, they will still need to fill out a 1099 solicitation. The ones that will not be taking any of the consideration will put $0 in the box designated for gross proceeds and the ones on title that are taking consideration will put the amount of the gross proceeds they will be taking.
FIRPTA stands for “Foreign Investment in Real Property Tax Act”, and like all tax acts, is complicated. That’s why we’re including a little summary of what you need to know about FIRPTA so you know how and when it may affect your clients.
Who does FIRPTA apply to?
FIRPTA applies to anyone who is any of the following:
1.Non US citizens
2.Anyone who does not have a social security number
If your client falls into any of those categories, then a FIRPTA form must be filled out.
Why is the FIRPTA form needed at all?
As a US citizen, it should come as no surprise that one of the government’s top priorities is making sure they get paid their share. So in a nutshell, FIRPTA exists because the government wants to make sure that anyone involved in the sale of a property doesn’t leave the country before paying the taxes owed from the sale of the property.
What is the result of having to fill out a FIRPTA form?
The only major change that FIRPTA has on a transaction is that the transferee (buyer) must deduct and hold the applicable taxes in an amount equal to 10% of the amount realized from the sale of the property.
We require W-9’s to be filled out for every seller in every transaction, regardless of whether you will be using the appendix, a 1099 solicitation or a FIRPTA form. The W-9 to make sure we have everyone’s correct social security number when reporting the sale. Failing to provide completed and signed W-9’s may delay closing.
Note: A W-9 form for each seller must be filled out completely and signed BEFORE the transaction takes place. If the seller’s W-9’s are incomplete or unsigned, we cannot close until we have the complete and signed copies.
Hopefully that clears up any confusion you may have had about which forms to use and when. Feel free to let us know if you need any further clarification on which tax documents you should be using on your deals.
Your Recordings, Certifications, and My Dec Cheat-Sheet
We’ve found that sometimes it’s the simplest, everyday things that we start to overlook the details of. Well, recordings, certifications, and My Dec’s aren’t simple, so how is anyone supposed to know all the little nuances that each of them require?
We know you're busy and those aren't exactly the most exciting topics, so we’ve put together a little reference guide or “cheat sheet” for you to keep on hand so you don’t have to bother with memorizing all the little issues that can come up while still avoiding all the headaches and delays.
The Cheat Sheet
The following “Cheat Sheet” will not encompass everything there is to know nor will it spell out every requirement that is needed for each section. We felt that would have been a waste of your time since you already know the majority of the requirements for each of the below sections. We wanted to make this cheat sheet as valuable as possible to you, so each section is short and only details the most commonly overlooked issues that have been causing our clients headaches.
1.) My Dec:
While My Dec forms are pretty straightforward, there are still issues that are not explained clearly. The following are the biggest and most common issues that come up with My Dec’s.
If there is more than 1 seller or buyer, they CANNOT both appear together on 1 line. They must each have their own separate line and you can click on the form and it will create an additional line to add another party.
Corporations, LLC’s,& Trusts
If the seller or buyer is a corporation, LLC, or trust, they must be listed under the business name section. Listing them in the section for individuals will cause the My Dec to be rejected
ONLY PRESS SUBMIT!!!!!
This is the trickiest one because the system does a poor job of explaining the difference between pressing Submit, Accept, Save, or Close on the My Dec form. All you need to know is that you should ONLY press the SUBMIT button.
The problem is that if you click save, accept, or close, the My Dec can no longer be edited, or even viewed by us. It will lock us out and we won’t be able to get into the system for your My Dec. For all intents and purposes, it’s better to just pretend that the Submit button is the only button on the form that exists.
Recordings are complicated. They shouldn’t be complicated, but since the county recorder’s office is controlled by a body of government, it is very complicated. Below are some tips to keep in mind to make sure your documents get recorded quickly and help prevent docs from being rejected.
1st Page Formatting:
To avoid having to pay a penalty, keep in mind that the 1st page of every document being presented for recording MUST have a 3 ½ inch x 5 inch blank space in the upper right corner. Failing to do so will cause the recorder’s office to issue a penalty and may even cause the documents to be rejected altogether
The print on documents to be recorded is important to the recorder’s office (both size and contrast). Small print is a problem for the recorder and will lead to a penalty being assessed, or worse, being rejected altogether. The same goes for print contrast. If the print is too faint you run the risk of the document being rejected by the recorder.
If the seller is a trust and the only listed trustee(s) is(are) deceased, the seller must be listed as a SUCCESSOR trustee. Nobody can sell as trustee once the trustee is deceased, and as such the deed must list the successor trustee specifically as a successor trustee.
1.) All signatures on the deed need to be notarized.
2.) If names on the deed do not match the vesting because of a name change (for example due to marriage) then the signature line AND the notarization of said signature must both include “formerly known as” followed by the original vesting name.
Power of Attorney:
There are obvious power of attorney rules that we all know (i.e. if an attorney has power, they cannot also be the one to notarize), but the commonly overlooked issue is forgetting to be notarized as a power of attorney. If you’re signing through a power of attorney, your signature must be notarized as power of attorney.
3.) Water Certifications:
As you know, Chicago requires water certifications to prove the property’s water bill has been paid before it is sold. Follow the simple tips below to avoid delays from the water department.
Water certifications should be ordered at least 2 weeks in advance of the closing date
Vacant Lot Extra Requirement
Vacant lots require a survey to be uploaded to order the water certification for the lot.
Condominium Extra Requirement
Condominiums require an assessment letter to be uploaded to order the water certification for the condo.
4.) Incorporated Zoning Certifications:
To avoid any delays with your zoning certs, be sure to order the zonings 7 business days in advance of closing.
Up Front Cost
Make sure to remember the $120.00 upfront fee for zonings. Unlike other fees, this one is not collected at closing
Please make sure to include how many units and where those units are located ( i.e. front, rear, 1st floor, 2nd floor, etc.) to avoid any delays obtaining the certificates.
5.) Unincorporated Zoning Certifications:
Unincorporated zoning certifications have to be obtained directly from the county and they take more time than incorporated zoning certs. Make sure to order all unincorporated zoning certs at least 2 weeks in advance of closing.
Up Front Cost
Just like regular zoning certifications, this fee is collected outside of closing if you’re requesting us to order it for you. The cost of zoning for unincorporated areas is $100.00 and the form must be completed.
Important to keep in mind
When the county issues the original zoning, they send it directly to the property by regular mail. So make sure someone will be able to get it.
We hope that you found this little cheat sheet helpful. It’s a good reference to hold onto so you don’t have to deal with any unnecessary delays or headaches.
Avoiding HUD Headaches
We all know that HUD owned properties can be a serious headache to deal with due to the various extra requirements and responsibilities that closing agent’s have to fulfill to keep the powers-that-be at HUD happy.
This is mainly because the requirements are not always universal and there are very few (if any) online resources that have a comprehensive list of those guidelines to reference. That’s why we are dedicating this month’s newsletter to demystifying HUD deals by spelling out some of the requirements that can affect you and your deal.
Unfortunately, since the requirements are not uniform everywhere and there may not even be a comprehensive list of HUD requirements in existence (not an easy one to find, anyway), the below responsibilities and requirements are not comprehensive.
There are a ton of extra requirements for HUD deals that are critical to understand if you want to avoid the traditional headaches of HUD owned deals. Again, please keep in mind that this list is not comprehensive, so there all of these may not apply in some cases while requirements not listed here will apply in others.
Requirement 1:CD Changes
This is a big one and is why it’s number 1 on the list. Once approval has been granted, THERE CAN BE NO CHANGES MADE TO THE CD WHATSOEVER. Making any changes to the CD whatsoever will cause massive delays and may even kill the deal.
Why is it like this? The powers-that-be have willed it and we must abide. More people than you would expect forget this fact and run into problems that could have been easily avoided.
Requirement 2:Buyer’s Attorney Acts as Everyone’s Attorney
Since this throws a lot of extra responsibility on the buyer’s attorney that wouldn’t normally be theirs, many people run into problems. Some of those responsibilities are listed out below to help you avoid issues.
You have to prepare the deed using the deed template from HUD.
You have to prepare ALL the figures
HUD does not order almost anything, so that responsibility will fall on you. That means that you’ll have to order things like inspections and assessment letters.
Requirement 3:New Deadlines
HUD has its very own set of extra deadlines that you may not be familiar with. Make a note of these to avoid problems with HUD.
◦The ALTA Settlement Statement must be completed and sent to HUD 5 business days before closing
◦Contracts are only good for a few days, which can put a crimp on attorney review. Take too long and you’ll need to file an extension request.
◦The earnest money is due within three business days. If it’s not received by then, you must return the contract package and indicate that the earnest money had not been received
The biggest issue here is that all outstanding invoices for the property must be sent to HUD before closing to see if they will pay it. Failure to do so will cause major problems because the ALTA Statement will then not include those invoice payments and the statement cannot be changed once approved.
HUD’s Field Service Manager is supposed to have all invoices already paid by the time you will be handling the file, but if they don’t, their mistake becomes your burden. This means that you will have to submit a demand along with the proper invoices for everything no less than 10 days prior to closing.
HUD will need a demand or invoice for:
◦Homeowner/Condo Association Dues
◦Homeowner/Condo Transfer Fees
◦Liens of any kind
◦Unpaid Utility Bills
◦Costs to provide condo documents to buyer
◦Repair escrow fees
◦Almost every other closing cost you can think of
Requirement 5:Arm’s Length
This one is pretty basic but should still be mentioned. HUD requires that no closing entity be involved in the closing process if they, their immediate family member, or a business associate of theirs has a financial interest in the property.
Hopefully that quick reference guide will help you avoid most of the common headaches associated with HUD. If we start getting a lot of requests for a more comprehensive list of HUD requirements, we can put together a fuller guideline for a future newsletter.
***REMEMBER*** HUD Can Sanction You
It’s easy to forget the necessity of these requirements, so be sure to keep the following in the forefront of your mind:
“Failure to adhere to HUD requirements or guidance will result in sanctions including, but not limited to, financial penalties and/or being banned from closing on HUD properties”
HUD sanctions may not be the end of the world, but they are still an unnecessary hassle that can be easily avoided.
Selling Agent Responsibilities That Could Trip You Up.
When dealing with HUD properties, selling agents are burdened with extra tasks that are commonly overlooked but important for YOU to keep in mind in case the selling agent made a mistake that may come back to bite you.
Again, this list is not comprehensive. These requirements can be confusing to selling agents as well, so keep them in mind when going over the contract.
Common Agent Responsibilities You Want to Know:
Responsibility 1: Remember Buyer Pays All Costs
It’s important to remember that the Buyer pays ALL the title costs to avoid any confusion at the closing table. Your buyer may not have been told this already, so it’s good practice to double check that they do before you are at the closing table.
Responsibility 2: PEMCO Specific
Make sure the Buyer Select Agent addendum and the Buyer Select Addendum with the sales contract are completed and have been submitted with the contract. Normally the bid wouldn’t have been approved without this, but it’s best to double check just in case.
Responsibility 3: PEMCO Specific
Be sure that the original earnest money has been remitted to the listing broker. The earnest money must be received by LLB prior to the contract execution and the check is to be made payable to Select Closing Agent. Again, the bid most likely wouldn’t have been accepted without this, but double checking will avoid having a bid cancelled after you have already put time into the file.
Since these responsibilities are not yours directly, we won’t go any further into them. But we still wanted to arm you with some extra info to catch any errors that may have been made.
That concludes our quick HUD requirement coverage. We hope that having a better understanding of HUD’s expectations for you and the selling agent will help you navigate HUD deals with greater ease.
Should Attorneys Encrypt Their Emails?
Most attorneys I have spoken to about encrypting their emails question how important it really is. Well, the American Bar Association feels that encryption is important enough to dedicate an entire page on their site about just that.
The ABA takes encryption seriously enough to recommend encrypting not only your emails but also your entire system and system backups. This is because data leaks for attorneys and law-firms stretch beyond just being a privacy problem and reaches into the realm of potentially being a violation of attorney-client privilege.
ALTA also addresses the necessity for using secure methods when sending non-public personal information (NPPI). It is one of the pillars of their best practices guidelines specifically because the vast majority of people don’t understand the substantial risks that come with sending NPPI through unencrypted emails.
Why Encrypt at All?
While our digitized world has created an enormous number of benefits for individuals, professionals, and businesses; it has also created new opportunities for criminals. The harsh reality that can easily be overlooked is that thieves are no longer limited by the physical world.
In the past, if someone wanted to steal you or your clients’ information, they would have to physically drive to your office, get past any locks or security systems, search for the files they wanted, and then escape before law enforcement arrives. That method carries a tremendous amount of risk for little reward and is why it’s not common for law offices to be physically broken into.
Unfortunately, that world is now gone.
Today, without the proper digital protections in place, a thief can steal that same information with little-to-no risk of being caught because they can do it from anywhere, at any time, and with almost complete anonymity. In fact, most data thieves build programs or “bots” to steal information traveling through public servers automatically. That’s why encryption is so essential, because without the correct encryption key a would-be wrongdoer wouldn’t be able to read any NPPI if they got their hands on the encrypted data.
Aren’t Emails Already Protected?
Nope. Email contents and attachments are sent in what’s called plain-text format, which means that anyone intercepting data packets on the public server your email is traveling through can easily read the email’s contents (and see attachments). Even if you are sending emails from your home or office, emails and their attachments moves from your email service provider and then bounces through multiple public servers until it reaches its intended recipient.
That server-to-server bouncing that almost all emails have to travel through is where the security weakness exists. At each public server the email bounces through, the contents of the emails being sent are viewable by anyone with access to the server. An attacker with access to any one of the public servers can easily and automatically copy the contents of your emails. This type of data interception is called a “Man-in-the-Middle” attack and it’s especially devious because neither the sender nor the recipient ever knows that their data has been compromised in transit.
A commonly used analogy for email interception is to think about your emails and attachments as being sent on postcards through the mail. Any number of people from any post-office that the postcard travels through can read what’s on that postcard without your knowledge or the recipient’s knowledge.
This is especially dangerous for attorneys because, depending on the information being intercepted, it could constitute a violation of attorney-client privilege and you wouldn’t even know it happened.
Luckily for everyone, the advancements in encryption technology have made it easy to send NPPI through emails and attachments securely with the use of encrypted emails. We at HTC have made it even easier by offering every attorney agent an encrypted email system if they want it.
How Do I Encrypt My Emails?
The simple answer is through the use of email encryption software like the kind we offer to our agents. The software will protect the contents of your emails and attachments sent over any kind of untrusted network (like the internet). Using an email encryption service means that even if someone successfully intercepts emails containing your clients’ NPPI, all they could see is unreadable, garbled data.
Older versions of email encryption tools were difficult to adopt due to being overly technical, but the newer systems handle all the encryption and decryption for you behind the scenes. So all you have to do is send emails like normal and the software encrypts the message and attachments automatically at the gateway.
Benefits: There are numerous benefits to encrypting your emails and virtually no drawbacks. While I’m sure you can infer most of the positives, I’ve included some of the biggest here
Benefit 1.) It Protects Your Clients.
Encrypting your emails makes it near-impossible for an attacker to read its contents or attachments even if the email was intercepted in transit. This way your clients can rest easy knowing that their information is secure.
It also gives you the added plus of being able to solicit to your clients that you take the security of their personal information so seriously that you even use encrypted emails.
Benefit 2.) It Protects You.
Since man-in-the-middle interception attacks do not leave any indication that data has been compromised, unknowingly violating attorney-client privilege is a very real possibility. Whats worse is that you most likely wouldn’t learn about the violation until after the criminal who stole the information had already used it in a way that would have caused damages.
However, you can sleep easy and avoid potentially incurring that liability by utilizing encrypted emails. Even if your emails do get intercepted or your account gets hacked, you and your emails will be still be protected from anyone who doesn’t have the encryption key.
Benefit 3.) It’s Easy
How easy? Just let us know you want to encrypt your emails and we’ll get you all set up.
Make no mistake, encryption is good for everyone and is a great way to protect against man-in-the-middle attacks that could unknowingly expose you to liability. Plus, it’s easy to set up because we’ll do all the heavy lifting and get you up and running with encrypted emails in no time.
Why Can’t I Have a Copy of The CD?
There have been many real estate agents representing buyers or sellers that have been confused as to why their requests for copies of the Closing Disclosures pre or post closing have been routinely denied.
The NAR recently surveyed its members and found that 54.5% of agents have been experiencing difficulties getting a copy of the closing documents. In a nutshell, that’s because it’s in the lender’s hands before closing (it’s technically the lender’s property) and requires signed consent from the buyer to be distributed after closing.
Too Long, Didn’t Read Summary: Unless you are an attorney or a principal in a transaction, you cannot receive a copy of the Closing Disclosure. However, you can still get an ALTA settlement statement from HTC at closing with consent, which should cover all the information you will need for the MLS and your brokerage house’s record keeping requirements. Below we’ll cover what the restrictions around the buyer’s CD are, why you can’t get a copy of the CD pre/post closing, and what you can do to still get all the information you need.
Why you can’t get a copy of the CD before closing? The long and short of it is that it’s now an issue of lender liability.
Lenders are now solely responsible for preparing and delivering the Closing Disclosure to the buyer. Since lenders do not have an obligation to deliver these documents to real estate agents (and may face potential liability for doing so) they usually opt to not share the CD with any party not expressly designated in the new rules (real estate agents are not included in the rules’ designated parties).
Common Questions: These new rules can be confusing and have been causing concern, so we’ve included some common questions below.
Question 1.) What if I have consent from the buyer (pre-closing)?
Even if you have consent from the buyer and send it over to the lender, they are still unlikely to give you a copy of the closing documents. To them, the possibility of incurring liability from violation of federal privacy laws greatly outweighs any need you or another non-designated party has for closing documents.
The NAR conducted a survey of lenders in January and discovered that less than 30% of lenders are willing to show the closing documents to a real estate agent.
If you have consent from the buyer to look at their CD before closing, then you’re better off having them send you a copy instead of trying to appeal to any other party involved in the transaction.
REAL ESTATE AGENTS BEWARE: YOUR CLIENTS DO NOT HAVE AN OBLIGATION TO SHARE THEIR CD WITH YOU. CLAIMING OR EVEN IMPLYING THAT THEY DO COULD GET YOU INTO SERIOUS TROUBLE!
Question 2.) Can the title company or attorney give me a copy of the CD?
Unfortunately, no. As mentioned above, the lender is the one who prepare the CD and delivers it directly to the buyer three days before closing. Even if the attorney or title company had a copy, neither could share that with any real estate agent because of the same federal privacy law restrictions that the lenders are bound by.
Most lenders and underwriters expressly prohibit title and settlement agents from sharing the Closing Disclosure with real estate agents, but even if they didn’t expressly prohibit it, we still couldn’t share it because of federal privacy laws. However, we can deliver a copy of the ALTA settlement statement to a real estate agent at closing but only if the parties give signed consent to do so. More on that in the section below.
Question 3.) What can I do pre-closing?
We cannot provide any documents before closing but getting us your commission statement as soon as possible will help everyone avoid any unnecessary closing delays.
Since the Closing Disclosure is the property of the lender and they are the only ones who can create and distribute it, failing to provide a commission statement quickly can cause the lender to hit delays while creating the CD (which, in turn will delay the closing).
Why Do I Need Consent For The Buyer’s CD After closing?: Well TRID hasn’t changed anything regarding privacy and the Closing Disclosure contains confidential personal and “non-public” information about the buyer and their loan terms. So to give a copy of the CD to a real estate agent after closing is something the buyer or seller would have to do themselves if they wanted to.
AGAIN, REAL ESTATE AGENTS BEWARE! YOUR CLIENTS DO NEED TO GIVE YOU CONSENT OR PROVIDE YOU WITH THEIR CLOSING DISCLOSURE. CLAIMING OR IMPLYING OTHERWISE CAN GET YOU INTO SERIOUS TROUBLE.
Closing Disclosure Alternative: Now you may be wondering what to since you can’t get a copy of the CD after closing? The solution is the ALTA settlement statement.
The ALTA settlement statement is an alternative closing document that can be distributed to real estate agents with signed consent form by the Buyer and Seller.
The ALTA settlement statement contains all the charges and fees from the official CD but omits all the confidential information about the buyer and their loan terms. It allows real estate agents to get the information they need and it keeps the buyer's private information confidential.
How can I get a copy of the ALTA settlement statement?
We want to make you life easier and so the process to get the information you need is simple. All you need to do is attend the closing and you will receive a copy of the ALTA settlement statement for your records after consent from all parties is received.
How to get ALTA Settlement Statement if you were not at closing or the buyer/seller did not give consent:
Option 1.) You can get a copy of the ALTA Settlement Statement from your client’s attorney
Option 2.) You can get a copy of the ALTA Settlement Statement directly from your client.
Bottom Line: Don’t worry that you can’t get a copy from your buyer or seller for a copy of their CD because you don’t actually need to have their CD. The ALTA settlement statement has everything you need to cover your bases and we are more than happy to provide one for you at closing with consent from the buyer and seller!
WIRE FRAUD ALERT!
Unfortunately, wire fraud is on the rise again and FAR too many people are becoming victimized. We were reminded of this a few weeks ago when someone tried to scam us!
Of course we immediately caught the attempt without issue, but the industry’s rising wire fraud problems have made us worry that these scammers might try and target you next.
That’s why we feel it’s critical to be armed with the right knowledge to protect both yourself and your clients.
Below is a analysis of the new wire fraud scam techniques, how to identify the scammers, and how to protect yourself.
The New Scam:
The new perpetrators of these wire fraud attempts are educated individuals who have an intimate understanding of the real estate industry which makes these new scams much harder to detect.
Requests to Change Funding Account: While the exact method the perpetrators use to commit the fraud varies on a case by case basis, the vast majority center around trying to change the existing account for seller proceeds to a different one controlled by the criminals.
Warning 1.) These People are Educated Americans
Now I know it’s easy to write off these scams because we have all run across the Nigerian “prince” who wants to give you 7 billion dollars but somehow can’t afford to learn how to spell correctly. Those boost our confidence in our ability to identify scams, but this is not that kind of scam.
Since these people are educated, the normal red flag of poor spelling and grammatical structure no longer acts as the immediate “giveaway” that the email is not from a bonafide sender.
Warning 2.) These people know the industry.
These scams are targeted attempts to steal seller proceeds, and a contributing factor to the success of these criminals is from how well the scammer understands the industry lingo and who they sending these emails to.
An excellent example is of an Ohio man who successfully stole around $250,000 from accounts in New York, Colorado, and Oklahoma from sending well crafted fake emails requesting wire transfers to attorneys by posing as their clients.
Read about his recent conviction in The Rochester Business Journal.
Warning 3.) They will often include past LEGITIMATE conversations
In some cases the scammers have succeeded in targeting attorneys and real estate agents by gaining access to conversations that the target has had with the legitimate client and included them in the fraudulent email.
Since the email contained the past conversations the target had with the client, whoever the email was sent to assumed that scammer was legitimate even though the email address was different (or slightly different).
Remember that the inclusion of past conversations with a client DOES NOT MEAN THE SENDER IS ACTUALLY THE CLIENT.
What to Look Out For:
Emails and Trickery!: The success of these scams are not from some super hacker in a dark room hacking into bank databases. These are almost entirely committed by utilizing fraudulent emails to convince people to perform certain actions or to divulge sensitive information. This is not new, it is a concept called Social Engineering.
RED FLAG: Similar, but NOT THE SAME Email Address:
A simple (and common) way for criminals to convince someone that they are genuine is to get ahold of the seller or realtor email address and then create a fraudulent email address that is significantly similar to the original (but slightly different).
Here are a few examples with the name John Smith:
- GENUINE: JohnSmith@Hotmail.com FAKE:John.Smith@Hotmail.com
- GENUINE: JohnSmith@Hotmail.com FAKE:JohnSmith@Gmail.com
- GENUINE: JohnSmith@Hotmail.com FAKE:JohnSmith1@Hotmail.com
As you can see from the above examples, the change is usually very subtle and can be easy to overlook if you’re tired, overworked, or just super busy.
So make sure to pay attention to every detail when someone is requesting a change to anything having to do with proceeds. It is far too easy to overlook a slight change to an email address (especially if it contains the previous conversations with the legitimate client).
Bigger Problem: Hacked Email Addresses
The most difficult wire fraud attempt to identify is when a realtor, attorney, or client gets their email hacked. I, again, do not mean the evil computer nerd in a dark server room. When I say hacked, I am referring to a criminal gaining access to an email account they do not have permission to use.
This can happen many ways, but the most common are from:
- Poor Passwords
- Phising Scams
- Leaving email accounts unlocked on computers other people have access to
- Giving the information out to the wrong person
- Using public or unsecured internet connections
How to Protect Yourself:
So now that you have a better understanding of how these criminals have been successfully committing wire fraud, the next question is: How do I prevent this from happening to ME?
As mentioned above, the success of the wire fraud scams come from social engineering (i.e. tricking people) and not a failure in the technology itself (but a failure to properly utilize technology).
The National Association of Realtors have issued an alert on the matter. We have included a copy of the NAR’s alert below for convenience, but you can also view the alert directly on the NAR website.
Best Business Practices: Develop and enforce formal policies for ensuring data security.
- Create, maintain and follow a comprehensive Data Security Program.
- Create, maintain and follow a comprehensive Document Retention Policy.
- Avoid storing clients’ personally identifiable information for longer than absolutely necessary. When you no longer need it, destroy it.
Best Email Practices: Unsecure email accounts are open doors to cyber criminals. Follow these guidelines to help keep that door securely shut and locked tight.
- Whenever possible, avoid sending sensitive information via email.
- If you must send sensitive information via email, make sure to use encrypted email.
- Never trust contact information in unverified emails.
- If an email looks even slightly suspicious, do not click on any links in it, and do not reply to it.
- Clean out your email account regularly. You can always store important emails on your hard drive.
- Do not use free wifi to transact business.
- Avoid using free email accounts for business.
- Use strong passwords.
- Change your password regularly.
Best Transaction Practices: Real estate transactions require flurries of information between numerous parties. This makes for primetime opportunities for fraudsters. How do you secure your deal?
- From the very start of any transaction, communicate and educate. Get all parties to the transaction up to speed on fraud “red flags,” and make sure everyone implements secure email practices.
- When wiring money, the person doing the wiring should pick up the telephone and call the intended recipient of the wired funds immediately prior to sending the funds in order to verify the wiring instructions.
- Remember to use only independently verified contact information.
- Stay paranoid. A few years back the director of the FBI almost got taken by an email banking scam. If it can happen to him, it can happen to you.
Best Damage Control Practices: It’s happened. A breach of data, a successful scam, a hack. What to do?
- If a money wire has gone out, immediately contact the bank to try and stop the funds.
- Notify all affected or potentially affected parties. Many states have data breach notification laws.
- Change all of your passwords. If possible, change usernames as well.
- Talk to your attorney.
- Contact the police.
- Report the breach to the FBI Internet Crime Complaint Center:http://www.ic3.gov/default.aspx
Bottom Line: Double check any requests to wire money, encrypt your emails, and put policies in place to make sure everyone is aware this is happening. These emails are extremely convincing and well crafted.
The advice above is not all inclusive and will not protect you against all wire fraud attempts. You should consult with cybersecurity professionals to make sure all your bases are covered.
There is nothing more dangerous than falling into the thinking that you are too “smart” or “savvy” to fall victim to this kind of fraud.
P.S. Do you have any other fraud protection questions (wire or otherwise)? Send us an email and let us know. We are more than happy to answer any and all questions to help you protect yourself and your clients.
As you know, ALTA’s best practices and TRID have instituted new rules for the buyers, brokers, lenders, title insurance companies, and attorneys. Here at Heritage, we can handle all the changes that affect title companies, but we still seeing closing delays that can be easily avoided.
Having a basic understanding of how your actions can affect other parties is critical to avoid closing delays.
Here is a short recap of the new regulations that can delay a closing if not addressed early in the process, and some tips you can use to eliminate delays:
Loan Estimates (LE) & Closing Disclosures (CD):
Lenders now need to have the loan estimate delivered to the buyer 10 business days before closing and the CD 3 business days before closing (Saturdays now count as business days). This means that until the lender gets complete information, an accurate LE or CD cannot be sent.
Send the closing statement when scheduling the closing
Provide the closing statement at least 7 business days prior to closing.
The CD’s seller figures need to be sent to the buyer's lender so they can deliver the closing disclosure within the new time mandates.
Since lenders have to get out their figures 10 business days prior to closing, (Saturday
is a business day; only federal holidays and Sundays do not count as business days) it’s critical to get these figures to the lender ASAP.
If a lender is asking us for figures of any kind, we need to send them without delay; a lender may delay a closing if figures are late.
Supply us with everyone’s information as quickly as possible
Lenders NEED the following before they can send out the CD (which is required to be sent a minimum of 3-days prior to closing):
•Buyers' attorney information
◦We need buyer attorney contact information for the closing disclosure, because
the buyers' attorney fees cannot increase once quoted on the CD
•Realtor’s fee statements
•Any other fees that will be on the CD (especially buyer’s fees)
TRID guidelines also require that orders include contact information for buyers' attorneys, and the seller and buyer realtor contact information, including the realtors' MLS ID numbers.
A quick way to accomplish this is to send us a copy of the LAST page of the real estate contract when ordering. This page typically will include all of the required contact info.
Know what CANNOT change on the CD
Essentially any increase to the buyer’s costs will cause closing delays. Below is a short list of SOME common changes that will trigger delays or cause
problems at the closing table.
CD Changes That WILL result in delays include
•an increase in buyer’s attorney Fees
•a decrease in tax credit to buyer
•changes to the loan or loan amount (more on this in the next section)
•ANY increase to the buyer’s fees/costs
•ANY increase to what the seller is getting PAID
The liability for lenders not adhering to the new rules is very high, and as such, lenders can be the primary cause of closing delays. These delays are generally a result of being overly cautious, or not having internal policies in place to handle the timing changes. Even though there is little anyone can do to prevent a lender from causing their OWN delays, it’s helpful to know what actions will FORCE them to delay the closing.
1. Resetting the 3-day CD rule
Any change in the following will absolutely require the lender to re-issue the new CD
and push the closing off a minimum of 3 days:
a) An increase in the APR
b) Adding a prepayment penalty
c) The basic loan product changes (like a switch from fixed-rate to adjustable rate loan)
2. Proposed closing date
Lenders need to have a closing date to move through their process, so they have been using the proposed closing date on contracts.
That means they will request closing statements, even if the closing is not yet scheduled.
Failing to provide the statements in a timely manner may cause the lender to delay the issuing of the LE and CD, causing a delay.
Communicating with us
We know that the new procedures can seem a bit overwhelming and confusing; please don’t hesitate to call us and ask any TRID/ALTA questions that you have.
Below are two questions concerning the CD that we have been asked frequently:
Question 1: The Lender CD
The CD is property of the lender, so we cannot send out the CD to attorneys or anyone else. Because the CD is property of the lender, the lender must distribute the CD.
While Heritage does have a CD that we create, it is NOT the CD used at the closing. Lenders do not actually give out figures until they are confirmed.
Question 2: The Seller CD
The seller’s CD is optional and does not need to be signed. So don’t stress if the seller’s side does not sign the CD.
In theory, these new rules have been designed to ease the closing process, and to ensure that all items/issues are addressed prior to a transaction reaching the closing table.
In essence, the TRID rules are in place to ensure that buyers understand exactly what their costs are prior to arriving at the closing table.
Do you have any ALTA/TRID questions (closing-related or otherwise) that need answering? Send us an email and let us know what burning questions you have about TRID or Best Practices so we can get those answered.