Property Owners Need To Clear Snow & Ice After Storms
As I was slipping and sliding in the first real snow yesterday, this blog got a spike in traffic about Massachusetts snow removal law. Back when we were sunning in 80 degree weather, the Massachusetts Supreme Judicial Court overruled 125 years of snow removal law and announced a new rule of law that all Massachusetts property owners are legally responsible for the removal of snow and ice from their property. The old rule was that owners could leave natural accumulations of snow and ice intact and escape liability for slip and falls. No longer.
Impact To Massachusetts Property Owners: Shovel Early & Often
What this change in Massachusetts snow removal law means for all property owners, both residential and commercial, is that they need to be extra vigilant after snow and ice storms, and clear areas in which the public and visitors have access–early and often. Whether a property owner takes reasonable steps in removing snow and ice will be determined by judges, juries and later cases on an individual basis. If you cannot clear the snow and ice, hire a private company to do it.
Important: speak with your insurance agent about increasing the limits of your liability coverage. I recommend Nadine Heaps at Purple Ink Insurance out of Ashland, MA.
We’ve been following the decade old attempt to modernize the Massachusetts Homestead Act, and are happy to report Gov. Patrick signed it into law last Thursday. The law provides up to $500,000 in creditor protection, but you need to record a Declaration of Homestead with your county Registry of Deeds. Contact us and we’ll prepare and file it for you!
Highlights:
All Massachusetts homeowners will receive an automatic homestead exemption of $125,000 for protection against certain creditor claims on their principal residence without having to do anything.
All Mass. residents are eligible for a $500,000 “declared homestead exemption” by filing a declaration of homestead at the registry of deeds. For married couples, both spouses will now have to sign the form–which is a change from prior practice.
Homesteads are now available on 2-4 family homes, and for homes in trust.
The existing “elderly and disabled” homestead will remain available at $500,000.
If you have a homestead as a single person, and get married, the homestead automatically protects your new spouse! Homesteads now pass on to the surviving spouse and children who live in the home.
You do not have to re-file a homestead after a refinance. There’s always been confusion here, with lenders requiring homeowners to either subordinate or release homesteads. Under the new law, homesteads are automatically subordinate to mortgages, and lenders are specifically prohibited from having borrowers waive or release a homestead.
Closing attorneys in mortgage transactions must now provide borrowers with a notice of availability of a homestead.
Massachusetts Homeowner Oil Heating System Upgrade and Insurance Law(click for Fact Sheet)
By September 30, 2011, you must upgrade your home heating system equipment to prevent leaks from tanks and pipes that connect to your furnace. By making a relatively small expenditure now, you can prevent a much greater expense in the future.
The new rules:
Residential property owners of 1-4 units who heat with oil must:
Enclose fuel lines that lead to and from the tank in a continuous non-metallic sleeve, or
Install a safety valve (or other Board approved release prevention method) at the tank-end of the supply line.
Get the work done by a licensed oil burner technician, whether an independent or one employed by your oil supplier.
The law applies to both above and underground tanks and to any fuel supply or return lines in direct contact with concrete, earth, or other floor surface.
Are you exempt from the new law?
You’re exempt if:
Your oil burner is above the storage tank and the entire supply line is connected to, and is above, the top of the tank, or
A safety valve or supply line with protective sleeve was installed on or after January 1, 1990, as long as those changes comply with oil burning regulations (proved by an oil burner permit from the local fire department, or a certificate from a licensed technician).
The law does not allow for grandfathering.
Why take required preventive measures?
It makes financial and environmental sense because:
You’ll avoid the disruption and expense that can be caused by leaks.
You and your family will not be exposed to petroleum vapors in your home.
The soil or groundwater beneath your house will not be contaminated.
You won’t face a costly cleanup to restore your property—and possibly nearby property and drinking water supplies—to state environmental standards.
Cleanup costs for a “simple” leak can be as much as $15,000, but if the leak affects the groundwater, or is more extensive, costs can reach $250,000 or more.
You can be covered!
Your insurance company must now offer you oil spill coverage if you’re already in compliance with the new law or you make the modifications needed to achieve compliance. Many companies already provide coverage; others will add it for an additional premium.
Please contact Nadine Heaps at 508-881-6680 for assistance.
This week I’ll talk about the court’s ruling that the listing broker violated its fiduciary duties when it messed around with the escrow deposit.
Quick Take-Away
The important take away from this case for all real estate agents is that if you are holding a deposit as an escrow agent, don’t even think about messing with it even if there’s a legitimate dispute about your commission or other monies owed to you. It’s not your money! The best advice is to let the dispute run its course and continue holding the funds in escrow.
Dispute Between Listing Broker and Buyer
The facts of this case are a bit unusual. Listing Broker represented the seller in a purchase of residential property in Wayland, MA. Under the standard purchase and sale agreement, the buyer posted a $92,500 escrow deposit which Listing Broker held as an escrow agent. The same buyer apparently used Listing Broker on another transaction and owed it nearly $35,000 in fees.
The buyer lost its financing and defaulted on the contract, thereby forfeiting the $92,500 deposit. (I covered that in my prior post). Listing Broker took an assignment of the buyer’s right to the escrow funds, but didn’t tell its client that right away. Then Listing Broker tried to strong-arm its client by threatening litigation if he didn’t accept $2,500 and release the escrow deposit to Listing Broker.
Breach of Fiduciary Duty and Chapter 93A Violation
The court was none too happy with Listing Broker’s course of action here. The court reaffirmed that Listing Broker had a fiduciary duty — one of the highest duties under law — to hold the funds for the benefit of the seller and not to engage in any self-dealing. The court found that Listing Broker’s collection of a debt against the escrow deposit while it was acting as escrow agent was a clear breach of fiduciary duty.
The kicker was that the court imposed triple damages and an award of attorneys’ fees under the Massachusetts Consumer Protection Act, Chapter 93A. So Listing Broker is now on the hook for $277,500 plus thousands in legal fees. Ouch!
This week the Massachusetts Appeals Court handed down an important decision involving the standard form purchase and sale agreement and a listing broker’s fiduciary duties as the escrow agent. The case is NRT New England, Inc. v. Moncure (click for link). I’m going to break this decision down into 2 blog posts because it’s a lot to cover.
Seller Entitled To Retain 5% Deposit When Buyer Couldn’t Close
The first important part of the decision is that the court upheld the “industry norm” 5% deposit under the purchase and sale agreement as “liquidated damages” when the buyer lost his financing and couldn’t close–even in a hot and rising market (2004) and even when the seller ultimately sold the home for a better price.
“Liquidated damages” is essentially an estimate of the anticipated damages a seller would incur if the buyer defaults and cannot close. The parties under a purchase and agreement agree on a number, typically 5% of the purchase price, as the liquidated damages that the seller is entitled to retain–in case the buyer is unable to close. (The buyer is usually protected under the financing contingency until she received a firm loan commitment).
The typical liquidated damages clause in the Massachusetts purchase and sale agreement looks like this:
If the BUYER shall fail to fulfill the BUYER’s agreements herein, all deposits made hereunder by the BUYER shall be retained by the SELLER as liquidated damages, which shall be the SELLER’S sole remedy at law or in equity.
In the NRT case the seller was scheduled to buy another property on the same day as the closing on his sale–a “back to back.” He needed the proceeds from the sale to use for his purchase transaction. However, when the buyer’s financing fell through, the seller was able to obtain a bridge loan, so he could close on his purchase. And he ultimately re-listed his property and sold it for a higher price. So the seller didn’t suffer that much in damages, certainly not equal to the $92,500 in escrow.
Nevertheless, the court upheld the seller’s entitlement to the entire $92,500 deposit. The court said that it wouldn’t take a “second look” at the liquidated damages amount, finding that the 5% was the industry norm in Massachusetts, and represented a reasonable forecast of damages in the event of a buyer’s default given the considerable risk associated carrying the expense of 2 mortgaged properties indefinitely.
Lesson To Be Learned
The lesson here for buyers is that in almost every case where a buyer defaults without legal excuse–say goodbye to that 5% deposit! And that could be a lot of dough down the tubes. So make sure you have an experienced real estate attorney review your purchase and sale agreement so you don’t find yourself in the same quagmire as the buyer in this case.
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Part 2 will be a discussion about what happened when the listing broker messed around with the seller’s deposit. Two words: triple damages. Uh oh.
Fannie Mae will roll out new lending guidelines on December 13 which will make securing a mortgage a lot easier for some borrowers but harder for others.
The Good News: Gift Money For Entire Down Payment
Borrowers can now use gifts or grant funds for their entire down payment, avoiding the old rule requiring at least 5% of the down payment from the borrowers’ own funds. Gifts can come from family members and non-profit community grants.
The new rule applies to all single family transactions and 1-4 unit multifamily mortgages with less than 80% loan to value.
For multifamily properties with 80% or higher LTV, the borrower must use his own funds for 5% of the down payment.
This will help upgrade buyers and young couples who for whatever reason don’t have enough money and are getting some from their families.
Bad News: Tougher Debt-To-Income Ratios
Fannie Mae is getting tougher on debt-to-income ratios, or the amount of a borrower’s gross monthly income that goes toward paying off all debts. The maximum ratio for those seeking a conventional mortgage will drop to 45 % from 55 % under the new guidelines.
The agency is also taking a harder look at payment histories on revolving debt. In the past, if a borrower missed a monthly payment, Fannie Mae ignored it, or required that lenders add a few percentage points to the total balance when calculating the debt-to-income ratio. Now, buyers who have missed a payment will have 5 % of the total balance added to their ratios.
These new guidelines could sink many potential borrowers with student-loan debt that has been deferred or borrowers who have bought big-ticket items through financing with delayed payments.
Worst News: Foreclosure Penalty Up To 7 Years
Perhaps the toughest news from Fannie Mae concerns borrowers who have gone through foreclosure. They will be excluded from obtaining a Fannie-backed loan for seven years, up from four.
This is an especially tough pill to swallow, especially since many feel Fannie Mae is complicit in creating the very environment which lead to the explosion of foreclosures.
Buyers who do not meet the new Fannie Mae requirements may have to consider a nonconforming loan from the Federal Housing Administration (FHA). These loans, which do not follow Fannie Mae underwriting guidelines, require mortgage insurance premiums and, for those with low credit scores, higher interest rates and steeper down-payment requirements.
I’m never one to rain on a good shopping day parade, but the upcoming Black Friday and “Cyber Monday” shopping binges could cause some problems for home buyers who intend on makes big purchases over the weekend, but haven’t closed yet on their real estate transaction.
The reason is Fannie Mae’s Loan Quality Initiative (LQI) rules which have resulted in lenders pulling last minute credit reports and additional verifications of borrower information. If you have racked up a big credit card bill before your closing, these last minute credit checks pull could result in a closing delay, pricing adjustment, or, worst, loan approval cancellation.
So, I hate to say it, but the best thing to do for home buyers is WAIT until after your closing to buy those new appliances at Sears. Your loan officer will thank you!
And thanks to my colleague Pat Maddigan for the head’s up on this issue!
A Man’s Condo Unit May Not Be His Castle For Smoking…
As anti-smoking restrictions become increasingly widespread, smokers find the last place they can indulge freely is within the confines of their home. However, the saying that a man’s home is his castle may not extend to condominiums where condo associations are enacting bans against smoking in common areas and even individual units.
In Chicago, the 1418 N. Lake Shore Drive Condominium Association recently banned smoking in interior common areas and inside the units. Smoking is permitted in a unit, however, if it is restricted to a single room that has been equipped with an association-approved, self-contained air-treatment system. Last year, a Cape Cod condominium considered a smoking ban in living areas.
Smokers will surely cry foul over this, but condominiums are a special kind of property. As Massachusetts courts have ruled, “central to the concept of condominium ownership is the principle that each owner, in exchange for the benefits of association with other owners, must give up a certain degree of freedom of choice which he might otherwise enjoy in separate, privately owned property.” Condominium trustees are empowered to enact rules that are “reasonably related to the promotion of the health, happiness and peace of mind of the unit owners.”
With smoking, however, the issue become quite cloudy. Without legal precedent that smoking constitutes a private nuisance – which would give associations a green light to enact indoor smoking bans – an anti-smoking rule which is not made into a formal condominium document amendment may not be enforceable. Recorded amendments typically require 75% unit owner approval, and also give prospective buyers fair warning before they decide to buy a unit. For those associations that can muster a 75% vote, they may on their way to smoke free living bliss…
Automatic $125,000 Homestead For All Mass. Residents; Up to $500,000 In Homestead Protection
For less than $100, a Massachusetts homestead provides a simple and inexpensive asset protection device which shields a principal home from up to $500,000 in certain creditor’s claims. Now the Legislature has passed the long awaited revisions to the Massachusetts Homestead Act (Senate Bill 2406), giving homeowners expanded protection. Pending some minor amendments, the Governor is expected to sign the bill.
Here’s a summary of highlights of the amended bill:
All Massachusetts homeowners will receive an automatic homestead exemption of $125,000 for protection against certain creditor claims on their principal residence without having to do anything.
All Mass. residents are eligible for a $500,000 “declared homestead exemption” by filing a declaration of homestead at the registry of deeds. For married couples, both spouses will now have to sign the form–which is a change from prior practice.
If you already have a homestead recorded at the registry of deeds, you do not have to re-file it. You are all set, and have the full $500,000 protection.
Homesteads are now available on 2-4 family homes, and for homes in trust.
The existing “elderly and disabled” homestead will remain available at $500,000.
If you have a homestead as a single person, and get married, the homestead automatically protects your new spouse! Homesteads now pass on to the surviving spouse and children who live in the home.
You do not have to re-file a homestead after a refinance. There’s always been confusion here, with lenders requiring homeowners to either subordinate or release homesteads. Under the new law, homesteads are automatically subordinate to mortgages, and lenders are specifically prohibited from having borrowers waive or release a homestead.
Closing attorneys in mortgage transactions must now provide borrowers with a notice of availability of a homestead.
As part of all residential real estate transactions, I always ask clients if they would like me to prepare a homestead declaration for a nominal fee ($40 + $35 state recording fee). Now that the protections are enhanced and attorneys are obligated to disclose, every homeowner should opt to declare a homestead. Please contact us at 781-247-4250 if you would like a homestead recorded on your property.
Mortgage Guy Brian Cav has been riding the Massachusetts mortgage rate roller coaster this week! Seems like the Fed’s new Quantitative Easing II policy has got the market jumping all over the place. Well, here’s the lowdown from BC:
Brian Cav
Wow, I am at a lack of words for what has happened over the past week with Mortgage Rates. Rates have changed up to 5 times per day since last Wednesday. We are just now starting to see some stabilization after a week of bad mortgage market losses.
Most Lenders are offering 4.25% with 1 point of origination for a 30 year fixed with standard costs. The same can be said at 3.75% for a 15 year fixed. You must have a 740 FICO credit score or better and enough equity in your home to refinance or standard down payment requirements on a purchase. Jumbo 30 year and 15 year fixed along with 5/1 ARMs are very near all-time lows as of today. Jumbo Mortgage financing requires a 80% loan to value or a 20% down payment on purchases.
Inquire within for current MortgageRates or guidelines at [email protected] 617.771.5021
Economic Data
Wednesday’s bond market has opened in positive territory following the release of favorable economic data and a relatively flat open in stocks. The stock markets don’t appear ready to rebound from yesterday’s selling with the Dow up and the Nasdaq up. The bond market is currently up 5/32, which with yesterday’s afternoon strength should improve this morning’s mortgage rates by approximately .25 of a discount point over yesterday’s morning pricing.
There were two reports posted this morning. The first was October’s Consumer Price Index (CPI) that showed weaker than expected inflation readings. The Labor Department said that the overall CPI reading rose 0.2% and that the core data was unchanged from September’s level. Both of these readings were just shy of forecasts, meaning inflationary pressures were not as strong at the consumer level of the economy as many had thought. That is good news for the bond market and mortgage rates, but did not come as too much of a surprise after yesterday’s PPI numbers.
The Commerce Department gave us today’s second piece of data. They announced that construction starts of new homes fell 11.7% last month, falling to their lowest level in the past year and a half. This is favorable data for the bond market and mortgage rates since it indicates housing sector weakness. Unfortunately, the data is not considered to be highly important, preventing it from influencing this morning’s mortgage rates by much.
The final monthly report of the week will come from the Conference Board late tomorrow morning when they release their Leading Economic Indicators (LEI) for October. This is a moderately important report that attempts to predict economic activity over the next three to six months. It is expected to show a 0.6% increase, meaning economic activity will rise fairly rapidly over the next couple of months. Generally speaking, this would be bad news for bonds. However, since this data is considered only moderately important, its results need to vary by a wide margin from forecasts for it to affect mortgage rates.
Also tomorrow, the Labor Department will give us last week’s unemployment figures. They are expected to announce that 442,000 new claims for unemployment benefits were filed last week. This would be an increase from the previous week and considered good news for the bond market. However, since this is only a week’s worth of new claims data, its impact on tomorrow’s mortgage rates will likely be minimal. The larger the number of new claims filed, the better the news for the bond market and rates.
FLOAT or LOCK
If I was closing on a Home Mortgage in the next 0 to 15 Days – FLOAT
If I was closing on a Home Mortgage in the next 15 to 30 Days – FLOAT
If I was closing on a Home Mortgage in the next 30 to 60 Days – FLOAT
If I was closing on a Home Mortgage in the next 60+ FLOAT
This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
Are you a possible Massachusetts First Time Home Buyer?
Do you have a Real Estate client inquiring about current Mortgage Rates?
Do you have any Refinancing questions?
Should you be thinking about Refinancing out of your ARM (Adjustable Rate Mortgage)?
We welcome for the first time, guest blogger Ricardo Brasil. Ricardo is a Vice President at one of America’s largest Banks, and is recognized as one of the top mortgage originators nationally. For more info, go to his website at www.ricardobrasil.com or call him directly at (617) 897-5192.
Ricardo Brasil
Quantitative Easing Policy I (QE I): The First Go-Around
Some feel there is a good chance that the FOMC’s planned announcement to purchase U.S. treasury bonds will cause mortgage rates to fall even further. Unlike the Fed’s first quantitative easing (QE I) program, however, borrowers could see a muted (or even negative) response by the time QE2 winds down next June when it comes to rates for home loans.
Mortgage rates improved substantially the last time the Fed carried out its first Quantitative Easing program from December 2008 through March 2010. $1.75 trillion in bonds and mortgage backed securities were purchased during that time and mortgage interest rates dropped by more than 1% over the same period for a 30-year fixed rate mortgage. In 2010 they have fallen further to just over 4% last week with no points.
Quantitative Easing Policy II (QE II): The Here & Now
There are those who argue the Fed’s second attempt at Quantitative Easing, known as QE2 or QEII, is different. Mortgage rates have the QE2 effect ‘baked into the cake’ according to many industry pundits. The goal of this type of Fed action is to lower real interest rates and increase spending in sectors that respond to interest rate changes. This includes home purchases as well as business spending and investment. Quantitative easing could decrease mortgage rates by increasing mortgage backed securities’ liquidity enough that the lower end MBS’s begin to sell. On the contrary, the purpose of quantitative easing ultimately is to stimulate the economy, and if it is successful, over time there should be real indicators of growth that show up in production and employment figure increases. These will surely put pressure on interest rates to rise.
Additionally, the direct impact on the economy of this quantitative easing policy will be a weakening of the US dollar. A weaker dollar in turn should make US products cheaper to foreign countries and cause exports to rise. With a weak dollar imported products of all kinds from clothes to consumer electronics will increase in price because it will take more dollars to buy the same amount of products. The increased cost of imports will drive up retail prices and increase inflation. As a result, inflation will cause home prices to rise and mortgage rates as well. This wouldn’t happen immediately but could be expected in the in the not too distant future. Moderate inflation and job growth are what the Fed is looking for.
Rising production of exported products should generate more profits for domestic companies and those profits should result in increased production and job growth. That in turn will lead to the stock market going up and for those in the mortgage industry who know this all too well, mortgage rates tend to follow the direction of the financial markets. Rates rise when the economy is clicking on all cylinders and equity markets are moving higher. Rates decrease when the economy and equity markets struggle.
Float or Lock Down? Don’t Fight The Fed
As the cliché goes, don’t fight the Fed. Well, when it comes to mortgage rates, when we know the Fed is trying to stimulate the economy and put off dealing with inflation, I would do away with any floating bias and will be taking advantage of historically low rates for the time being without holding off for lower rates that we may not see.
Mortgage rates are currently hovering at record lows and remain very attractive especially in combination with low home prices. Although there will continue to be fractional fluctuations in rates over the next few months, mortgage rates should be low but range bound for the foreseeable future before being forced higher by inflationary pressures. After rates improved a bit following the Fed’s announcement they have gone up as recent economic news has been quite sanguine especially with the 151,000 jobs added in October. Mortgage bonds have fallen a whopping 143 basis points in the past 5 days and the yield on the 10yr-note has spiked 28 basis points higher.
Ricardo Brasil can be reached at www.ricardobrasil.com or call him directly at (617) 897-5192.
Daylight Savings Time ends tonight, so don’t forget to set your clocks back 1 hour. Changing the clocks is always a good reminder to change the batteries on all smoke and carbon monoxide detectors.
This year, please consider purchasing a new photoelectric smoke detectors for the kitchen and bathroom areas which are required in new homes by the Massachusetts smoke detector regulations which went into effect on April 5, 2010. The new regulations require that new construction be equipped with the latest photoelectric smoke detectors which are not as prone to false alarms as older ionization based detectors. Click here for my prior post about these changes.
The law specifically requires photoelectric detectors covering the area within 20 feet of a kitchen or bathroom containing a bathtub or shower. The older ionization detector is prohibited in these places due to their tendency to be set off by steam.
The new regulations only apply to single family homes sold on or after January 1, 2010. But why run the risk? The safety of your family and children should be paramount.
Here’s a great Guide to the smoke detector law put out by the Department of Fire Services.
Today, the Massachusetts Supreme Judicial Court heard arguments in the closely watched case of The Real Estate Bar Association of Massachusetts, Inc. (REBA) v. National Real Estate Information Services, Inc. (NREIS). This case pits Massachusetts real estate closing attorneys versus out of state non-attorney settlement service providers which are attempting to perform “witness or notary” closings here in Massachusetts. At stake is the billion dollar Massachusetts real estate closing industry.
Unauthorized Practice of Law?
I wrote previously about the case in this post. Massachusetts’ long standing practice is for licensed attorneys to oversee and conduct the residential real estate closing process. NREIS’s business model is to outsource the vast majority of those functions to back office workers who aren’t trained attorneys. REBA argues that this practice violates Massachusetts common law and consumer protection statutes requiring that attorneys perform the most vital functions of a real estate closing transaction, such as certifying and analyzing title, preparing the deed, handling the transfer of good funds, where necessary, and conducting the closing.
The case was originally brought in federal court, where NREIS won and obtained a $1Million attorney fee award. But the federal appeals court overturned that ruling, and asked the Massachusetts Supreme Judicial Court to answer the question of whether and to what extent a residential real estate transaction and closing is the “practice of law” required to be performed only by a licensed attorney.
Questions From the Bench & Analysis
A favorable decision also upholds the notion that attorneys are vital to the conveyancing system, protect consumers, and cannot simply be outsourced to a non-trained drone. We’ve seen disastrous results when untrained folks try to perform legal tasks with the foreclosure robo-signing scandal. And the SJC may be sensitive to this having just heard the Ibanez foreclosure case.
Several of the justices weren’t buying NREIS’s argument that its non-attorney back office processors never make legal judgments, but instead simply “flag issues.” Justice Cowen raised several examples of situations requiring an attorney’s trained eye, such as analyzing a title examination, analyzing title defects, and ensuring that loan documents, the deed and mortgage are in the correct form.
Justice Cowen said that NREIS couldn’t delegate everything to a paralegal. At some point an attorney had to make the final call. And I think that is where the Court will end up on this case–hopefully!
Justice Gants and Spina both showed their studying of the conveyancing process in asking whether NREIS needed to have attorneys certify title (they do under state statute) and analyze a title rundown (yes, again).
Don’t bet against the SJC ruling against real estate attorneys in this case. After all, the justices are attorneys themselves. And they are humans. Whether they admit it or not, they are naturally inclined to favor their brethren of the bar.
Why This Case Is Important To Mass. Consumers
The purchase of a home is usually the most important investment most families will ever make. Home buyers and sellers, as well as lenders, rely on the training, professionalism, and integrity of attorneys to ensure that their property rights are protected. The reason that only lawyers can give legal advice is to protect the public. It gives the buyer and lender someone to hold accountable if there are mistakes. These multiple levels of protection permit buyers, sellers and lenders to confidently and reliably close loans worth hundreds of thousands of dollars every day. Non-attorney closings only hurt the consumer. In recent years, the real estate closing process has become as more complicated than ever. In “witness only” or “notary” closings, the non-attorneys who conduct the closings do nothing more than witness the execution of the closing documents, and cannot provide any legal guidance. What happens if an issue arises at closing requiring legal analysis? The closing attorney has the training to resolve it. The non-attorney closer will just sit there and can do nothing. Lastly, due to increased competition, there is no difference in cost between non-attorney closing companies and real estate attorneys.
In addition to the parties’ briefs, the SJC has received nearly 20 friend of the court briefs, virtually all of which support REBA’s position that NREIS is engaged in the unauthorized practice of law. SJC briefs can be found here. The webcast is found at the Suffolk Law School website.
The SJC should issue a final ruling in several months.
On Halloween eve, I thought I would delve into the spooky topic of haunted houses and disclosure issues. Massachusetts real estate brokers struggle to sell homes tainted by shocking murders, suicides, or even suspected “haunted houses” filled with paranormal activity. These “stigmatized” properties are particularly difficult to deal with as they raise unique valuation problems and disclosure issues.
No Disclosure Rule
Under Massachusetts law, real estate brokers and sellers are under no legal obligation to disclose that a property was the site of a felony, suicide or homicide, or has been the site of an alleged “parapsychological or supernatural phenomenon,” i.e., a haunted house. Thus, buyers are on their own to discover these types of stigmas.
Here is the law, Massachusetts General Laws Chapter 93, section 114:
The fact or suspicion that real property may be or is psychologically impacted shall not be deemed to be a material fact required to be disclosed in a real estate transaction. “Psychologically impacted” shall mean an impact being the result of facts or suspicions including, but not limited to, the following:
(a) that an occupant of real property is now or has been suspected to be infected with the Human Immunodeficiency Virus or with Acquired Immune Deficiency Syndrome or any other disease which reasonable medical evidence suggests to be highly unlikely to be transmitted through the occupying of a dwelling;
(b) that the real property was the site of a felony, suicide or homicide; and
(c) that the real property has been the site of an alleged parapsychological or supernatural phenomenon.
No cause of action shall arise or be maintained against a seller or lessor of real property or a real estate broker or salesman, by statute or at common law, for failure to disclose to a buyer or tenant that the real property is or was psychologically impacted.
An easy way to determine whether a house is truly “haunted” is to hire Ghostbusters. No seriously, Google the property address and the last few prior owners and see what comes up. If there was a murder or suicide–or even ghosts– it should reveal itself.
“Are title insurance companies still insuring foreclosure properties?”— James In Cambridge
Answer: Yes, they are. Initially, the press reported that some major title insurers had temporarily stopped insuring foreclosure titles from JP Morgan Chase, Ally Financial, and Bank of America. However, my understanding is that all title insurers have resumed insuring all foreclosure properties in the wake of several major agreements between national title insurance companies and lenders. These warranty and indemnification agreements would essentially shift the risk of loss from irregular/defective foreclosures back onto the foreclosing lenders.
From the conveyancing side, I can definitely tell you that title insurers have advised their attorney agents to go through foreclosure titles with a fine tooth comb and to be especially diligent in examining and certifying foreclosure titles. Buyers of foreclosure properties should be prepared for delays in getting their transactions closed.
“How is robo-signing different from the Ibanez case situation”?–Scott
Answer: “Robo-signing” and the Massachusetts Ibanez foreclosure case are two different situations, but the root of the problem — the complexity of the securitized mortgage industry and the sheer volume of foreclosure paperwork to be processed — remains a contributing cause of both problems.
“Robo-signing,” as one of the leading foreclosure defense attorneys has claimed to the Huffington Post, refers to how financial institutions and their mortgage servicing departments hired hair stylists, Walmart floor workers and people who had worked on assembly lines and installed them in “foreclosure expert” jobs with no formal training to sign sworn documents submitted to courts. According to depositions released in Florida and the Post, many of those workers testified that they barely knew what a mortgage was. Some couldn’t define the word “affidavit.” Others didn’t know what a complaint was, or even what was meant by personal property. Most troubling, several said they knew they were lying when they signed the foreclosure affidavits, and that they agreed with the defense lawyers’ accusations about document fraud.
This is obviously a major problem in states such as Florida which require a judge’s approval of a foreclosure based on sworn documents. However, Massachusetts is not such a state. Other than verifying the borrower is not in the military, Massachusetts state law doesn’t require any sworn verification that the foreclosure is kosher (if you will). That may change after lawmakers and the Attorney General’s office react this foreclosure mess. In fact, the AG announced this week she is investigating on of the largest “foreclosure mills” in the state for alleged non-compliance with the new tenant foreclosure law.
The Ibanez problem occurs when mortgage loan documentation recorded with the Registry of Deeds lagged far behind the actual ownership of the loan, due to complex mortgage securitization agreements and sloppy follow up. Land Court Judge Keith Long’s ruling effectively invalidated thousands of foreclosures which suffered from this newly recognized “defect.” The Ibanez situation is not a product of fraud, like robo-signing, in my opinion. In fact, the practice of recording mortgage assignments “late” was long accepted by the title examination community prior to the Ibanez ruling. So it caught a lot of folks off-guard.Getting title insurance on an Ibanez-afflicted property is near impossible these days, and the robo-signing controversy certainly doesn’t help alleviate the risk tolerance of anxious title insurance underwriters.
To be sure, both Ibanez and the robo-signing controversy have reverberated through the real estate community, and have impacted foreclosure sales on a number of levels. If you are considering purchasing a foreclosed property, please contact us so we can guide you through the complicated process and protect your interests.
OK folks, you want to know what your house is worth? Stop obsessing over your town assessment and online estimates. At the end of the day, your house is worth what someone is willing to pay for it.
But while you follow the sale prices of your neighbor’s house and e-mail me to ask what your house is worth (sight unseen), I’ll explain to you that it is neither an exact science, a mathematical equation, or a guesstimate. So many factors go into the value of your house. In this case, perception is, for the most part – reality. The location, the condition, the square footage, the updates, the amenities, the lot, the neighborhood, the neighbors, proximity to school, the floorplan – and so much more. Size matters, but it’s not the only thing.
It’s so easy to want to use the two words interchangeably, but please know that an assessment and an appraisal are totally different things.
ASSESSMENTS: (Think – measurement rhymes with assessment) Assessments are based upon the town’s opinion of value of the land and the value of your house, based on the measured square footage and condition (excellent, very good, good, fair and poor). The square footage includes everything in the house – closets, hallways, two-story foyers, stairways, etc. So, although you may add up the square footage from each room, it’s not the same. The taxes you pay are based on your assessment. Years ago, houses were priced close to, or above, their assessed value. If a house were priced below the assessment, it was featured as a fabulous thing. Priced WAY BELOW assessment, translated, meant: “Don’t forget your checkbook as you’re running like a madman to the open house.”
These days, assessments may be in the general vicinity of the asking price. Not a lot of weight is placed on the assessed value as it compares to the true market value. Most are priced around the assessed value, especially if they sold in the past 10 years. The assessor’s office does not take into account all of the items within a house that a buyer perceives as valuable (age of systems, paint vs. 1970s wallpaper, neighborhood full of kids the same age, master bathroom rivaling the one at the Four Seasons in Nevis, etc.) Just the square footage, value of the land and the town’s rating of the neighborhood.
APPRAISALS: An appraisal is a valuation made mathematically by a real estate appraiser for the purposes of providing security to the lending institution. The bank wants to be sure that the money it is loaning – for a refinance, home equity loan, line of credit or a purchase – can be recouped in today’s market if the owner defaults on the loan. Essentially, they need to know that they would not have a problem selling the house for the amount borrowed.
The appraiser formulates his/her appraisal based on the sale prices of the houses nearby that would be comparable for the square footage, the amenities, and the condition. In some towns, it’s not necessarily apples to apples, because a house down the street may have been foreclosed upon, thus skewing the value of the subject property.
Appraisals used to be more of a formality, and now they are extremely strict. As a result of the mortgage debacle, banks have cracked down and the rules have changed. Banks used to be able to communicate with the appraisers – now they have been prohibited from having direct communication. If you have recently refinanced and your appraisal came in at one price, it doesn’t necessarily mean that that price is what you would get from a buyer if your house went on the market.
ZESTIMATES: I think Zillow is an entertaining and somewhat informative website. It is a great site to search for homes and to take advantage of all of the interactive features. The “Zestimate” is Zillow.com’s term for “estimate of the value of your house.” For houses in Middlesex County, Zillow states that its accuracy is 99 % of the homes in Middlesex County that are on Zillow. Ninety-nine percent of homes in Sudbury are on Zillow. Ninety-nine percent of those have “Zestimates.” Of that 99%, only 32% sold within 5% of their Zestimate. Fifty-eight percent sold within 10% of its Zestimate and 82% sold within 20% of its Zestimate. Median error is 8.3%.
Dizzy? This means that if your Zestimate is $800,000, your sale price may be closer to $640,000 or $960,000. It’s a pretty big spread! So, fun site – yes. Accurate – not really. Why? The information pulled by Zillow is information that is available online – and if one piece of data is incorrect (it happens all the time) then everything is skewed.
Zillow does not know what streets are busy, what houses have just updated their kitchen and bathrooms, furnaces, roofs, etc. Zillow also does not know the motivation of sellers. So, if your neighbors won the lottery and just wanted to sell the house so they could sail around the world and sold for about $50K less than they could have – according to Zillow, your house just went down $50K, also.
Unless he or she has a really good sense of humor, please don’t tell your real estate agent that you disagree with his/her extensive analysis because your “Zestimate” states “X.” It would be like telling Todd English that you know how to make his signature dish because you just Googled the recipe. So, enjoy the site, have fun searching, reading the real estate news, etc., but don’t get excited or freak out because of your Zestimate. It will likely change the next time you log on.
COMPARATIVE MARKET ANALYSIS: This is the best, and most accurate, way to know the value of your house. A comparative market analysis is written by a real estate agent. It would best completed by an agent who knows the market, knows each house that your’s would be compared to, and has his/her hand on the pulse of the buyers. A real estate agent preparing the market analysis should take into account everything about your house – the square footage, the condition, the style, the location, the demographic of the potential buyers, the market conditions, the intangibles, and the perceived value within the town.
We then analyze the house in comparison with the houses that are on the market, have accepted offers, are under agreement and have sold (closed). A market analysis conducted today would not include sales from the spring as it was a different market. It’s also very important to have a sense of what comparables appraisers will use when appraising the house for the buyer’s mortgage company.
So, assessments (pain in the assessment = taxes), appraisals (think = approximate), Zestimates (Zillow.com), market analysis (call me/real estate agent).
David Gaffin of Greenpark Mortgage, www.massmortgageblog.com, is here with a superb summary of what’s now going on with Massachusetts (and national) residential mortgage market.
The National and Massachusetts Mortgage Lending Picture
Lot’s has been happening in the Mortgage World lately. Refinance business is very good. Purchase business is fair, heading into the all important year end buying season.
I will let this post be a little more free-form than my taking a particular topic and expounding on it (or beating it to death) depending on your perspective.
FHA has changed guidelines… Again.
USDA is still not guaranteeing loans.
Fannie and Freddie need another $200 billion of taxpayer money.
Foreclosures stopped and started again. What could that mean to you and me?
The Fed is meeting on Nov 3 to either lay the hammer down on Quantitative Easing II or will do nothing and really mess up interest rates.
Refinance Now!
1. So you want to refinance? My suggestions: A. Get started now! Loan pipelines continue to be backed up. Remember the bad old days when rates were an exorbitant 4.75% for a 30 year fixed rate and everyone re-fied? When was that again? Oh, right. JUNE. Well many of those same people are now re-fiing again in the low 4′s, possibly high 3′s. And people who were late to the party are adding on. So don’t expect your file to be closed in less than 60 days. Many lenders are at 120 days for refinances. If you have a current home equity line of credit that you plan to keep open, add another 30 days or so.
It is not all doom and gloom. I know of many files that were closed in less than 45 days. Purchases always get priority and about 30-35 days is the requirement. If you lender can’t get it done in that time, well my contact info is below.
Don’t be cranky with your loan officer or processor when they request enough paper work to rebuild a forest. The secondary market has really toughened its verification guidelines, cause no one wants to be left holding the bag on a loan that goes bad. Everyone wants to ensure that the underwriting, appraisal and income verification has been double and triple checked.
Good news for Realtors
End of year buying season has begun and the clients that want to be in their new homes by year end must make some decisions soon. We should see a boost in P & S activity over the next 30 days. If that doesn’t come to fruition, it could be a long dark winter for many of my realty friends. But rates are great! If you bought the same priced home 2 years ago, you would have paid 5-20% more than current prices and your interest rates could have been more than 2.00% higher. Now is a GREAT time to buy. I know that is self-serving, but I am a numbers and value guy. I don’t like seeing the value drop in my house either, but if I were buying I would be psyched!
FHA has changed it guidelines again as of Oct 4
FHA needs money to keep guaranteeing its loans against default. Every borrower pays a fee to get into the program and to ensure its continuation. So the fees got changed. FHA lowered the UPMIP (up-front mortgage insurance premium) from 2.25% to 1.00%. Sounds good right? With one hand they giveth and the other taketh away. The monthly mortgage insurance will virtually all FHA borrowers pay has moved from .55% of the base loan amount to .84% monthly. On a $200,000 loan the old cost over 7 years was $12,200 and the monthly MI was $91.67. Now the projected expense is $13,760 and the monthly MI is $140.00. Most investors have now raised the minimum credit score requirement from 620 to 640. FHA is still the best choice for borrower’s with credit scores under 660 and who may have little equity or down payment or who need higher tolerance levels for debt to income ratios.
USDA Loans
The USDA which offers a great program, or at least did, can’t seem to get its funding in order and therefore cannot issue any conditional guarantees for loans. USDA offers several advantages over conventional and FHA loans but they are proving very hard to get. If you would like more information on the availability of these loans, send me an email.
Freddie and Fannie are in more trouble with losses.
Do we shut them off and let the private sector take over? We can but rates would rise dramatically and put an even further damper on the housing market. Given that TARP actually turned a profit, I think any additional funds to rescue the GSE’s should have an opportunity for the taxpayer to make a return on the re-sold properties even if it takes years to divest the shadow inventory that they own.
Foreclosure Mess
Speaking of shadow inventory… Foreclosures are on again/off again/on again. For legal thoughts on this check out the Mass Real Estate Law Blog by Rich Vetstein and Marc Canner.
My thoughts are that although there will be a delay to ensure that the legal work has been properly done, people will unfortunately continue to lose their homes. Many will lose them due to the economic downturn or medical reasons. Others will have lost them to predatory lenders or poor decision making on their parts. I don’t really want to get started on “It was all the lender’s fault.” Needless to say, a reason the paperwork requirements exist today, is reliant upon the the lack of paperwork requirements and shoddy underwriting in the past.
I could write several scrolls on this whole mess, but I don’t wish to bore. It may already be too late.
Big Federal Reserve Meeting
Possibly the greatest short to mid-term driver for interest rates will be what the Fed decides or doesn’t decide to do at it’s next meeting. The market has baked in that the FED will ease monetary policy further. If they don’t come through in a big way the stock market most likely will drop and interest rates will rise. But how much will rates rise? Probably enough that any one who re-fied this summer won’t be able to do so again, or at least until some other economic driver comes to bear. So get off the fence and talk to your loan officer NOW.
Sometimes the best blog posts are the frequently asked questions from our clients. With interest rates at all time lows, we’ve been doing a ton of refinance closings. Here are 5 questions which often come up.
1. Why does the payoff of my existing mortgage seem higher than I thought?
In many cases, borrowers will focus only on the “principal balance” figure in their mortgage statement. However, this figure does not provide the complete figure necessary to pay off the loan. You must also pay any unpaid interest calculated up to the time that they actually receive the payoff check. Mortgage interest is not like traditional rent in which the monthly payment is for the upcoming month. Mortgage interest is paid in arrears, or backwards. Thus, your monthly mortgage payment is allocated partially to principal, but also pays the daily interest accumulated during the last month.
Therefore, if your refinance loan is funding on August 15, we must pay off your existing principal balance plus the interest that accumulated from August 1 to August 15 (plus additional days necessary to get the payoff check to the bank). That unpaid daily interest makes your payoff is higher than just the principal balance. Frequently included in your payoff is also a $75.00 registry discharge recording fee and a fee to issue a payoff statement (usually between $10.00 to $60.00).
2. What is an escrow account and why is my lender collecting so much money for it?
An escrow account is established with a lender to pay for recurring expenses related to your property, such as real estate taxes and homeowner’s insurance. It helps you to anticipate and manage payment of these expenses by including these expenses as a portion of your monthly mortgage payment. At the time you establish an escrow account, your annual real estate taxes and homeowner’s insurance are estimated, based on your most recent bills and premiums. An incremental amount of these expenses is added to your monthly mortgage payment, in order to cover these expenses when they are due.
Each year, your escrow account is reviewed to determine if the amount being escrowed each month is sufficient to pay for any change in your real estate taxes or homeowner’s insurance premiums. At closing, we will collect sufficient funds to start your escrow account, typically 2-3 months worth of real estate taxes and up to a 12 months of homeowner’s insurance.
3. Why is my lender escrowing money for my homeowner’s insurance if I have already paying it?
Although you have paid the first annual premium in advance, the lender needs to begin collecting money to pay next year’s annual premium. Since the lender will be paying the annual premium for you next year, they need to be sure that they have enough money in their account to pay that bill approximately one year from your closing. Because you will not make a mortgage payment in the month after your closing occurs and the lender usually pays the bill in the month before it is due, you will likely only have made 10 payments by the time they pay the bill. Thus, they need to collect 2-3 months at closing so that they will have sufficient funds to pay the bill.
4. When will my refinance proceeds be available?
Federal law requires that borrowers of a refinance loan must be given three days to rescind the transaction. This is commonly referred to as the “three-day right of rescission.” You cannot waive this right of rescission. Therefore, your lender cannot fund your loan until such rescission period has expired. When calculating the rescission period, the day that the closing occurs, Sundays and Holidays are not rescission days and are not counted. Thus, if your closing occurs on a Thursday, it will fund on the following Tuesday (Friday, Saturday and Monday being the three rescission days – Thursday of closing and Sunday not counted).
5. Should I pay the next tax bill due after my closing?
If your next tax bill is due within 60 days of closing, our office will administer payment that tax bill. The lender will require our office to take the necessary funds from you at closing and pay that tax bill. This is the case regardless of whether you are escrowing your taxes with the lender or not. If you are escrowing taxes with the lender, our office will administer payment of tax bills due within 60 days and the lender will administer payment of any tax bills thereafter. If you are not escrowing your taxes, we will administer payment of tax bills due within 60 days of closing, and you will have to pay any tax bills thereafter.
If you would like us to close your refinance loan, please contact us at 781-247-4250 or at [email protected].
I’m thrilled to be writing the guest post for the Inman Future of Real Estate Marketing Blog highlighting the Agent Reboot Conference in Boston held yesterday on October 13, 2010. From the buzz surrounding the conference here at the Hynes Convention Center, it’s clear that Boston area agents are embracing the power of social media, and that Boston is well on its way to becoming the next “Hub” for social media savvy agents!
I just finished watching the oral argument web-cast in the U.S. Bank v. Ibanez controversial foreclosure case before the Massachusetts Supreme Judicial Court. It was a bit anti-climatic, with the judges and attorneys spending an inordinate amount of time discussing the complex, mortgage securitization documents and process.
Here’s a recap of what caught my eye:
The justices had many questions about the Wells Fargo/Option One mortgage pooling and servicing agreement, private placement memo, and other mortgage securitization documents. If you’ve read the great book, The Big Short by Michael Lewis, you know how complex these agreements are. Some of the justices clearly weren’t following the complex securitization process and agreements. Justice Ganz characterized the securitization documents as “extraordinarily sloppy.” I wonder what Goldman Sachs and Lehman Brother’s $1,000/hour corporate attorneys would think of that comment.
The justices were searching for a document in the record evidencing that Option One Mortgage was holder of mortgage that was foreclosed, as the problem in this case was that Option One had an assignment executed “in blank.” That is, without the identity of a new lender who was purchasing the mortgage on the secondary market. They were really struggling with the problems in the documentation filed with the registry of deeds in this case, which was endemic as thousand of securitized mortgages were being foreclosed.
The attorney for the lenders spent most of his time attempting to explain the securitization process to the justices. I think that took away some of the impact of the public policy arguments he was expected to make.
Chief Justice Marshall referenced the friend of the court brief filed by the Real Estate Bar Association (REBA), asking an attorney for the foreclosed homeowner whether “the sky will fall if the Land Court’s ruling is upheld”? (Answer was n0). Likewise, Justice Ganz asked what are we to do about the seemingly innocent folks who bought these foreclosed homes unaware that the titles were defective. Justice Ganz and Marshall agreed that these purchasers could be “bona fide good faith purchasers” which under the law means they could be immune from claims challenging their title. That’s an encouraging line of reasoning for many people waiting on the outcome of this case.
There was also a discussion about changing the current common law which does not require recording of mortgage assignments, to require it. Justice Marshall asked how many states required recording of mortgage assignments, giving a hint of where’s she thinking on this.
Lastly, Justice Cordy, the former big firm attorney, was clearly on the side of the lenders, even going so far as to ask whether Mr. Ibanez waive his challenge to the foreclosure by not challenging it in lower court.
As with any appeal, the Court takes several months to decide the case and render a formal written opinion. But here’s how I think this could play out. The majority of justices were deeply troubled by the “extraordinarily sloppy” paperwork surrounding the securitized mortgage documents and assignments which is the root problem here. My guess is they probably think Land Court Judge Long is right about the lender’s compliance with the foreclosure laws. They also likely think that in the current foreclosure mess, the chain of ownership of these loans should be more transparent to the consumer and those searching titles. However, the justices don’t want to hurt thousands of innocent homeowners who bought properties out of foreclosure and fixed them up, etc. Chief Justice Marshal and Justice Ganz were clearly concerned about this, and their opinions typically carry substantial weight. So, to play this down the middle, the court could uphold Judge Long’s ruling, holding that all mortgage assignments must be recorded from now on. But the court would not make the ruling retroactive as is usual, so the innocent homeowners won’t be saddled with defective titles.
There are many folks waiting out this important decision, including several of my clients. I hope the SJC will strike the right balance.
Richard D. Vetstein, Esq. is regarded as one of the leading real estate attorneys in Massachusetts. With over 26 years in practice, he is a five time winner of the "Top Real Estate Lawyer" award by Boston Magazine, a "Super Lawyer" designation from Thompson/West, and "Best of Metrowest." For Rich's professional biography, click here. If you are interested in hiring Rich or have a legal question, email or call him at [email protected] or 508-620-5352.
Property Owners Need To Clear Snow & Ice After Storms
