Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - October 5, 2009 1.) Office Management - General Office Management As was most recently discussed in the August 10, 2009 WRA Hottips, the federal Red Flags Rule is an anti-fraud regulation, requiring “creditors” and “financial institutions” with “covered accounts” to implement programs to identify, detect and respond to the warning signs, or “red flags,” that could indicate identity theft. The Federal Trade Commission extended its “red flag” identity theft compliance deadline to November 1, 2009 to give the FTC more time to address compliance for small businesses and “low-risk” entities such as real estate professionals. “Low-risk” means the entities typically are not a source of identity theft problems. For example, it says in FAQ 11 that, “if you routinely help others obtain credit you are a ‘creditor’ under the rule and have to comply with the red flag regulation if you have any ‘covered accounts.’ These accounts are consumer accounts designed to permit multiple payments or other transactions, and any other account for which there is a reasonably foreseeable risk to your customers or to you of identity theft. Even if you do not have accounts subject to multiple transactions, you are still required to undertake a periodic assessment to determine if your existing accounts or potential new accounts present a reasonably foreseeable risk of identity theft. The risks will vary depending upon such factors as your account opening procedures and your prior experience with identity theft. If any of your accounts present such a risk, you will need to have a written identity theft prevention program including reasonable policies and procedures to identify relevant red flags and to respond appropriately. The written policies and procedures could be as simple as asking all customers for Government issued identification and checking this document for inconsistencies, such as a different address or altered photograph. The precise requirements for your program will depend upon your risk assessment. However, it is important to remember that if you do not have any accounts that have multi-transactions capabilities, and your assessment does not reveal any other accounts that present a risk of identity theft, you will not need to have a program under this regulation. The only requirement, in that case, is to conduct a periodic review of your business to ensure that these facts have not changed.” The FTC materials indicate, “The Rule also defines a ‘creditor’ as one who regularly grants loans, arranges for loans or the extension of credit, or makes credit decisions. Examples include finance companies, mortgage brokers, real estate agents, automobile dealers, and retailers that offer financing or help consumers get financing from others, say, by processing credit applications.” Accepting credit cards as a form of payment does not make you a “creditor” under the Red Flags Rule. READ MORE ABOUT IT: 2.) General Real Estate - Foreclosure QUESTION: Foreclosure of a condominium unit: if there are outstanding condominium association fees, do they disappear as do other claims or are they still a lien against the property? ANSWER: Potential buyers at a sheriff’s sale may not have much time to research the title and the condition of the property beforehand. Potential buyers should evaluate the property’s value and check title for any additional loans or liens encumbering the property (including a lien for unpaid condominium association fees) so that they can make an informed decision about whether the property is a wise investment. The sheriff conducts the foreclosure sale and any buyers at the sale with 10 percent of their maximum bid may bid. Just because the sheriff’s sale is part of the foreclosure process that involves a court and the sheriff, that does not mean that the title is necessarily clear. When the lender that started the foreclosure filed its pleadings in court, the lender may have done a good job of checking title and making sure that everyone who had any liens against the condominium was named in the foreclosure complaint. All parties named will generally have their liens removed from title when the court confirms the sheriff’s sale and the sheriff’s deed is given. However, many lenders today have their foreclosures handled by asset managers who may at times try to cut corners and not order a full judicial foreclosure commitment from the title company. Consequently, they miss some of the liens against the property. The sheriff’s deed itself is not a warranty deed. Instead, it is similar to a quitclaim deed. The sheriff’s deed passes the former owner’s title after barring all parties named in the foreclosure action holding liens and encumbrances on the property and barring any parties filing any liens after the lis pendens is filed with the register of deeds. Agents need to be particularly cautious about giving advice about the legalities of foreclosure sales. The buyer, accordingly, should be directed to meet with an attorney to review title and the litigation documents to determine if there are any liens that were not extinguished by the foreclosure. READ MORE ABOUT IT: 3.) Mortgage Banking/Finance - General Finance QUESTION: Is a duplex eligible for the first-time homebuyer tax credit? ANSWER: Because the Hotline and the broker cannot provide tax advice, the broker may refer the buyer to his tax advisor, legal counsel and or the Internal Revenue Service for information regarding tax implications of the transaction. The following Q and A is from the IRS’s First-Time Homebuyer Credit Questions and Answers: Basic Information, at http://www.irs.gov/newsroom/article/0,,id=206291,00.html. The buyer may use this as a reference when he speaks with his tax advisor. Q. I purchased a duplex home with two separate dwelling units. I will live in one dwelling and will rent out the other dwelling unit and report the rental income on Schedule E. May I qualify for the first-time homebuyer credit, and what amount do I use for the purchase price to determine the amount of the credit? A. Yes, you may qualify for the credit for the dwelling unit that you use as your principal residence. To determine the amount of your credit, you must allocate the purchase price of the duplex between the two separate dwelling units. Your credit is 10% of the portion of the purchase price of the duplex allocated to your dwelling unit that you use as your principal residence, up to a maximum credit of $8,000. You may not use the entire purchase price of the duplex to determine the amount of your credit. READ MORE ABOUT IT: 4.) Contract Issues & Forms - Cancellation and Release QUESTION: A property was scheduled for closing today. The seller's agent contacted the broker the yesterday to let her know that the seller was approximately $6,000 short to close and all the paperwork would have to go to her bank for approval of a short sale, which would take approximately 30 days. The buyer’s contract expires today and the buyer does not wish to extend the contract to cover the 30 days needed for the short sale. The buyer would like to get her earnest money back as quickly as possible since she needs to find something else before the $8,000 first-time homebuyer tax credit expires. If the buyer signs the Cancellation Agreement and Mutual Release (CAMR), will she be giving up her rights to pursue the seller for breach of contract? What liability do the seller and the listing agent have in not disclosing there was a possibility of a short sale until the day prior to closing? They both said they did not know it was going to be a short sale and nothing showed up on title. ANSWER: By signing the CAMR, the buyer will be relinquishing any right she might have to pursue the seller for any damages. The fact that an existing mortgage or lien cannot be paid in full at closing is a title issue -- clear title cannot be given without paying that lien in full. Pursuant to lines 200-212 of the WB-11 Residential Offer to Purchase, the seller actually has 15 days to clear title after receiving an objection from the buyer. If the seller cannot clear title in the 15 days, the buyer may then declare the offer null and void or may waive the objection and extend the closing until such time as the seller can clear title. The fact that the seller learned at the last minute that she was $6,000 short for closing is not necessarily a breach of the contract. The broker may want to refer the buyer to an attorney to give her advice as to whether they would have a good case to pursue damages from the seller before she decides whether to sign the CAMR. 5.) Listing Contracts - Listing Protection QUESTION: The listing expired on July 1. The seller received a list of named exceptions on July 7. Are these valid? The broker now has the property listed and the previous listing agent sent the same list that he sent to the seller. It is also dated July 7. He has a list of protected buyers and at the bottom he put “and/or any of their assigns.” Is this legal? ANSWER: The first issue is a matter of when the list of protected buyers is delivered, not when it is received by the seller. Presuming the list was timely delivered the second question is whether the use of “and/or assigns” is effective to protect a specific buyer. The listing contract requires that names be delivered to the seller. Granted a person may act on behalf of another, but if the actual buyer is not named there may not be listing protection. See lines 220-229 of the WB-11 Residential Offer to Purchase. The seller may consult with private legal counsel regarding protected buyers and the seller’s obligations per the first listing contract. If the buyer were protected under the first listing, the first listing broker would have, in essence, an one party listing for the protected buyer during the one-year override period. Any offer the buyer writes, accordingly, is to be presented to the seller by the first listing broker. The first listing broker would earn the listing commission if this offer is accepted and closes. Debbi Conrad |