The Herbert H. Landy Insurance Agency is one of the sponsors for the upcoming Realtors Commercial Alliance of Massachusetts “Contacts & Cocktails” event on 9/16. John Torvi will be attending and representing Landy. Stop by and say hello!
Central Quadrant Mixer
Date: 09/16/2010
Time: 04:00PM – 07:30PM
Location:
O’Connor’s Restaurant & Bar
1160 Boylston Street, Worcester, MA 01606
Ph: 508-853-0789 – www.oconnorsrestaurant.com
Description:
Don’t miss your chance to make new connections, network with top-notch local industry professionals, enjoy complimentary hors d’oeuvres, and find out what’s happening at RCA-MA!
FREE to Attend for current & future RCA-MA Members! Non-members who attend will also receive a complimentary pass to attend a 2010 RCA-MA meeting or education course at no charge!
Sponsored by: All States 1031 Exchange Facilitator, LLC & Herbert H. Landy Insurance Agency.
Cost: FREE
Contact Information:
Please RSVP if you’d like to attend! You can call RCA-MA at 978-458-2901 or email maria@massnear.com with your name, company, and phone number. Thank you!
To download a PDF of this article, please click here.
On June 30, Fannie Mae sent a letter to its sellers and servicers, containing updates to the company’s appraisal policies in several areas. Announcement SEL-2010-09 revealed many incremental changes to the appraisal process, including the selection of appraisers, the requirement of interior photos when an interior inspection is conducted, communication under the Home Valuation Code of Conduct (HVCC) and the proper determination of comparable sales, particularly in the 1004MC.
The changes came, according to the letter, after Fannie Mae’s post-purchase reviews of mortgage loan files “identified issues with appraisals.” As a result, several changes and clarifications were made to the appraisal process at the mortgage giant, including:
Inclusion of interior photographs in the appraisal report;
• Lender changes to the appraised value and guidance on addressing appraisal deficiencies;
• Appraiser selection criteria;
• Sources of comparable market data;
• Selection of comparable sales;
• Communication under the HVCC;
• Seller concessions;
• Treatment of personal property; and
• Market Conditions Addendum to the Appraisal Report (Form 1004MC).
One of the biggest announcements is Fannie’s new position in the selection of appraisers. It said that lenders must ensure that appraisers have the “requisite knowledge” to perform an appraisal for the specific area and property. “The use of an appraiser who has the appropriate knowledge of specific geographical markets, access to the appropriate data sources, and experience in appraising specific property types within those markets will help to ensure that valuations are accurate and that appraisal practices are appropriate.”
Although USPAP allows an appraiser who doesn’t have that specific skill-set to accept an assignment on the proviso that he or she will be able to access that knowledge, usually by partnering with an appraiser local to that area, Fannie Mae does not want this to occur and so does not allow the USPAP guideline to apply.
Most importantly, lenders are reminded that they are responsible for the appraisal, regardless of hiring a thirdparty vendor such as an appraisal management company (AMC). “Lenders are ultimately responsible for representations and warranties related to the value, condition and marketability of the subject property; and lenders must hold the AMC responsible for complying with Fannie Mae’s requirements,” the letter stated.
The Appraisal Institute welcomed the announcement from Fannie Mae, saying it was part of a wider effort within the industry to “promote appraiser independence and help loans get completed.” Appraisal Institute Government Relations Committee Chair Richard Maloy said the new requirements may result in lenders rethinking their use of third-party vendors such as appraisal management companies. “The buck now stops at the lender,” he said. “Fannie is saying the lender is held responsible for the appraiser’s selection even if they were selected by an AMC.”
The other important part of the update regards the proper determination of comparable sales. Fannie Mae has updated its section on comparable sales in its selling guide to give guidance to appraisers whose markets are flooded with foreclosures. “If the appraiser believes a foreclosure sale or a short sale is an appropriate comparable, then the appraiser must identify and consider any differences from the subject property, such as the condition of the property and whether any stigma has been associated with it,” the guide states. “The appraiser cannot assume it is equal to the subject property.”
However, Fannie is concerned about lenders changing the appraised value of a property. “During Fannie Mae’s post-purchase reviews, cases were identified where the lender had reduced the opinion of market value in the appraisal report based upon underwriter judgment, automated valuation models, or other methodology,” the letter stated. “Any request for a change in the opinion of market value must be based on material and substantive issues and must not be made solely on the basis that the opinion of market value as indicated in the appraisal report does not support the proposed loan amount.”
If the lender does consider an appraisal to be deficient, it has the following options: it can contact the appraiser to address the problems; it can obtain a desk or field review of the original appraisal; or it can order a new appraisal. There are restrictions though — any desk or field review must be completed according to USPAP, and must be performed by an appraiser who is licensed or certified by the state in which the property is located. Any new appraisal must be based on the same level of inspection that was required for the original appraisal.
Regardless of the options, Fannie Mae does not want lenders to take matters into their own hands. “It is not acceptable for the lender to exercise blanket discretion by arbitrarily changing the opinion of market value from a report for use in the lending process,” the guide forcefully states. “For example, it is not within the lender’s discretion to simply average the two opinions of market value in order to arrive at a final value conclusion.”
Among the other changes in the announcement is a requirement that for any appraisal that involved an interior inspection, photographs of the interior must now be included in the report.
At a minimum, these must include the kitchen, all bathrooms, the main living area, any examples of recent updates such as restoration or remodeling, and any examples, if any, of physical deterioration. The announcement gave guidance on several miscellaneous appraisal-related matters. It reminded lenders and appraisers that communication, while restricted, is still permitted under the HVCC. While the code prohibits the
communication between an appraiser or an AMC and anyone in loan production, or who has a financial interest in the closing of a loan, it does not prohibit other employees of the lender or authorized third party from requesting additional information or clarification from the appraiser.
Appraisers are given guidance on completing the 1004MC, Fannie’s flagship form that was introduced last year. On the form, in order to provide the most accurate depiction of the months of housing supply as of the effective date of the appraisal, the total number of Comparable Active Listings must now be based on a specific point in time. For example, when completing the “Current – 3 Months” column of comparable active listings, the
number should reflect the listings on the most recent date in the three-month period (which is also the effective date of the appraisal), and not the cumulative number of listings for the entire three-month time period.
Then the number for the total number of Comparable Active Listings is divided by the absorption rate, giving an accurate depiction of the existing housing stock as of the effective date of the appraisal. Otherwise, using a cumulative number of listings during the “Current – 3 Month” time period could result in an artificially high number in the housing supply column. If data is available for the previous time periods, then the total number of
Comparable Active Listings should be based on the most recent day in each of those time periods. Although this guidance should be effective immediately, Fannie Mae understands that some appraisers may need to change their technology, so it is not required until Sept. 1, the date when all of the updates in the announcement will be effective.
Regarding seller concessions, the company warns lenders that excessive concessions can artificially inflate the sales price, so appraisals should “reflect an opinion of market value after any special or creative financing or sales concessions have been made.” Fannie Mae also reminds its sellers and servicers that personal property cannot be added as additional security in a mortgage unless otherwise specified.
Freddie Mac has not made any announcements or similar updates to its policies.
Source: Valuation Review
This material is provided for informational purposes as a courtesy of the Herbert H. Landy Insurance Agency. Consult current Local, State and Federal laws, rules and regulations, or your local Appraisers’ Association for updates, practice guidelines and additional information.
The Herbert H. Landy Insurance Agency, Inc.
75 Second Ave.
Needham, MA 02494
800-336-5422
Visit us, or apply for coverage, at www.landy.com
F. Moore McLaughlin IV, Esq, CPA, of All States 1031 Exchange Facilitator, LLC, will be offering an important seminar for Real Estate Agents & Brokers on Tax Strategies for Real Estate Professionals at the MAR annual conference on September 14,2010. Here’s the link: http://www.allstates1031.com/news-events/news-events.php. All of Moore’s workshops and seminars are worth your time, no matter what part of the country you are in.
When an agent evaluates whether to list a property that is under water, the agent must realize that the seller is looking to the agent as more than simply a real estate advisor. This is a very emotional time for the seller, as the seller is losing the property against his/her will. Further, the seller may be in the midst of other financial problems and the short sale can affect the seller’s overall financial situation in ways that are beyond the agent’s expertise. In this article we summarize the Do’s and Don’ts of a short sale transaction, based on problems, complaints and insurance claims that agents have been involved in.
Before Taking the Listing
Do: An agent must consider the likelihood that the transaction could be completed. For example, how quickly must the property be sold, how significant is the short fall that the lender must approve, and so forth.
Don’t: An agent should not advise the seller whether a short sale is an appropriate solution for the seller’s financial situation.
Do: An agent should recommend that the seller consult with an attorney and an accountant to assess alternatives to a short sale such as loan modification, deed in lieu, bankruptcy or refinancing. There may have been predatory lending involved in the procurement of the loan, which may have caused the seller to be in default. This should be analyzed by an attorney as a potential defense to keeping the house.
Don’t: An agent should never tell a seller that a short sale is better than foreclosure, that the seller has nothing to worry about or that a short sale releases the seller from the loan. A short sale is not a foreclosure. It is not affected by the anti-deficiency laws that protect a homeowner from a deficiency judgment for the difference in value between the value of the home and the amount of the loan. This means that a lender can pursue the seller after the short sale for the deficiency.
Do:The agent should evaluate ahead of time whether the seller will refuse to sell the home unless the seller receives a release from the lender for the deficiency amount.
Don’t: An agent should never attempt to review the loan documents and advise the seller whether the seller has a non-recourse loan or the loan has any other potential defenses or remedies.
Do:The agent should advise the seller to consult an accountant. There may be adverse tax consequences and the forgiven debt may be considered taxable income. There are tax reliefs to homeowners who are insolvent, but this analysis is beyond the expertise of the agent.
Don’t: An agent should not give the seller advice regarding timing and process of foreclosure and he/she should not refer the homeowner to foreclosure websites for evaluating the law in this area. The loan documents may be subject to interpretation of individual State laws and information provided on these websites may be wrong.
Do: An agent must do the research to support the likelihood of a successful short sale. Check MLS rules on how to list the property and review comparable sales for values.
Don’t: An agent should not suggest to a homeowner to default on the loan in order to get the lender’s attention. This may cause long term affects that the agent and the seller may not anticipate.
Before Starting Negotiations
Do:The agent must evaluate the current title on the property. If the seller is not on the title or is not the only owner on title, proper approvals should be procured to list the property. The agent must also evaluate how many lien holders exist on the property. The seller must negotiate with all of them, and keep them all appraised with the status of the transaction.
Don’t:An agent should not ignore any lien holders, even if they are not the ones negotiating for a short sale.
Do:An agent must keep all lien holders apprised of the status of all negotiations, offers and approvals and obtain extensions and payoff demands from all of them, as applicable.
Don’t:An agent must not hold up negotiations due to the resolution of his/her own commission.
Approaching the Lenders
Do:The agent must get permission from the seller to communicate with the lenders directly, in order to expedite the process.
Don’t:The agent should not be involved in the preparation of any financial statement that the lender may require, especially since it may significantly vary from the financial statement prepared by the homeowner when he/she applied for the loan. Any preparation of financial statements should be done by the homeowner with the assistance of his/her accountant.
Do:An agent must be accurate on the math and provide the same information to all lenders. The agent should consider all possible costs including, potential repairs, smoke detectors and water heater bracing, HOA dues and moving expenses, if necessary.
Don’t: An agent should not get involved in making any representations to the lender about the borrower, as they may contradict prior information provided by the borrower to the lender. There may have been misrepresentations made by the homeowner, possibly even inadvertently, on issues such as, owner-occupied, assets, or citizenship. This is especially true where the original loan was stated income.
During the Transaction
Do:The agent should be careful in representing the seller’s interests. The agent should put in the counter-offer that it is subject to lender’s approval and at seller’s discretion. The lenders may demand harsh conditions from the seller, including a promissory note, in order to agree to the sale price. A seller should have the option of rejecting the lender’s terms.
Don’t:The agent should be cautious about using middle men who sell themselves as negotiators and completely avoid using unlicensed negotiators. Those middle men may demand to be compensated by the buyers. Forcing the buyer to pay a commission may affect the agent’s fiduciary duties to the seller. Also, when the listing agent has a relationship with the negotiator, and the buyer is paying for the negotiator, an agency relationship may be created between the buyer, negotiator and listing agent, which may expand the listing agent’s duties to the buyer.
Do: An agent should properly document the short sale negotiations to avoid any misunderstanding and protect the agent in case of a claim.
Don’t:An agent should beware of a buyer who is trying to be creative, as he/she may be doing something illegal or unethical. Some investors may attempt to purchase the property by transferring title to themselves or obtaining power of attorney from the seller and then doing the short sale. The investor may violate the Home Sales Equity Law, which requires certain notices to be given to the seller when a Notice of Default has been recorded. The agent may also have a conflict of interest representing both the investor and the seller, who have different interests.
Do:An agent, title and escrow company should strictly adhere to all lender instructions and not allow any monies to be paid outside of escrow. This duty also extends to payments made after escrow had closed, that were not specifically stated on the HUD-1. Knowledge of fraud may subject the agent to liability for the entire deficiency amount, even if no duty was owed. An escrow company owes a duty to the lender, even if the lender is not a party to escrow.
Don’t:An agent should be aware of sellers attempting to “sell” their property to friends or family members and may even solicit other potential buyers to make a low offer, so that the seller’s relative’s offer will be accepted.
Do: In case any negotiators or other third parties are involved and there are referral fees or commissions, the agent must assure that these payments are specifically disclosed, paid through escrow, and payable to the broker of record.
Don’t:An agent should never allow for two different “final” HUD-1 to be created: one for the parties and one for the lenders.
Do:The agent should be familiar with all the available State mandated forms and use them as applicable. Attach a short sale listing addendum to the listing agreement and a short sale sale-addendum to the sale agreement.
Don’t: The agent must beware of red flags and not ignore them. If a buyer is not allowed to communicate with the lenders that suggests fraud on the lenders.
Do:An agent should explain to the escrow agent that the transaction is a short sale, and ask the escrow agent to constantly date-down the file so that any new recordings can be discovered by escrow and properly addressed by the parties.
Don’t:An agent shall not assist the seller or investor to de-value the property if he/she is asked to provide a broker price opinion. The agent should not consult an investor or seller to destroy a property in order to reduce its value.
Do:The agent should properly explain and submit subsequent offers and obtain instructions from the seller and lender as to how they want subsequent offers handled.
This article was prepared for informational use by Fredric Trester of the Law Firm of Manning, Marder, Kass, Ellrod & Ramirez LLP. Mr. Trester can be reached at 877-220-9282 or at FWT&mmker.com.
Your Preferred Source For Professional Liability Insurance for Real Estate Agents & Brokers, Real Estate Appraisers and Accountants, Tax Preparers and Bookkeepers
Important Update Regarding Real Estate Errors & Omissions Applications
Please note that your attention is requested regarding changes that have been made to both the Realty Express and standard Real Estate Errors and Omissions insurance applications. These changes involve the addition of, or modifications to underwriting questions on the applications. We are pleased to note that premiums on the Express applications are not affected by these changes. The Herbert H. Landy Agency, in conjunction with its A++ rated (A.M. Best) insurance carrier, continues to offer excellent coverage with extremely competitive premiums starting at just $429 in most states!
Please Note Changes and Information Affecting Our Real Estate Agents & Brokers Errors & Omissions Insurance Applications
Begin using the new applications effective July 1, 2010 for NEW BUSINESS application
Begin using the new applications effective September 1, 2010 for RENEWAL BUSINESS applications
The Updated and Correct renewal applications will be sent to your client, pre-populated with their name, address, renewal dates and policy number approximately 90 days prior to the renewal date. Your agency will be identified in the correspondence and the client will be instructed to complete the application and return it to your agency. Please return the application to us via fax or email. This procedure is not changed from our current renewal process.
You can always locate the current New Business applications on our website at http://www.landy.com/ in the Partner Resource Section.
The Realty Express application has a 7th qualifying statement added. If the client can answer TRUE to the 7 qualifying statements, they are eligible to use this application. Return the properly completed application to us, along with a net check from your Agency payable to the Herbert H. Landy Insurance Agency for the desired premium level as per the application, minus your Agency’s 12% commission plus all applicable taxes, surcharges and fees. If the client cannot answer TRUE to all qualifying statements, please have them complete the standard application for underwriting review. Please note that the Realty Express application features Claim Expenses outside the limit of liability and a Loss and Expense deductible option only. Should your client want a Loss Only deductible, they must complete the standard Real Estate Errors & Omissions application.
The standard Real Estate Agents and Brokers Errors & Omissions insurance application has also changed. New questions have been added relating to bank-owned properties; the order of some questions has changed; and some information previously asked for will no longer be required. Please let us know if you have specific questions on these changes.
For Florida, New Hampshire and Iowa applications, your Agent Name, Signature and/or License information is required. Please make sure to enter the requested information on applications for these States.
For your convenience we have added a fillable text box on the payment page. From within Adobe Acrobat or Adobe Reader you can personalize the payment page with your agency contact information.
Thank you for your attention to this important information. To view samples of the new applications, please click on these links:
As always, please contact us for further information or for any questions you might have. We appreciate your business and look forward to continuing to provide you with the finest service and professional liability coverage available.
Betsy A. Magnuson, President The Herbert H. Landy Insurance Agency, Inc.
Personalized Assistance & Service: Call us, we’ll answer the phone!
Experienced and Prompt Underwriting and Policy Service!
For questions or information, contact Betsy Magnuson at 800-336-5422 x 108 or at betsy@landy.com, or John Torvi at johnt@landy.com or 800-336-5422 x117. Thank you.
Betsy Magnuson, President and Director of The Herbert H. Landy Insurance Agency, Inc., speaks about the company’s history and what makes Landy different from other agencies providing Professional Liability Insurance to Realtors, Appraisers, Accountants, Attorneys and other Professionals.
Video courtesy of New England Real Estate Journal.
Following an identity theft case in which she did much of the investigation work on her own, a Vancouver-based appraiser was finally awarded restitution for loss of business, legal fees and time spent unraveling the scheme. Read on to see how much money was awarded to her, how the judge calculated the restitution amount and how the defense attorney’s arguments irked the judge overseeing the case. (11/26/2008)
A woman who stole the identity of a Vancouver appraiser to perform fraudulent appraisal work has been ordered to pay approximately $100,000 in restitution, The Columbian reported.
Valuation Review reported on the identity theft case in September. In 2007, Kathy Carpenter learned that someone had been using her name and license number to perform appraisals. Carpenter contacted banks to alert them and to determine how many appraisals had been done in her name. Shortly thereafter, her business dropped off sharply, from 14 appraisals per month to one or two. She also went three months with no work.
Jean Faye Dodge — who previously managed a La Center appraisal company, JJ Property & Appraisal Services — appraised both commercial and million-dollar properties Carpenter wasn’t licensed to handle.
Carpenter and Dodge had met years prior, when Dodge had asked to accompany Carpenter on an assignment. Carpenter was often hired by JJ Property & Appraisal.
According to Carpenter, appraisal regulatory agencies in Washington and Oregon didn’t know how to respond to her questions for help, and lenders weren’t eager to work with her, as none of the loans involving the forged appraisals had defaulted. One, however, agreed to look for past reports to find Carpenter’s name — 16 were found.
Carpenter offered to work out a settlement with Dodge out of court. But when Dodge hired an attorney, Carpenter sued.
Dodge originally pleaded guilty to a count of identity theft in the second degree, three counts of forgery and one count of forging a digital signature.
She is serving a yearlong sentence in a Washington corrections center and was not at the latest hearing, where the judge calculated restitution by determining that Dodge owes Carpenter $72,000 for loss of business income. The deputy prosecuting attorney argued that Carpenter’s loss of business went beyond what she would have experienced just from the real estate slowdown. Banks, he argued, were worried about their own liability and viewed Carpenter as a risk.
The judge also ordered Dodge to reimburse Carpenter $23,435 for legal fees and $8,250 for her time spent investigating the scheme — Carpenter had filed reports in five counties where Dodge had done appraisals before a detective took interest.
The court-appointed defense attorney argued at the hearing that Carpenter should not be reimbursed so much money because she should have left the investigative work to police. However, the judge stated, if Carpenter hadn’t been so dedicated in her pursuit, the case never would have been prosecuted.
The defense attorney also argued that Carpenter’s professional reputation wasn’t severely damaged because Dodge “did really good appraisals,” a comment that drew criticism from the judge.
“That’s like saying, ‘They did a really good job in the bank robbery,’” the judge reportedly said. “It’s illegal behavior.”
The material presented above is for informational purposes and does not imply or guarantee insurance coverage from The Herbert H. Landy Insurance Agency or any other insurance provider. You should contact a qualified insurance representative to review and discuss specific aspects of any policy coverage and the insurance needs of your business. Visit www.landy.com for your Errors and Omissions Insurance needs.
