Protect Your Money From Wire Fraud When Buying a Home

Protecting Your Purchase Funds and Sale Proceeds from Wire Fraud in Real Estate Transactions

 by Michael Selinfreund, Esq.

*This article is intended for educational purposes only and not as legal advice*

Recently, the number of incidents of wire theft in real estate transactions has risen dramatically. Wires of buyer’s funds to close and seller’s proceeds are being hijacked all the time.


Here’s a typical scenario. The fraudsters hack into the real estate agent’s email and monitor the agent’s emails watching pending transactions. Occasionally, they hack into the title company’s emails; however, it’s less common since it’s far easier to identify real estate agents that use public emails rather than private domain email accounts; lack sufficient firewalls; and are easier targets of malware than title companies. However, title companies also fall victim to these scams. All it takes is the fraudster posing as the real estate agent and instructing the closer to change the wiring information for the seller or the closer opening an attachment with malware.

Sometimes the fraudster steals the buyer’s funds to close by hijacking the wire intended for the title company. The fraudster sends an email to the buyer (often that appears to originate from the title company) modifying the routing and account information for the buyer’s wire to the fraudster’s account. Since the fraudster knows when the transaction is closing by monitoring the email account they hacked, they know when to send such an email. Many prefer to target the seller’s proceeds and wait until after the closing and then re-direct the seller proceeds immediately after the closing by posing as either the seller or the real estate agent for the seller.

These emails look legitimate since they either spoof the email address of the sender (looks like it came from a legitimate address) or they send the email from an account that is virtually identical to the sender’s by adding one character to the legitimate sender’s email and it goes unnoticed. That’s very easy to do when the sender uses public email accounts. That’s a common way title companies get duped. The closer receives an email from the fraudster that looks virtually identical to that of the agent, and instructs the agent to change the wiring instructions for the seller’s proceeds. Some fraudsters go as far as sending a fake email from the intended recipient’s bank acknowledging receipt of the wire and that it was being credited to the defrauded party’s account. This gives the title company and defrauded party a false sense of security, and the goal is to delay them a day or two to confirm whether the wire was properly received. This gives the fraudster additional time to withdraw the stolen funds or wire them to another account from which they’re withdrawn before the funds can be frozen where they were initially diverted.

So, if you’re the buyer, here’s how to protect yourself. One way is to fund your deal with a cashier’s check instead of a wire. If the title company has a wire only policy, tell them your concern about wire theft and offer to scan and send a copy of your cashier’s check in advance so the title company can call the issuing bank to verify its authenticity. That along with telling them you’ll close elsewhere if they will only accept a wire will likely change their position. If you cannot move the closing or choose to proceed and fund with a wire, make sure you call the title company closer at a phone number you independently verify belongs to them, and verify the wiring instructions directly with the closer. Many title commitments contain the wiring information where you send your funds necessary to close so be very wary if the closer gives you different information than what’s in the commitment. No matter what emails or correspondence you receive ever attempting to modify that wiring information, you need to absolutely presume it’s an attempt to defraud you and divert your money to a criminal. You’ll of course at a minimum want to call a phone number you procure independently (not off a potential fraudulent correspondence) and speak to the closer. I’ve never once seen the wiring instructions change in the middle of a transaction that wasn’t fraudulent so you need to be on high alert.

Protecting yourself as the seller from your proceeds wire being hijacked also requires a little diligence. You’ll want to insist that the title company signs a written document at the closing that confirms the correct wiring information for you and provides that the wiring information cannot be changed under any circumstances. Or you could choose to add a sentence that they can only be changed if the seller (you) returns to the title company; speaks directly to the closer that knows what you look like; you prove your identity again; and you sign a modified written document changing the wire destination. I’d prepare that document myself; send it in advance to the title company closer insisting that it be signed at the closing so it comes as no surprise, and if they refused to sign it, I’d go elsewhere. You have every right to make the party handling your money follow your strict instructions regarding the wiring instructions.

I also recommend notifying the title company prior to the closing that you want your wire sent immediately following the closing while you are still present, or make the title company get you a cashier’s check. Aggressive attorneys virtually 100% of the time successfully make the title company initiate the seller proceeds wire right after the closing, and the attorney waits in the lobby until a wire confirmation is received that the bank sends virtually immediately after a wire is sent. A thorough attorney verifies on the confirmation that it went to the proper account and takes a copy with them. A common issue that arises with getting a cashier’s check in lieu of a wire is that your bank may put a hold on it. If you’re turning around and purchasing another property or need immediate access to your funds for any reason, a cashier’s check might not work for you.

The sad reality is that once wires are stolen, they are rarely recovered. It’s a devastating loss to the victims, and their recourse at that point is to sue the real estate agent and/or title company for negligence. Not only is litigation extremely expensive, you are forced to incur that cost right after losing a huge amount of money. And, getting a judgment means nothing unless you can collect. The parties responsible may lack the money to pay the judgment or may file for bankruptcy protection. It’s far wiser to take appropriate precautions so you are never a victim of wire theft.

Insuring Beneficiary Deeds in Colorado – How This May Affect Your Next Real Estate Transaction

When providing title insurance on a property where there is a Beneficiary’s Deed involved, there is now a waiting period of 4 months after the date of the death of the grantor of a Beneficiary Deed is because the real property is subject to claims.  There would be no coverage under the owner’s policy for these types of claims and since we will not have issued a new owner’s policy, these claims are matters for the estate to address.

A waiver of  the four month period may be granted if the underwriter is provided a letter from the Colorado Department of Health Care Policy and Financing indicating that the Department does not have a claim nor will be asserting a claim.

 

“Beneficiary Deed” –  C.R.S. § 15-15-401 et seq.

During the 2004 legislative session, the Colorado Legislature enacted House Bill No.04- 1048, also known as the “Beneficiary Deed” legislation. The new law establishes Part Four to Article 15 of Title 15 of the Colorado Revised Statute to include Section 15-15- 401 through 15-15-415. The legislation, which becomes effective August 4, 2004, also includes minor revision to existing Sections 15-11-706, 15-15-101 and 38-30-113.5 so they are consistent with terms of the new law. The new law is accessible on the internet at: Colorado Revised House Bill 04-1048

The purpose of the new law is to provide a mechanism for a non-probate transfer of real property that enables an owner of real property to convey by deed an interest in real property to a grantee that will become effective upon the death of the owner. The new

law, in part, reads as follows:

“Vesting of ownership in Grantee-Beneficiary. (1) Title to the interest in real property transferred by a beneficiary deed shall vest in the designated Grantee-

.Beneficiary only on the death of the owner. (2) a Grantee-Beneficiary of  a beneficiary deed takes title to the owner’s interest in the real property conveyed by the beneficiary deed at the death of the owner subject to all conveyances, encumbrances, assignments, contracts mortgages, liens and other interests affecting title to the property, whether created before or after the recording of the beneficiary deed…  [C.R.S. § 15-15-407]

During the lifetime of the owner(s), the Grantee-Beneficiary shall have no right, title, or interest in or to the property and the owner(s) shall retain the full power and authority with respect to the property without the joinder, signature, consent, or agreement of, or notice to, the Grantee-Beneficiary for any purpose.

The new law provides that the form of the Beneficiary Deed should contain the words “conveys on death” or “transfers on death”, or otherwise indicates the transfer is to be effective on the death of the owner(s). A beneficiary deed in substantially the form attached to this bulletin as Exhibit “A” may be used. [C.R.S. 15-15-404]

The new law provides that a Grantee-Beneficiary interest may be terminated by the owner(s) with an instrument that revokes the beneficiary deed prior to the death of the owner or the execution and recording of a new beneficiary deed prior to the death of the owner(s). The joinder, signature, consent, or agreement of, or notice to, either the original Grantee-Beneficiary or the new Grantee-Beneficiary is not required for the change or revocation to be effective.

As to a revocation instrument, the statute provides that a form of “Revocation of Beneficiary Deed”, substantially in the form as set forth in Exhibit “B”, may be used. [C.R.S. 15-15-405].

For title insurance purposes, a conveyance or a transfer by an owner to a third party purchaser for value will be, viewed as a revocation of a Beneficiary Deed. [C.R.S. 15-15- 407]

The most recently executed beneficiary deed or revocation of all beneficiary deeds or revocations that have been recorded prior to the owner’s death shall control, regardless of the order of recording.  [C.R.S. 15-15-405 (3)]

Other incidents of the new law include but are not limited to the following:

  • Multiple Owners: Grantors that hold the property as joint tenants (a person who owns an interest in real property as a joint tenant with right of survivorship).  The “Beneficiary Deed” does not take effect until the death of the last surviving owner /grantor.
  • The “Beneficiary Deed” is only valid if the last surviving owner is one of the parties that executed the deed. For example, if A and B own the property as joint tenants and only A executes the beneficiary deed, the deed is invalid and the grantee takes nothing if B is the sole surviving owner of the property.
  • Multiple Grantees: One or more persons or entities capable of holding title to real property may be designated as Grantee-Beneficiaries in the “Beneficiary Deed” to receive an interest in the real property upon the death of the owner.
  • Successor in interest to the grantee: A “Successor Grantee-Beneficiary” is a person, persons, or entity designated in a “Beneficiary Deed” to receive an interest in the real property if the primary “Grantee-Beneficiary” does not survive the owner(s).
  • Termination of the beneficial interest:
  1. The beneficial interest may be terminated by the owner(s) during their lifetime by recording an instrument revoking the “Beneficiary Deed”. (Please See Exhibit “B”
  2. The beneficial interest may be terminated by the owner(s) during their lifetime by recording a new “Beneficiary Deed” to another Grantee­ Beneficiary.
  3. The beneficial interest may be terminated, for purposes of title insurance by the owner(s) during their lifetime by a conveyance or a transfer by an owner to a third party purchaser for
  4. The “Grantee-Beneficiary” may disclaim or refuse to accept the real property upon the death of the original owner(s)/grantors.
  • Purchaser from grantee-beneficiary protected. [C.R.S. 15-15-410)

Subject to prior rights or interests of others in the land before the owner died, a bona-fide purchaser for value or a bona-fide lender for value in its dealings with a Grantee-Beneficiary shall take title free of the rights of an interested person in the deceased owner’s estate and shall not incur personal liability to the estate or to any interested person. [C.R.S.15-15-407(2))

Any recorded instrument evidencing a transfer to a purchaser from, or lender to, a Grantee-Beneficiary on which a state documentary fee is noted under the provisions of C.R.S. 39-13-103, shall be prima facie evidence that the transfer was made for value. [C.R.S. 15-15-410(2) (Note: any such sale or loan by the grantee-beneficiary does not relieve the grantee-beneficiary from obligations to other creditors and claimants under the estate of the decedent owner.)

  •  Rights of creditors and others [C.R.S. 15-15-407)

If other assets of the estate of the deceased owner are insufficient to pay all claims against the estate, then a transfer of real property resulting from a beneficiary designation is not effective against the estate of the deceased owner to the extent needed to pay all claims against the estate. A proceeding to assert liability against a Grantee-Beneficiary may be initiated under the provisions  of CRS 15-15-409.

Further, under the provisions of Section 15-15-403 the interest of the grantee-beneficiary shall be subject to any claims of the Department of Health Care Policy and Financing as a “countable resource” for recovery of medical assistance payments pursuant to section 25.5-4-301 or 25.5-4-302 and may be enforced in accordance with Section 15-15-409. [C.R.S. 15-15-407]

Rights of Creditors provided under C.R.S. 15-15-407 do not affect the protection provided by Section 15-15-410 to bona-fide purchasers or lenders for value, with respect to claims of the personal representative or estate of a deceased owner against a Grantee-Beneficiary.

policy of title insurance

Rules of Title Practice 

Sale of property: If a “Beneficiary Deed” appears in the chain of title, the deed should be shown as an exception in Schedule B of the commitment. The exception should read substantially as follows:

The interest of [state name of grantee(s)] created by “Beneficiary Deed” from [state name of grantor(s)/owner(s)] recorded            , 20_, under Reception Number                     Official Records under.the provisions of§§ 15-15-401, Et Seq., Colorado Revised Statutes.

 

An exception for rights under a beneficiary deed, may be eliminated from Schedule B of a policy, by the recording of a transfer by all the original owner(s)/grantor(s) to a third party purchaser for value or the recording of a “Revocation of Beneficiary Deed” by the original owner(s)/grantor(s).

If a transfer by the original owners(s)/grantors under the “Beneficiary Deed” appears in the chain of title to the real property, assure the following is confirmed:

  1. That it has been executed by all the original owner(s)/grantor(s) that executed the original Beneficiary Deed”.
  2. If the transfer under the “Beneficiary Deed” has been executed by less than all the original owner(s)/grantor(s), the termination of the beneficial interest will not be effective until such time as there is a transfer executed and recorded by the last surviving owner who also executed the original “Beneficiary Deed”.
  3. Refinances and other loans: If the transaction is for a loan only, the exception for the beneficiary deed may be shown in Schedule B, Part II, or an appropriate endorsement may be issued to the lender (Such as a modified Form 110.2 Endorsement).

Elimination of a beneficiary deed as an exception. You may rely on:

  • A properly executed and recorded transfer to another third party purchaser by all the original owner(s)/grantors under the original “Beneficiary Deed”.
  • The recording of an instrument revoking the “Beneficiary Deed” by all the original owner(s)/grantor(s) under the original “Beneficiary Deed”. (See Exhibit “B”.)

You are required to run the general index (GI) to determine whether a” Beneficiary Deed” may have been posted to the GI. There exists the possibility that the plant may post the “Beneficiary Deed” interest to the GI, especially if the “Beneficiary Deed” was recorded without a legal.

You may rely on a “Beneficiary Deed” to pass title to the named Grantee-Beneficiary if:

  1. The record does not disclose a transfer by the original owner(s)/grantor(s) to another Grantee- Beneficiary and the owner(s)/grantor(s) have passed away.
  2. The record does not disclose a “Revocation of Beneficiary Deed” signed and recorded by original owner(s)/grantor(s) in their lifetime.

If multiple owners/grantors appeared on the “Beneficiary Deed”, you must determine that the all the original owners/grantors including the last surviving member of the original owners/grantors that signed the “Beneficiary Deed”, have passed.

Evidence of the death of the original owner(s)/grantor(s) is For purposes of title insurance, evidence of the death of the original owner(s)/grantors may be evidenced by the recording of a certified copy of death certificate attached to an affidavit of death (similar to an affidavit of death of joint tenant). [C.R.S. 15-15-413]

You may rely on a “Beneficiary Deed” to pass title to and insure the named Grantee-Beneficiary if:

  • The matters described in “a.” through “d.” of paragraph “6.” herein above have been completed or
  • An exception in Schedule B of the commitment and policy is included for:

 

Any claim of the Department of Health Care Policy and Financing for Recovery of Medical Assistance Payments Pursuant to Section 26-4-403 or 26-4-403 .3 by reason of the death of the decedent named below who was a former owner/grantor of said land under “Beneficiary Deed” recorded——-

Decedent:                                  _

An exception in Schedule B of the commitment and policy is included for: The lien of any Colorado Estate Tax (C.R.S. 39-23.5-101 et. Seq.) by reason of the death of the decedent named below who was a former owner of the land. Decedent [state name of decedent owner(s)].

An exception in Schedule B of the commitment and policy is included for: The lien of any Federal Estate Tax (Title 26 USCA- I.R.C. 2037) by reason of the death of the decedent named below who was a former owner of the land. Decedent [state name of decedent owner(s)].

You may rely on a “Beneficiary Deed” to pass title to and insure a bona-fide purchaser or lender of the named grantee-beneficiary if:

  • The matters described in “a.” through “d.” of paragraph “6.” herein above have been completed or
  • A requirement in Schedule B Section I of the commitment is included for:

the release, satisfaction, or evidence of non-applicability of: The lien of any Colorado Estate Tax (C.R.S. 39-23.5-101 et. Seq.) by reason of the death of the decedent named below who was a former owner of the land. Decedent [state name of decedent owner(s)].

  • A requirement in Schedule B Section I of the commitment is included for the release, satisfaction, or evidence of non-applicability of: The lien of any Federal Estate Tax (Title 26 USCA- I.R.C. 2037) by reason of the death of the decedent named below who was a former owner of the land. Decedent [state name of decedent owner(s)].

 

 

Effective Tips for Avoiding Being a Victim of Identity and Financial Fraud

 by Michael Selinfreund, President/General Counsel of Cherry Creek Title Services, Inc.

This article is intended for educational purposes only and not as legal advice. You can also view dozens of educational videos on the Cherry Creek Title Services’ YouTube Channel.

CCTS fruad

 

A credit freeze is a very effective and free tool to avoid being a victim of identity fraud.  It costs nothing; lasts for seven years, and you can release it temporarily or even just for the benefit of one prospective creditor. And, you don’t need to have been a prior victim of credit fraud and provide a police report to qualify for a freeze. You will need to add the freeze separately to the three major credit bureaus: Equifax, Transunion and Experian. Just go to their respective websites.

For your credit card accounts, set-up your profile so you get text messages and/or emails every time a charge is placed on your account. This way you know immediately if your card has been compromised and can contact the credit card company to freeze that card from any further charges. You aren’t responsible for fraudulent charges, but it’s a lot easier to have just 1 or 2 that you instantly stop than wait until the end of a billing cycle and discover dozens of fraudulent charges amounting to several thousand dollars. Plus, you’re giving the credit card company/merchant services company immediate notice and an opportunity to make the decision whether they’ll absorb the loss or pass it on to the merchant.

I recommend using soft or hard tokens for any of your financial accounts that offer them. A hard token is a small physical device that generates a random number which changes continually. Most change every 60 seconds. To access your brokerage account, bank account, etc., you must enter the number on the token in addition to your password. A soft token is a code sent to you via text message or through an app that you enter along with your password. Tokens make it extremely difficult for a fraudster to gain access to your financial accounts. Get in the habit of looking daily at all of your financial accounts online. I recommend buying an inexpensive extra computer like a Chromebook that you never use for email nor to surf any sites on the internet other than just your known financial account sites. Malware typically infects your computer via email attachments and malicious websites. By having a separate computer that is NEVER used for email nor for searching the web, you eliminate the opportunity for malware to invade your computer and steal your financial information.

Regarding your personal checking account, use a computer based program like Quicken and reconcile your bank account daily. It only takes a few minutes, and that will enable you to see any fraudulent checks or ACH debits immediately so you can take immediate action with your bank. FDIC covers you on your personal account. Buy secure checks for personal or business accounts that cannot be washed. I use Safechecks based in California, but other companies such as Intuit sell secure checks. Pay as many bills as possible through your credit card and via ACH payments minimizing your check activity.  For those that still hand write their checks, besides using secure checks, fill them out with a Uniball 207 pen.

A business account doesn’t have FDIC coverage so you should add positive pay to your business accounts. It allows you to inform the bank, typically via an upload of an .xls or .csv file, of the checks you write so that any items that you haven’t pre-authorized become exception items. You then have typically until around 2:00 p.m. to reject them from being paid.  On your business account, you’ll want to add ACH filters or blocks; wire blocks (at least an international one if you send wires), dual authentification, a soft or hard token to send and verify wires; and clean computers dedicated solely to wires and financial matters that you lock up when not in use.  Sit down with your banker at least once a year to discuss your account security features and new products and procedures your bank offers to keep your money secure.  Lock up your checks and your financial computers since fraudsters often garner their information from people working on office cleaning crews. They switch keyboards so they can monitor keystrokes to procure your passwords; access your USB ports to install malware, steal checks, etc.

If you have an entity such as a corporation or LLC in Colorado, for no cost, you can secure your entity by procuring password-only access from the Secretary of State. If your entity is based in another state, make sure it either already requires a password or see if you can add one. The password makes it far more difficult for a fraudster to file any documents regarding your entity. Business identity fraud exists, and that’s why the state offers the ability to secure your entity.

Cross-cut shred anything financial or with your name, social, account numbers etc. I read about fraud activity regularly, and much of it still originates with the theft of information procured from your trash or from your outgoing mail containing checks. They either wash the stolen checks or print up new checks in your name with the MICR line information (routing and account number) they steal off your check. So only send your mail through a secure mailbox. Most neighborhoods have mail stations with locked outgoing mailboxes as do most office buildings. If you have to, go to the post office.

On your non-secure computers, add an anti-malware program such as Malware Bytes and an anti-virus software program such as AVG. Image your computer once a month on a portable drive. I back up my personal and business computers daily both to the cloud and also to another drive. I run windows defender in windows 10. I back up my QuickBooks and Quicken files plus key spread sheets on a thumb drive daily. Open no email attachments unless you’re positive you know where it originated, and I recommend never answering your phone if you don’t know the caller.  People still get duped all the time into providing confidential information or even making payments by fraudsters posing as the IRS or one of your financial accounts. The IRS and your bank will never call you seeking such information or payments. Most fraudsters won’t be leaving you voice mail when you fail to answer their call.

Regarding email accounts, for all your email activity that contains any confidential or non-public information, do not use a public email account such as Gmail.  I pay $55.00 per month for 10 email accounts hosted by a secure email server that filters out spam emails and emails containing malicious content.  I send my personal email through Comcast and use Gmail accounts for those I don’t wish to have my primary personal email information.

I recommend storing your password and account information on a password protected spreadsheet, and of course, make them complex and change them regularly.

Dodd-Frank Stands in the Way of Parents Seeking to Provide Purchase Money Residential Mortgages for Their Children

by  President/General Counsel at Cherry Creek Title Services, Inc.

*This article is for educational purposes only and not intended as legal advice*

The Dodd-Frank Wall Street Reform Act, found at 12 U.S.C. 5301 – 5641, passed by Congress and signed into law on July 1, 2010 by President Obama precludes parents not in possession of a mortgage originator’s license from providing a residential mortgage loan to their children to assist them in acquiring a home. This is the case regardless of state law. So, for example, in Colorado where I live, Colorado’s Mortgage Loan Originator Licensing and Mortgage Company Registration Act found at 12-61-901 et. seq., carved out an exception to the licensing requirement for parents acting as loan originators in providing residential mortgage financing to assist their children in buying a home. See C.R.S. 12-61-904 (1)(b)(ii). Dodd-Frank makes this exception of no effect. Not only does federal law trump state law pursuant to the Supremacy Clause of the U.S. Constitution, but a specific provision was inserted into the Dodd-Frank Act in § 5551 which states that state law only applies when it affords greater protection.bank-of-mom-and-dad

The result is that regardless of the state, now a parent possessing the resources to loan their child money to acquire a home is supposed to engage a licensed mortgage loan originator to process a residential mortgage loan being made to their own children. Besides it being virtually impossible to find a licensed mortgage loan originator that will process a one-time private loan, if one is found, the loan costs will increase dramatically. One would have to look far and wide to find incidences of parents taking financial advantage of their own children when acting as their mortgage lender. And if the government feels the need to protect children from their own parents in a mortgage transaction, then surely it should be sufficient if the children were required to procure independent legal representation. Nonetheless, that is not the case.

Since it’s virtual impossibility to find a licensed MLO who can process the loan, and the costs will increase dramatically, Dodd-Frank has effectively blocked many parents from assisting their own children with a residential mortgage. Co-signing isn’t always enough to qualify many borrowers with insufficient income of their own, bad credit, recent bankruptcies or insufficient work histories. And, it isn’t the answer when the parental loan is motivated by the parent seeking to assist their child in avoiding expensive loan costs such as processing fees, appraisal fees, title fees, loan closing fees, underwriting fees, origination fees, credit report fees, discount points and other such costs incurred when dealing with a traditional lender. Maybe the child lacks sufficient funds for a down payment sufficient to qualify for a traditional mortgage.  There are many reasons for a parent to wish to assist their children by being the mortgage lender when their children acquire their home.

Dodd-Frank did provide for exceptions to the licensing requirement so the omission of the parental exemption was either intentional or just a reckless job of crafting a voluminous law. Dodd-Frank does provide two exceptions of note for a non-licensed party to originate a mortgage. The first one allows a seller of property to carry back financing for just one residential property in a twelve-month period to a borrower or borrowers that have not showed any evidence of their ability to repay. Under this exception, the seller isn’t considered a loan originator requiring a license as long the seller is a natural person, estate or trust; owns the property; didn’t construct or act as the contractor of the residence and the loan terms are restricted as well. There cannot be terms that may result in a negative amortization; restrictions on balloon payments, and it must be a fixed rate or an adjustable rate with codified limitations. And, Dodd-Frank could have easily provided a similar exception giving parents the ability to make such loans to their children, and the one loan per year limitation shouldn’t apply in parent to child loans since many parents have multiple children. Similar restrictions on the loan terms would give children the same protections as third parties in a sale scenario.

The second exception allows a residential property seller to sell three properties a year and carry back financing, subject to similar restrictions as the one property exception, provided the seller makes a good faith determination that the buyer/borrower possesses the ability to repay. This requires the seller to procure such items as their payroll statements, credit reports, tax returns, proof of employment, proof of funds and to perform a debt to income analysis like a professional lender.  Again, Dodd-Frank could have carved out a comparable exception for parents assisting their children by providing purchase money mortgages whereby the parents also had to “qualify” their children, but it did not.

Although the two exceptions are very similar, they are not identical. One example is that an artificial entity such as an LLC or corporation can never avail itself of the one property exception and is limited to using the three-property exception. For whatever reason, a person, trust or estate can do one non-qualifying mortgage in a sale context per year, but an artificial entity cannot. Of course, the entity could transfer the property to a person prior to selling the property, but even that may considered a questionable move.

Dodd-Frank magnifying moneyKeep in mind that Dodd-Frank Act applies to residential mortgage loans and not to loans secured by vacant land, commercial properties, non-owner occupied residential properties, rental properties or properties used for investment purposes.  Further, Dodd-Frank does not apply to non-consumer buyers, even if the property being purchased is a residential property. Examples of non-consumer buyers are: corporations, limited liability companies, partnerships, etc. So, if the children utilize an artificial entity to acquire the property such as an LLC, Dodd-Frank’s onerous restrictions would not apply. Although doing so would likely result in the loss of the mortgage interest deduction while the property is titled in the LLC or comparable entity (although a specific form of trust may retain the interest deduction, that is beyond the scope of this article and the author’s expertise), months later the LLC could transfer the property to the individual LLC members with the members either assuming or taking subject to the loan thereby giving them the benefit of the mortgage interest deduction. Although, it’s always possible that such a move could be challenged as part of a scheme to avoid complying with the law, that would be highly unlikely in this author’s opinion.

Another possible option is for the parent(s) to acquire the property directly rather than act as a purchase money lender. Then, the parents after a “reasonable” time sell the property to their child availing themselves of one of the two exceptions enumerated above. It is worth noting that Dodd-Frank specifically states that a lease option where an owner rents out residential property to a tenant and gives the tenant an option to purchase the property after a specified period may also be subject to the Dodd-Frank Act if any of the rental payments are used as a credit toward the purchase price or create ownership equity in the property. So, during the parent ownership/lease period, it would be prudent to avoid creating a lease option or to create one where no portion of the rent payments go toward the purchase price. Other advantageous purchase terms (such as reducing the price accordingly) can make up for the lack of the ability of being able to give one’s own child the ability to apply all or some of the rent toward the price in a lease option without triggering the onerous restrictions of Dodd-Frank.

In conclusion, the provisions of Dodd-Frank are rather new, complicated, contradictory in places and provide for severe consequences for violations. One can make up to three mortgages to total strangers in any twelve-month period when selling a home, but loans to one’s own children to acquire a home were not excepted from the law instead requiring parents to engage a licensed Mortgage Loan Originator. I’m not advising the reader to employ any of the tactics presented in this article to avoid the requirements of Dodd-Frank as this discussion is provided for informational purposes only and not intended in any way as legal advice. One facing this issue should discuss these and other options with an attorney skilled in real estate and knowledgeable about Dodd-Frank and any other federal or state laws that may also apply when originating mortgage.

It’s Real Property Tax Lien Auction Time for Unpaid 2015 Real Property Taxes in Colorado

by Michael Selinfreund, President/General Counsel of Cherry Creek Title Services, Inc.

Colorado real property tax lien sales are governed by Articles 11 and 12 of C.R.S. Title 39. Now is the time visit the websites of the respective county Treasurers for the counties which you are interested in bidding on such liens. You’ll find a lot of valuable information including their auction dates; rules, procedures, training, and how to register, bid and pay. Many counties use SRI/Zeus to handle their online auctions.

The overwhelming majority of tax liens are redeemed so one should view it as an investment generating a yield with a small possibility of acquiring the property. Of course, if you can purchase a large number of such liens, the odds of one ripening into a Treasurer’s Deed in 3 years increases. The winning bidder receives a Certificate of Purchase which is a lien against the property and good for 15 years. The redemption amount paid by the delinquent taxpayer is the certificate amount (tax, interest, advertising, and fees), plus redemption interest. So, beware that if you bid a premium over and above the lien amount, which is often the case, that amount is not recoverable from the delinquent taxpayer when they redeem. So, if/when you over-bid, do not do so by much, and hope there isn’t a quick redemption. You are counting that any MODEST premium you paid will over time reduce but still leave you with a decent return on your money and one far higher than most fixed income investments right now in these times of historically low interest rates. The annual redemption interest rate for each year’s public auction is set by the state Banking Commission and is calculated by adding 9% to the September 1st Federal Reserve Discount Rate. One twelfth of this rate accrues for each month or portion thereof. Upon redemption, the holder of the certificate, which is a lien and assignable per C.R.S. 39-11-118, is returned to the county for payment of the certificate’s face value plus accrued interest.

In the event the property isn’t redeemed within 3 years, the holder of the certificate may apply for a Treasurer’s Deed. The form of deed used by the Treasurer is provided in C.R.S. 39-11-135, and it is a Bargain and Sale Deed. It will take 3-6 months from the time of application to actually receive the Treasurer’s Deed. Check with the rules of the county which you hold the COP as you may be able to submit your application a few months prior to the running of the 3-year period so you wait less time after the 3-year period expires to receive the deed.  A Treasurer’s Deed does NOT convey marketable title. Title Standard 4.2.1 states that title becomes marketable once the Treasurer’s Deed has been of record for 9 or more years. However, the Grantee of the Treasurer’s Deed not wanting to wait 9 years can commence an action pursuant to C.R.S. 39-11-133 in District Court seeking a Decree Quieting Title. This creates a new title chain, and six months after obtaining such a decree, the title is marketable.

Some investors specialized in buying prior years’ certificates of purchase from other investors once they are already 2-3 years old.  Since only a small percentage of delinquent taxpayers fail to redeem leading to a Treasurer’s Deed, buying a COP that’s a couple of years old likely increases the odds that the taxpayer will not redeem. Sometimes, there are COP’s that are 3 years old or investors already holding Treasurer’s Deeds ready for commencement of a Quiet Title Action. Many of the holders of these COP’s or Treasurer’s Deeds do not wish to incur the expense and time of a Quiet Title Action. Predictably, these investors holding COP’s over 3 years old or recently issued Treasurer’s Deeds will want significantly more than the amount of the unpaid taxes and interest.  Always make sure the underlying property is worth owning and doesn’t have issues such as a latent environmental liability or other defect(s) that led the owner to decide to abandon the property by ceasing to pay the taxes.

auction with gavel symbol on computer screenHere’s some miscellaneous information on some Denver metro county auction dates posted online on the date of this article, October 3, 2016:

Denver County auctions are held in early November. Log into the Denver Treasurer’s site regularly as that date will be set very soon.

Arapahoe County will open their tax lien site for registration, research and deposits on October 14, 2015. Bidding will begin at 8 a.m. MST on November 3, 2016. Full payment is due no later than 4:30 on November 9, 2016. There is even a practice site.

Douglas County: Bidding opens 11/3/16 and less than 1% of Douglas County tax liens ripen into Treasurer’s Deeds.

Adams County: Internet tax auction run thru SRI, Inc. through Zeus auction; and registration closes November 4th.

Jefferson County: Has tax lien seminars and auction registration is handled by SRI, Inc. through Zeus auction and registration is 10/3-10/18.

 

 

Get it in Writing! Real Property Ownership Co-Tenancy Agreements including Video Presentation

by Michael Selinfreund, President / General Counsel of Cherry Creek Title Services

 

This article and video presentation are intended for educational purposes only and not as legal advice.  To view more educational videos like on real estate and other related subjects visit the Cherry Creek Title Services Channel on You Tube.

When people typically think of co-tenancy agreements, they think of them in the context of leasehold interests.  The lack of co-tenancy agreements in many ownership scenarios leads to unnecessary disputes and costs.  This article addresses the benefits of having a co-tenancy agreement when two or more unmarried parties take title to real property.  These same issues can be addressed in a well drafted LLC Operating Agreement so owning via an LLC is another sensible way to hold title and address these same issues.  Of course, partnerships, corporations, limited partnerships and other artificial entities with their related governing documents can also be used in lieu of an LLC.  One big advantage of holding title via an LLC or other artificial entity is eliminating the individual liens (e.g. judgment, taxes) of an owner attaching to the property.  But, this discussion will be limited to people taking title in their individual names as tenants in common since that is often the case.

co-owner

Real Property Ownership Co-Tenancy Agreement Video Presentation

 

There are many scenarios in which non-married people acquire real property.  Besides unmarried couples, many people acquire real property with others for purposes of joint occupancy, vacation homes and as investment/rental property.  Merely taking title in the deed as tenants in common fails to address many possibilities that may arise.  The use of a co-tenancy agreement can avoid disputes by addressing possible future issues.

 

Let’s look at two common scenarios.  In the first one, two friends decide to buy a rental or investment property together.  They’re intent is for their interest in the property to pass to their heirs and not to their co-owner/friend so they take title as tenants in common.  Getting the loan was only possible in their individual names, and forming an LLC just for one property seemed like a lot of hassle and expense to the parties.  Besides the LLC formation and maintenance related expenses, the property would have to be deeded into the LLC; a statement of authority prepared and recorded; and a 107.9 additional named insured title endorsement should be acquired to assure the LLC is covered by the owners title policy issued in their individual names.  Both friends have excellent credit and are not concerned with liens attaching to the property attributable to the other owner.  With not a very long list of issues to address, the friends opt for leaving title in their individual names and entering into a co-tenancy agreement.

 

 

Here are some sensible issues to address in the co-tenancy agreement: the right or lack thereof of the owners to occupy the property; rules regarding when and which portions of the property the owners may occupy, if allowed; the logistics of how any partner can trigger a sale of the property; preclusions against any owner from securing their interest voluntarily or involuntarily; how the repair and maintenance costs will be paid (ongoing retention of reserves or assessments as things arise); the rights of any owner covering any shortfalls by one owner against another for failure to make their share of any mortgage payments, taxes, insurance, maintenance or other property expenses; any rules regarding loaning or sub-letting the property; and the agreement should discuss what happens upon the death, bankruptcy or divorce of one of the owners.  This list is not exhaustive as every situation is unique.

 

In scenario two, two or more friends acquire a vacation home for personal use.  Perhaps it will be in a rental pool for a portion of the year.   Besides addressing the same issues described above, additional provisions regarding an agreed schedule of rights to occupancy/use; time periods the property will be in a rental pool, if any; and the ability to loan to friends or family can all addressed in the co-tenancy agreement.

 

Of course, many of the times that one co-tenant wants to sell, the only practical solution is to sell the entire property.  Provisions can be added to the co-tenancy agreement granting a first right of refusal to buy out the interest of the owner wishing to sell and then providing for the entire property to be sold in the event the first right of refusal is not exercised.  Let’s face it, if 2 people each own 50% of a vacation home; one wants out; and the other doesn’t, agreeing in advance to sell the property in such circumstances can avoid arguments and preserve friendships.

Finally, I can’t end without sharing a bit of case law. While tenants in common generally have the common law right to possess, use, and enjoy the entire property, they can contract otherwise. See Keith v. El-Kareh, 729 P.2d 377, 378, 380 (Colo.App. 1986) (involving contract between tenants in common giving one co-owner exclusive possession of the property and responsibility for upkeep and repairs). Indeed, the “general rules [of tenancies-in-common] will not control where there is a contrary agreement.” Butler ex rel. Butler v. Rafferty, 792 N.E.2d 1055, 1058 (N.Y. 2003) (alteration in original) (quoting 13 Warren’s Weed, New York Real Property, Tenancy in Common § 3.01[1]); see also Keith, 729 P.2d at 380; Cleveland Tr. Co. v. Hart, 131 N.E.2d 841, 842 (Ohio Ct. App. 1955) (“During the existence of the lease their rights as tenants in common were suspended, and the unity and right of possession had become severed, and, for the time being, abrogated, by their signing of the contract.”); Niles v. Carlson’s Estate, 75 A. 266, 267 (Vt. 1910) (“These parties, though tenants in common, were at liberty to make such special contracts regarding their joint property as they pleased. And such contracts, when made, would bind them to the same extent and be enforceable in the same manner as similar contracts between strangers.”).

 

 

 

FSBO Tips! Requirements for The Sellers Residential Property Disclosure

by Michael Selinfreund, President / General Counsel of Cherry Creek Title Services, Inc.

This article and video presentation is for educational purposes only and not intended as legal advice.  To view  educational videos on real estate and other related subjects visit us at the

Cherry Creek Title Services Channel on You Tube

Colorado state law requires certain disclosure requirements in a residential sale which include at a minimum, the following:

  • if true, that the property is part of a common interest community, which the buyer will be obligated to become a member of and pay assessments to.  C.R.S. 38-35.7-102
  • if true, that the property has been used as a methamphetamine laboratory, unless it has been fully remediated (C.R.S § 38-35.7-103)
  • the home’s source of potable (drinkable) water (C.R.S.§ 38-35.7-104)
  • any proposed transportation projects (such as a light rail project) that may affect the property (C.R.S. § 38-35.7-105), and
  • that the property may be in a special taxing district, and where the buyer can go to find out whether the property is, in fact, within such a district (C.R.S.§ 38-35.7-101).

Federal law requires sellers of any property built prior to 1978 to disclose the existence of lead-based paint on the property. (42 U.S.C.A. §§ 4851-56.) Download now:   Lead Base Paint Disclosure Compliments of Colorado Division of Real Estate and Obligations of Seller for Lead Base Paint Disclosure.


Sellers property disclosure document with a pen laying on topImportantly
, a seller (and their broker) in Colorado has an obligation to disclose known defects regarding the property.  Colorado’s requirement to disclose is limited to actual knowledge. Disclosure of any defects would likely be made within the Seller’s Property Disclosure Form for Residential Property courtesy of Colorado Division of Real Estate or visit the Colorado Division of Real Estate website and click Contracts and Forms.  This is overwhelming the most common property disclosure form used in Colorado.   This form must be filled out truthfully, and checking the “I don’t know” box regarding a known defect is equivalent to fraud.  And such obligation to disclose exists regardless of whether the item is included in one of the categories listed in the Seller’s Property Disclosure and regardless of whether the purchase contract requires the sellers to make such disclosures.  See Gattis v. McNutt, 2013 COA 145 (November 7, 2013) in which the Colorado Court of Appeals ruled that sellers have an independent duty to disclose latent defects to buyers, and that the failure to disclose may give rise to a tort claim.

Regarding circumstances psychologically impacting real property, C.R.S. 35-35.5.101 provides no duty for a broker or salesperson to disclose facts or suspicions regarding circumstances occurring on a parcel of property which could psychologically impact or stigmatize such property are not material facts subject to a disclosure requirement in a real estate transaction. Such facts or suspicions include, but are not limited to, the following: that the occupant of real property is, or was at any time suspected to be infected or has been infected with human immunodeficiency virus (HIV) or diagnosed with acquired immune deficiency syndrome (AIDS), or any other disease which has been determined by medical evidence to be highly unlikely to be transmitted through the occupancy of a dwelling place; or that the property was the site of a homicide or other felony or of a suicide.

Energy efficient house with green leaf stemming from chimneyThe Green Disclosure (Energy) Form is a recent addition to the list of Colorado disclosure forms, and it states specifically that it should be completed by the seller, not the seller’s broker.

The purpose of the Green Disclosure form is to inform the buyer about the seller’s current, actual knowledge of the energy-related features of the property. For example, the form lists options regarding sustainable materials, indoor air quality, construction type, and ENERGY STAR appliances, among other things. By filling out this form, the seller is completing one of the steps which will allow his or her broker to market the property as “Green” on the Multiple Listing Service (“MLS”).

 

An Overview of Colorado Mechanics Liens Laws Part 2 of 2

by Michael Selinfreund, Esq., President/General Counsel of Cherry Creek Title Services, Inc.

This article and video presentation is for educational purposes only and not intended as legal advice.  To view more educational videos on real estate and other related subjects watch us on the Cherry Creek Title Services Channel on You Tube

All mechanics liens relate back to the time of the commencement of work under the contract between the owner and the first contractor, or, if said contract is not in writing, then such liens shall relate back to and take effect as of the time of the commencement of the work upon the structure or improvement, and shall have priority over any lien or encumbrance subsequently intervening, or which may have been created prior thereto but which was not then recorded and of which the lienor did not have actual notice.  Often the first work is commenced by the very first party with lien rights, typically the engineers and/or surveyors, and then all other claimants get the benefit of that date.

C.R.S. § 38-22-108 specifies liens will be satisfied in the following order: first to the liens of all those who were laborers or mechanics working by the day or piece, but without furnishing material therefor, either as principal or subcontractors; second to all other subcontractors and of all materialmen whose claims are either entirely or principally for laborers, materials, machinery, or other fixtures, furnished either as principal contractors or subcontractors; and last to all other principal contractors.

Let’s turn now to the perspective of the property owner burdened or potentially burdened by a mechanic’s lien.   It pays to be vigilant and know which subcontractors are being engaged by the contractor and where the materials are being obtained.  This way, the property owner can require and obtain lien waivers from all such sub-contractors and materialmen at the time of making any payments. C.R.S. 38-22-119 limits the effect of any such lien waiver as being solely between the parties to the contract.  So, if there is still an unpaid subcontractor or materialman who worked under the contractor being paid, they would still be able to file a lien in the event the contractor fails to pay them.  C.R.S. 38-22-119 (2) provides that an agreement to waive lien rights shall contain a statement, by the person waiving lien rights, providing in substance that all debts owed to any third party by the person waiving the lien rights and relating to the goods or services covered by the waiver of lien rights have been paid or will be timely paid.  However, many such waivers have been fraudulently executed with unpaid subcontractors and materialmen lurking behind the scenes.

When faced with a filed mechanics lien, the first thing to do is verify the claimant complied properly with the ten-day intent provision (discussed in Part 1 of this article); is claiming the proper amount owed (see C.R.S. 38-22-128); and filed timely per C.R.S. 38-22-109.  A large percentage of such liens are filled-out and filed by the unpaid contractors, and many have fatal errors.

The next thing to consider is whether the lien has expired.  C.R.S. 38-22-109(8) states that such liens do not remain effective longer than one year from the filing of the lien unless within 30 days after each annual anniversary of the filing of the lien statement, an affidavit is filed stating the property improvements have not been completed.  That’s why many title companies require 13 months to have passed before insuring over a recorded Mechanic’s Lien in Colorado.

STATEMENT OF LIEN DOCUMENT

VIDEO PRESENTATION ON Real Estate Lien Priority Issues in Colorado

C.R.S. 38-22-110 provides that no lien shall hold the property longer than six months after the last work or labor is performed, or laborers or materials are furnished, or after the completion of the building, structure, or other improvement, or the completion of the alteration, addition to, or repair thereof, unless an action has been commenced within that time to enforce the same, and unless also a notice (typically a Lis Pendens) stating that such action has been commenced is filed for record within that time in the office of the county clerk and recorder of the county where the property is located.  Where there is no notice of commencement of the action filed, there can be no cloud upon the plaintiffs’ title.  See Schlosky v. Mobile Premix Concrete, Inc., 656 P.2d 1321 (Colo. App. 1982).  So, the lien claimant is often time barred from filing suit as most do not have the money to pursue lien foreclosure actions in District Court and six months goes by quickly.  The majority of liens filed are not foreclosed, rather, the lien claimant is hopeful that their lien stands in the way of a sale or refinance transaction thereby forcing the property owner to pay them.  However, even in those circumstances, the property owner can bond around such liens pursuant to C.R.S. § 38-22-131.

One statute that is often helpful for the burdened property owner is C.R.S. § 38-22-125; the Bona fide purchaser statute.  It provides that no lien, excepting those claimed by laborers or mechanics as defined in section 38-22-108(1) (a), filed for record more than two months after completion of the building, improvement, or structure shall encumber the interest of any bona fide purchaser for value of real property, the principal improvement upon which is a single- or double-family dwelling, unless said purchaser at the time of conveyance has actual knowledge that the amounts due and secured by such lien have not been paid, or unless such lien statement has been recorded prior to conveyance, or unless a notice as provided in section 38-22-109(10) has been filed within one month subsequent to completion or prior to conveyance, whichever is later.

When applicable, C.R.S. 38-22-113 is extremely beneficial to the property owner.  It provides that it shall be an affirmative defense in any action to foreclose a mechanics lien that the owner or some person acting on the owner’s behalf has paid an amount sufficient to satisfy the contractual and legal obligations of the owner, including the initial purchase price or contract amount plus any additions or change orders, to the principal contractor or any subcontractor for the purpose of payment to the subcontractors or suppliers of laborers or materials or services to the job, when the property is an existing single-family dwelling unit; the property is a residence constructed by the owner or under a contract entered into by the owner prior to its occupancy as his primary residence; or the property is a single-family, owner-occupied dwelling unit, including a residence constructed and sold for occupancy as a primary residence.

One final important statute to be aware of is the Contractor Trust Fund Statute.  C.R.S. 38-22-127.   In the event the property owner pays the contractor directly or via loan disbursements from the construction lender, and the contractor fails to pay subcontractors and/or materialmen, an express trust relationship is created for all such payments received, and C.R.S. 38-22-127(5) defines the failure to pay the subcontractors or materialmen as theft under C.R.S. 18-4-401.   An individual in complete control of the finances and financial decisions of an entity that violates the statute is personally liable for such violation.  See Alexander Co. v. Packard, 754 P.2d 780 (Colo. App. 1988).  Further, debts arising from violating the Contractor Trust Fund Statute are not discharged by filing bankruptcy.

Finally, Mechanics’ liens may also be defeated by the filing of bankruptcy proceedings by either the property owner or the general contractor.  This is a complex subject and beyond the scope of this article.

An Overview of Colorado Mechanic’s Lien Law Part 1 of 2 – VIEW NOW

What Happens After the Closing?

 

IT’S OFFICIAL! You just closed on your new home…..

what’s next? You have been supplied with a set of keys that unlocks the doors to your new home. To ensure security, change the locks upon moving in.

If you have not already done so….

 contact the local service providers to make arrangements for electricity, gas, water,
phone and cable or satellite services. While some providers may need as little notice as a day to activate your services, it’s best to give them a few weeks’ notice.

TITLE POLICY WITH CLOSING DOCUMENTSRECORDED DEED
Once recorded in the official county records, the original
deed to your home will be mailed directly to you, generally
within four-to-six weeks.

LOAN PAYmortgaqge statement and check being writtenMENTS
At the closing, written instructions were provided with details for making your first loan payment. You should receive your loan coupon book before your first payment is due. If you don’t receive your book, or if you have questions about your tax and insurance escrows, please contact your closing agent or attorney.

PROPERTY TAXES
At the closing, property taxes were prorated between the buyer and the seller based on occupancy time in the home. You may not receive a tax statement for the current year on the home you buy; however, it iTax Bill Notice of past dues your obligation to make sure the taxes are paid when due. Check with your lender to find out if taxes are included with your payment and if the tax bill will be paid by the lender from escrow funds.

FILING FOR HOMESTEAD
If the home you purchased is in a homestead state, you may be required to declare homestead or file a homestead exemption.  A homestead exemption reduces the value of a home for state-tax purposes. Please check with the local county recorder’s office to determine eligibility, fi ling requirements and deadlines.

POSTAL SERVICE
Your local Post Office can provide the necessary Change of Address forms to expedite the delivery of mail to your new home. You can speed up the process by notifying everyone who sends you mail of your new address and the date of your move. Many bills provide an area for making an address change.

CLOSE UP PICTURE OF COLORADO DRIVERS LICENSE

DRIVER’S LICENSE
VEHICLE REGISTRATION AND INSPECTION
You are required by law to notify your state Department of Motor Vehicles (DMV) after any relocation so a new driver’s license can be issued. You will also need to have your auto registration transferred to your new address and depending on your state, submit to a driving test and vehicle inspection. Check with your state DMV to determine requirements.