Tandy On Real Estate

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Real Estate Agent and Broker are Found Liable for Wire Fraud Loss

A Federal Court upheld a jury’s finding that a real estate agent and broker were 85% responsible for a wire fraud that cost their client $196,622.67 (Bain v. Platinum Realty, LLC, Dist. Court, D. Kansas 2018).

Jerry Bain was working with a real estate agent to purchase a property. To fund the purchase, Bain was instructed to wire $196,622.67 to the title company. Unbeknownst to the parties involved, a criminal was intercepting e-mails exchanged between the title company, agent, and Bain. Bain had actually been sent hacked wiring instructions, which instructed him to wire funds straight to the criminal’s account. Once the funds were sent they could not be recovered and so Bain sued the agent, broker and others.

In finding the real estate agent and broker liable, the court emphasized several points which can provide valuable lessons to all agents:

  • The real estate agent was serving as the middleman between the settlement agent and her client. Serving in this role made her responsible for the delivery of accurate instructions to her client.
    • Real Estate agents should not be involved with wire transfer instructions!  Buyer’s and Seller’s should communicate directly with the title company.
  • The agent did not alert the other parties to the transaction when she learned her e-mail account had been compromised.
    • If your email account is compromised, you have an obligation to notify the parties involved.  Make sure you notify clients, title companies and lenders promptly.

Wire fraud criminals continue to improve their approach to tricking buyers and other parties into wiring funds to them by a variety of schemes.  These include phishing emails, compromised email accounts, and impersonating title companies and agents on email, text and by phone.  Real Estate agents must implement best practices regarding their clients wiring funds.  Learn more about how to protect yourself at the following links:

Tax relief for victims of Hurricane Harvey

The IRS has provided tax relief to victims of Hurricane Harvey. Those in Texas who have been affected by the storm have until January 31, 2018, to file certain individual and business tax returns and make certain tax payments. This includes an additional filing extension for taxpayers with valid extensions through October 16, and businesses with extensions through September 15.

Currently, the IRS has said individuals who reside or have a business in Aransas, Bee, Brazoria, Calhoun, Chambers, Fort Bend, Galveston, Goliad, Harris, Jackson, Kleberg, Liberty, Matagorda, Nueces, Refugio, San Patricio, Victoria, and Wharton Counties may qualify for tax relief. For up-to-date information, please see IRS News Release: Tax Relief for Victims of Hurricane Harvey in Texas.

REQUIREMENTS FOR POSTPONEMENT OF 1031 EXCHANGE TIME PERIODS
If the taxpayer is considered an “affected taxpayer,” then additional guidance concerning their 1031 exchange is provided in Revenue Procedure 2007-56. Section 17 of Revenue Procedure 2007-56 provides postponement provisions specific to 1031 exchange deadlines that apply in the case of Presidentially-declared disasters. Section 17 extends the 45- and 180-day periods in forward and reverse exchanges that fall on or after the date of a Presidentially-declared disaster by the later of 120 days or the date specified in the relevant IRS News Release, but not beyond the due date for filing the tax return for the year of the transfer.

To qualify for an extension of the IRC Section 1031 deadlines, the relinquished property must have been transferred on or before the Presidentially-declared disaster, and the taxpayer is an “affected taxpayer” or has difficulty meeting the 45-day identification period or 180-day exchange deadline. For these purposes, “difficulty” generally includes, but is not limited to, the following:

  • The relinquished property or the replacement property is located in a covered disaster area;
  • The principal place of business of any party to the transaction (for example, a qualified intermediary, exchange accommodation titleholder, transferee, settlement attorney, lender, financial institution, or a title insurance company) is located in the covered disaster area;
  • Any party to the transaction (or an employee of such a party who is involved in the section 1031 transaction) is killed, injured, or missing as a result of the Presidentially-declared disaster;
  •  A document prepared in connection with the exchange (for example, the agreement between the transferor and the qualified intermediary or the deed to the relinquished property or replacement property) or a relevant land record is destroyed, damaged, or lost as a result of the Presidentially-declared disaster;
  • A lender decides not to fund either permanently or temporarily a real estate closing due to the Presidentially declared disaster or refuses to fund a loan to the taxpayer because flood, disaster, or other hazard insurance is not available due to the Presidentially-declared disaster; or
  • A title insurance company is not able to provide the required title insurance policy necessary to settle or close a real estate transaction due to the Presidentially-declared disaster.

Every taxpayer should be directed to their tax advisor to determine whether they are eligible for the relief and to obtain additional information with respect to their particular circumstances. Learn more @ https://apiexchange.com/tax-relief-victims-hurricane-harvey/.

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SOURCE:
IRS News Release: Tax Relief for Victims of Hurricane Harvey in Texas
https://www.irs.gov/irb/2007-34_IRB/ar13.html#ad83e14
https://apiexchange.com/tax-relief-victims-hurricane-harvey/

CFPB finalizes updates to “Know Before You Owe” Mortgage Disclosure

On July 7th, the CFPB announced the finalized updates to the “Know Before You Owe” Mortgage Disclosure rule. Their announcement states that the “changes will provide more clarity, and preserve protections for consumers.” According to CFPB Director Richard Cordray, “A mortgage is one of the largest financial decisions a consumer will ever make, and CFPB’s rules help ensure consumers have the easy-to-understand information they need before making a decision that will significantly impact their financial lives. Our updates will clarify parts of our mortgage disclosure rule to make for a smoother implementation process for lenders and consumers.”

The National Association of REALTORS®, states that “as advocated for by NAR, the final rule clarifies the ability to share the Closing Disclosure (CD) with third parties – a victory for real estate professionals nationwide.” Click here for more information.

Click here for the full press release from the CFPB.

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SOURCE:
https://www.consumerfinance.gov/about-us/newsroom/cfpb-finalizes-updates-know-you-owe-mortgage-disclosure/ 
https://www.nar.realtor/articles/cfpb-final-rule-clear-on-ability-to-share-cd
http://files.consumerfinance.gov/f/documents/201707_cfpb_Final-Rule_Amendments-to-Federal-Mortgage-Disclosure-Requirements_TILA.pdf

 

Follow up on CFPB enforcement action

As I noted last week, there are significant ramifications to the Consumer Financial Protection Bureau’s (CFPB) recent enforcement action and fine against a lender, a mortgage servicer and two real estate brokerages.  Foley and Lardner LLP published an analysis highlighting key takeaways from the consent order. Their analysis highlights the far-reaching impact of this order, especially for real estate brokers and agents.

I wanted to highlight the specific issues in the article real estate brokers and agents should be concerned about. You should refer to their report for more details:

·       Tracking captures rates from a referral source may be a red flag or may rise to the level of a prohibited activity.
·       Limiting access to some service providers (title companies or lenders) but not others may also be determined to be a prohibited activity.
·       Lead agreements that involve endorsements and recommendations to use the provider are a target.  Basically, sold leads should be cold leads. A real estate broker in a lead agreement should refrain from introducing consumers to the provider purchasing the leads. They should not endorse or recommend that provider to consumers and they should not use designations such as “preferred” for that provider.
·       Marketing Service Agreements (MSAs), while not prohibited by the CFPB, appear to be riskier than ever before.  If the CFPB believes the MSA is focused on endorsements and encouraging consumers to use the party making payments under the MSA, the whole relationship may be brought into question. And while a lender has a legitimate reason to internally track the results of its efforts to capture more business referrals, it is unwise to discuss capture rates with an MSA partner, at least in the context of trying to boost referrals.
·       The CFPB believes that “steering” and “economic coercion” can become prohibited actives. The example in this case was a listing agent who offered a seller’s discount on the sales price conditioned on using the lender for the mortgage.
·       Co-marketing programs were also vulnerable based on the circumstances surrounding implementation. The CFPB alleged that the lender’s co-marketing arrangements operated as vehicles to make referral payments. Specifically, the CFPB claimed that the lender was subsidizing the real estate agents’ advertisements on third party websites in exchange for referrals that might flow from such advertising or otherwise. Indeed, the CFPB pointed to anecdotal testimony of how some agents would boast to the lender how they were able to convince a particular consumer to use that lender.
·       Office or desk rental agreements (where a lender or other real estate service provider leases from the real estate broker) should be negotiated and prepared solely with reference to the fair market value of comparable rental space in the area. Desk and office rentals should be written to be as simple and clean as possible. While referrals may occur naturally, the rental relationship should not include broker promises to market, endorse, or recommend the provider renting the space. Tracking referrals and measuring capture rates should not be discussed nor used to determine the amount paid as rent.
·       And finally, as the authors state in their report: “Real estate agents beware: these actions break new ground in terms of including you among the subjects of CFPB actions and enforcement relief provisions.” The CFPB broke new ground in the real estate brokers’ consent orders by subjecting not only those companies, but also their hundreds of independent contractor real estate agents, to the Conduct Provisions.  Specifically, the Conduct Provisions section of the KW Mid-Willamette and RE/MAX Gold Coast consent orders each state that “Respondent and its … agents … who have actual knowledge of this Consent Order” shall not partake in certain enumerated actions related to providing referrals “now or at any time in the future.” Importantly, those consent orders also require the brokers to deliver copies of the orders to each of their real estate agents, such that those agents necessarily will have knowledge of the orders and be required to abide by the Conduct Provisions. It remains to be seen whether the scope of this injunction would be upheld if valid, or how this will be enforced on the individual agent level. Perhaps more importantly, the recordkeeping provisions require KW Mid-Willamette and RE/MAX Gold Coast each to create and retain, for a five-year period, a set of business records that includes each real estate agent’s name, telephone number, email, address, job title, dates of business relationship, and, if applicable, the reason for termination. The CFPB will then have access to these records on demand and could potentially use them to go after individual sales agents who had prominent roles in the alleged RESPA violation, if it so chooses.

SOURCE:
https://www.cfslbulletin.com/2017/02/06/the-cfpbs-respa-consent-orders-eight-key-takeaways/ 

CFPB enforcement action hits two real estate brokerages

The Consumer Financial Protection Bureau (CFPB) took action last week against a major mortgage lender, Prospect Mortgage, LLC,  for paying illegal kickbacks for mortgage referrals. In addition, two real estate brokers and a mortgage servicer were held responsible for taking the illegal kickbacks.

Under the terms of the action announced by the CFPB, “Prospect will pay a $3.5 million civil penalty for its illegal conduct, and the real estate brokers and servicer will pay a combined $495,000 in consumer relief, repayment of ill-gotten gains, and penalties.”

According to reports on this and to my knowledge, this is the first legal action against a real estate broker by the CFPB. In a press release issued by the CFPB on Tuesday, January 31st CFPB Director Richard Cordray states, “Today’s action sends a clear message that it is illegal to make or accept payments for mortgage referrals. We will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses.”

REALTOR Magazine reports, “The action involves marketing service agreements, an area of RESPA enforcement that the National Association of REALTORS® says generates confusion among real estate companies and others in the industry. The association says its analysts on staff will closely examine the facts of these cases and build on existing guidance for real estate professionals for how to best comply with RESPA.”

For more information on RESPA, visit the National Association of REALTORS’ RESPA resource page.

As more information unfolds, I will keep you updated. To receive Tandy on Real Estate news updates direct to your inbox, please subscribe.

SOURCE:
http://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-prospect-mortgage-pay-35-million-fine-illegal-kickback-scheme/
https://www.nar.realtor/articles/cfpb-enforcement-actions-real-estate-brokers-a-mortgage-lender-and-a-mortgage-servicer
http://realtormag.realtor.org/daily-news/2017/02/01/cfpb-hits-brokers-for-marketing-agreements
http://www.robchrisman.com/2017/02/01/feb-1-ae-jobs-cfpb-enforcement-action-realtors-take-note-about-referral-fees-gse-news-jumbo-program-trends/

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