Real Estate in Steamboat

Last year, a mortgage broker in the Tacoma, Wash., area filed a false second lien against a property as it was headed to closing. The man planned to take advantage of an unsuspecting couple and quietly pocket $24,000 into his own account when the loan eventually funded.

Until recently, county prosecutors — already deluged with other major crimes — faced a difficult decision: Should they place other compelling cases on the back burner and go after a mortgage fraud case?

The Tacoma case was investigated and prosecuted, thanks to a special pool of funds earmarked for mortgage fraud. Other states, including California, also have adopted a Mortgage Lending Fraud Prosecution Account where a $1 or $2 surcharge is tacked on to every recorded Deed of Trust in the state. According to the Washington state attorney general’s office, this cash — about $1 million annually — allows authorities to more readily field complaints and scrutinize every step made by every player in the mortgage lending process.

Mortgage fraud investigations often involve recovery of files stored on computers and detailed analysis of voluminous loan documents and financial records. These processes can be quite costly and take several months to complete. Prosecutions are also rather lengthy because mortgage fraud schemes typically involve multiple layers of transactions and large volumes of data — all of which must be presented through numerous witnesses.

Chuck Cross, director of consumer services for the Washington State Department of Financial Institutions and a key player in the highly publicized cases against Ameriquest and Household International, said the fund made eight mortgage fraud convictions possible in 2005, with another 35 ready to go.

“The number of mortgage fraud cases that prosecutors simply could not get to was definitely on the rise,” Cross said. “And that was understandable — they’ve got murders, rapes and other serious injury cases that really limit their time and resources. As a result, county prosecutors have had to forego mortgage fraud cases in many instances.”

Washington state was not the only area where mortgage fraud — often deception, forgery, identity theft, illegal flipping — was on the rise. In 2004, the Federal Bureau of Investigation tracked 172 convictions or “pretrial diversions” involving mortgage fraud. The numbers were even greater in the first quarter of 2005, leading to its exhaustive “Financial Crimes Report to the Public.” The study identified the “Top 10 Hot Spots for Mortgage Fraud Incidents” as California, Nevada, Utah, Colorado, Missouri, Illinois, Michigan, South Carolina, Georgia and Florida.

Cross said the plan for the fund was bolstered through legislature by reputable members of the mortgage industry who were upset with the number of mortgage fraud schemes in the state. Not only were more consumers getting fleeced but the entire home-loan industry also was getting a collective black eye.

The Department of Financial Institutions can use the Mortgage Lending Fraud Prosecution Account to reimburse county prosecutors for a variety of costs related to the investigation and prosecution of mortgage fraud cases. Reimbursable items include training costs for investigators and prosecutors, and expenses related to investigation and litigation. County prosecutors may even seek recovery of salaries for members of their staff who were assigned to the prosecution of a particular case.

County prosecutors also have option of transferring jurisdiction of a mortgage fraud case to the Washington Attorney General’s Office for prosecution. The AG’s office now has a special team dedicated to the investigation and prosecution of mortgage fraud cases. (Washington law allows the AG’s office to have “concurrent jurisdiction” to investigate and prosecute cases when requested by the county prosecuting attorney.)

Loan officers who submit false information about a buyer’s qualifications (i.e. employment history, amount of income or source of down payment) in order to get a deal to go through may be guilty of theft by deception as well as other crimes, such as forgery, according to Rebecca Jacobsen of the AG’s office.

When consumers think of forgery, they often visualize the signing of someone else’s name on a check. However, it is forgery to create a false document, or materially alter a written document, with the intent to perpetrate a fraud. It is also forgery to offer or pass off as true a document known to be forged with the intent to carry out a fraud.

For example, documents that are regularly created or altered in mortgage fraud schemes include “gift” letters, which purport to explain the origin of down-payment funds, employment histories, income verifications and citizenship records. If a loan rep does not create or alter the documents but is aware that the documents are false, the loan rep still commits forgery if he/she forwards the false documents to a lender for use in making a financing decision.

That includes a $24,000 fake lien that would have gone directly into a loan officer’s pocket.

Tom Kelly’s new book “Real Estate for Boomers and Beyond: Exploring the Costs, Choices and Changes for Your Next Move” (Kaplan Publishing) is available in retail stores, on Amazon.com and in local libraries. Tom can be reached at news@tomkelly.com.

***

What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Tom Kelly

DEAR BOB: My son and his wife live in a free-and-clear house I own. He pays utilities and maintains the property. He proposes I add both their names to the title so that in 24 months we can sell the property and he would then purchase in his name only a more expensive home. My son says no tax will be due on such a sale under that $500,000 tax exemption rule you often discuss and the sale isn’t even reportable to the Internal Revenue Service. I realize I would be passing on the value of the home to him but I am not confident of the tax situation. Is he correct? –James S.

DEAR JAMES: When you gift the house to your son and his wife, that event requires you to file a federal gift tax return. However, no gift tax will be due if your total lifetime gifts exceeding the annual $12,000 per gift per donee exemption are not more than $1 million.

Purchase Bob Bruss reports online.

When you pass on, the value of your gift will be subtracted from your federal estate tax exemption, which is currently $2 million if you die in 2006.

As donees, your son and his wife will take over your presumably very low adjusted cost basis for the house. If they own and live in the home as their principal residence at least 24 of the 60 months before its sale, Internal Revenue Code 121 allows them to exclude up to $500,000 capital gains (up to $250,000 for a single homeowner) from tax upon sale.

Your son seems to be very sharp about the tax benefits of his acquiring ownership in the house. But before making any title transfer, please consult your personal tax adviser so you are fully aware of the tax consequences.

JOINT LISTING PROVES TO BE A DISASTER

DEAR BOB: In late April we listed our home for sale. Because two very good friends are real estate brokers, we signed a joint listing with both of them. Little did we know they hate each other’s guts and speak to each other only when absolutely necessary. It is a six-month listing. Although we were assured we listed at the correct asking price, we haven’t received any purchase offers or serious buyer interest so far. Since these agents work at different brokerages, neither one will hold a Sunday open house or even advertise our listing in the newspapers. What should we do? We already lost two good friends –Brooke W.

DEAR BROOKE: Joint listings with two competitive real estate agents rarely are successful, especially when each agent works at a competing brokerage. Those co-listing agents weren’t really your friends if they can’t get along to get your home sold for top dollar.

I am not surprised they refuse to cooperate on joint advertising or to hold weekend open houses. Each co-listing agent is probably worried the other listing agent will find an acceptable buyer and earn most of the sales commission.

But shame on you for signing a long six-month listing. As regular readers of this column know, a 90-day listing is the maximum suggested term to keep your listing agent highly motivated to find a buyer.

At this point, I suggest you ask the co-listing agents, and your former friends, to terminate their listing so you can re-list with another agent. Be sure to emphasize to each agent if they have a buyer for your home, they can still earn half of the sales commission. In the future, never sign a listing exceeding 90 days, especially with friends.

JOB TRANSFER ALLOWS PARTIAL HOME-SALE TAX BREAK

DEAR BOB: We bought our home in February 2005. At that time, my husband had just accepted a new job and we expected to stay at least five years, maybe “forever.” However, his employer filed Chapter 11 bankruptcy reorganization a few months ago. Although he still has a job, things look “dicey.” Meanwhile, word got around his industry and he recently received a superb unsolicited job offer at a much higher guaranteed salary for five years, plus moving benefits, bonus, etc. Our only problem is if we sell after less than 24 months of home ownership, we will owe capital gains tax on the tremendous increase in market value of our home. I recall you wrote about “unforeseen circumstances” as a reason the IRS grants partial principal residence sale tax exemptions. Would this qualify? –Jeanie T.

DEAR JEANIE: Yes. Your circumstance probably qualifies under the Internal Revenue Code 121 principal residence sale partial exemption for both job transfer and unforeseen circumstances. Using this exemption, when selling a principal residence after less than 24 months of ownership and occupancy, the sellers are entitled to a partial exemption based on the number of occupancy months.

For example, suppose you owned your principal residence and you qualify for one of the partial exemption rules for home sale (health reasons, employment change, or unforeseen circumstances). Then your exemption is based on the number of ownership months and occupancy.

If you sell after 20 months, that means you qualify for 20-24ths or about 83 percent of the $250,000 exemption ($500,000 for a married couple filing jointly. For full details, please consult your tax adviser.

The new Robert Bruss special report, “Probate Property Profit Secrets Revealed,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.

***

What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Inman News

The latest book from longtime real estate author Tyler G. Hicks, “How to Acquire $1 Million in Income Real Estate in One Year Using Borrowed Money in Your Free Time,” is really about how and where to obtain mortgage money to acquire investment property. Despite its long title, this is a resource guide — rather than a real estate “how to” book — explaining dozens of ways to finance property acquisitions and where to locate the necessary funds.

Among the book’s unique features is a list of more than 1,000 mortgage lenders specializing in mortgages for BWBs (beginning wealth builders), as Hicks refers to first-time investment property buyers. Among the mortgage resources are, according to the author, more than 700 sources of Internet loans (I didn’t personally count them).

Purchase Bob Bruss reports online.

In that chapter, Hicks carefully explains the pros and cons of Internet mortgages and the precautions borrowers should take to avoid disclosing confidential information to unknown lenders.

This new book is different from Hicks’ dozens of prior real estate investment books. Most of those books are ultra-enthusiastic about real estate investing. But this one, while extolling the benefits of acquiring rental income property, is more realistic and practical because Hicks advises over and over to structure the purchase to be certain there will be positive cash flow for the investor.

If the book has a flaw, it is that the explanations of important topics are often too short and incomplete. For example, the author suggests BWBs find a local mentor to guide them and offer advice. But he neglects to explain how to find prospective mentors or what the benefits might be for the mentor.

But Hicks’ sometimes too brief explanations are overcome by his sage advice based on many years as a real estate investor and as a director of a New York City mortgage lender (which he never names).

To illustrate, Hicks advises, “Never pay front money or advance fees for any loan.” After listing typical fees some lenders request, Hicks says, “None of these are necessary with a legitimate lender. So don’t let yourself be talked into front money or advance fees of any kind.”

However, this book is not just about investing in real estate and finding the mortgage money to do so (although these are the primary topics) because it is also about other real estate opportunities involving mortgage lending. The author suggests, for readers who are interested, becoming a loan officer, mortgage broker or a “money finder” based on his extensive lender contact lists. He even suggests to “form your own mortgage company and make loans,” but without details about how to do so.

Chapter topics include “Get Into, and Profit From, the World’s Best Borrowed-Money Business”; “Pick the Type of Income Real Estate You Want to Acquire”; “49 Mortgages That Can Give You the Real Estate Funding You Need”; “Internet Financing of Income Real Estate Can Save You Time”; “Private Lenders Can Be Your Real Estate Money Supply”; “Self-Starter Real Estate Financing for Beginning Wealth Builders”; “Bad Credit/No Credit Financing is Possible for You”; “Little-Known Alternative Money Sources for Real Estate Loans”; “100 Percent Financing is Alive and Well Today”; and “Use Property Appreciation to Build Your Real Estate Wealth.”

Tyler Hicks has a unique writing style, which takes some acclimation. He often uses the phrase “my good friend” and he even provides his phone number and other contact information to assist readers. Overall, this is a very good book about how to finance investment property acquisitions. On my scale of one to 10, it rates a solid 10.

“How to Acquire $1 Million in Income Real Estate on One Year Using Borrowed Money in Your Free Time,” by Tyler G. Hicks (John Wiley and Sons, Hoboken, NJ), 2006, 250 pages; $14.95; Available in stock or by special order at local bookstores, public libraries, and www.Amazon.com.

***

What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Inman News

Dear Barry,

I need to know if home inspections are required for cooperative living units such as condominiums and townhouses. As a buyer, home inspection is listed as an option in my purchase contract, but my Realtor and the listing agent both say that a home inspection is unnecessary. They assure me that the property management company performed a thorough inspection before the property was listed for sale and that there were no problems with any of the appliances. Should I rely on this advice? –Henrietta

Dear Henrietta,

For a real estate agent to advise against a home inspection is the height of professional irresponsibility and seriously undermines the trust that is essential between a client and agent. It is probably the most unreliable advice you are likely to receive in this or any future real estate transaction. Essentially, you are being misinformed about the substance and scope of a home inspection by comparing it to the walkthrough inspection likely to be conducted by a property manager. Be assured that no management company is qualified to conduct the kind of property evaluation that is routinely performed by a professional home inspector.

To test what you have been told by the agents, ask if the property manager’s inspection was done in accordance with the standards of practice of the American Society of Home Inspectors (ASHI), the National Association of Home Inspectors (NAHI) or a similar state association. Ask also for a copy of the management company’s inspection report. If they have such as report, is it truly limited to appliances only? Was there no evaluation of the electrical system, including an inspection of wiring in the breaker panels? Were the outlets tested to determine proper grounding, correct polarity, and GFCI compliance for shock protection? Did they test and evaluate the plumbing and heating systems? Did they walk on the roof to determine the condition of the material, the quality of installation, the likelihood of leakage, or the need for repairs and maintenance? Did they inspect the fireplace and chimney, the firewall in the garage, conditions in the attic and below the building?

The likelihood that these were included in a property manager’s inspection is about as probable as a white Christmas in Jamaica. In this case, common sense and buyer prudence trump the advice of your agents. Don’t close the deal without a professional home inspection. A qualified, experienced inspector will find defects that were never considered by the property manager.

Dear Barry,

I’m about to buy a 1920s house and am concerned about possible moisture problems in the two-room basement. The walls, floor and ceiling in one of these rooms were recently coated with concrete. Can I assume this is a disguise for water damage or dampness in that area? –Linda

Dear Linda,

Although it is possible that concrete was applied to conceal a moisture problem, further evidence is needed to draw a conclusion of this kind. Make sure that your home inspector gives serious attention to this concern and to the likelihood of any moisture problems in the basement. You might even consider a review of the property by a geotechnical engineer to evaluate ground water conditions in general. And pay attention to visible signs of mold or musty odors.

To write to Barry Stone, please visit him on the Web at www.housedetective.com.

***

What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Barry Stone

DEAR BOB: How can I find out the details of a quitclaim deed I signed in an attorney’s office in 1990? I found out recently it was never recorded. The attorney at whose office I signed the quitclaim has since retired and I don’t remember his name. The quitclaim was for a property that belonged to a bank, which has since gone out of business. The property title is now held by the city. What should I do next? –Andrea F.

DEAR ANDREA: A quitclaim deed conveys whatever title the grantor owned in that property. But it provides no warranties or guarantees. Quitclaim deeds are often used in divorces where neither party wants to incur any liability or make any representations.

Purchase Bob Bruss reports online.

A quitclaim deed can convey full fee-simple absolute title, or it can convey nothing at all.

For example, suppose you pay me $1,000 for my quitclaim deed to the Empire State Building. You record that deed in New York City. However, you just got swindled because I don’t own any interest in that property or have any potential contingent conflict.

Instead, suppose I give you a quitclaim deed to my home and you record that deed. Now you own my home, which I own in fee-simple absolute title (subject to the mortgage and any unpaid property taxes or recorded liens).

That quitclaim deed you signed in 1990 conveyed whatever interest you owned in the property. Presuming it was properly signed and notarized, it transferred all your interest to the grantee, even if that person never recorded it. Only a few states require recording of a deed for it to be effective.

Your unasked question seems to be, “Do I still own any interest in the property since my quitclaim deed was never recorded?”

The best way to determine the answer is to pay a reputable title insurance company or title attorney to research the property title to see (1) did you ever own an interest in the property and (2) was it validly conveyed by that unrecorded quitclaim deed to a subsequent owner for consideration?

IS NEIGHBOR OR CONDO ASSOCIATION LIABLE FOR TOBACCO SMOKE?

DEAR BOB: I own a condominium where the smelly tobacco smoke from the residents of the downstairs condo enters my upstairs unit and is so bad I have to sleep in my car at night. What recourse do I have? –Connie C.

DEAR CONNIE: I have received similar questions from apartment and condo dwellers. You must be unusually sensitive to tobacco smell.

In the absence of CC&Rs (conditions, covenants and restrictions) prohibiting smoking inside condo units (highly unusual), find out for sure where the tobacco smoke originates and how it reaches your unit.

It is possible, if your building has a central heating and air conditioning system, that the smoke comes through the air ducts from a distant condo unit. A similar problem arises when a condo building has a common exhaust system for kitchen or bathroom exhaust odors.

If the tobacco smoke comes into your unit through such methods, then the condo homeowner’s association is responsible to modify its common-area system so you don’t have to suffer odor from your neighbor’s unit.

After you have ruled out such sources of odor intrusion and are 100 percent certain the problem doesn’t involve common-area air transfer, then it is up to you to plug any air leaks between your unit and the downstairs condo. If you decide to file a lawsuit against the offender(s), be sure you can prove the facts and your actual damages.

ARBITRATION CAN’T BE FORCED IF YOU DON’T AGREE

DEAR BOB: We recently bought our first home. It was handled by a local Realtor who represented the sellers. Shortly after moving in, we discovered the roof leaks around the skylights. Also, we learned from the neighbors the sellers had tried many times to fix those leaks. A reputable renovation contractor says there is extensive damage and the only way to correct the problem is to remove the four skylights, repair the rotted lumber, and install new flashing. His cost estimate is $4,850. The written defect disclosure provided to us by the seller before the closing said nothing about the prior problems with the skylights and the seller’s apparent failures at attempting to eliminate the leaks. After our attorney contacted the listing agent and the seller, we were told any dispute about the sale must go to binding arbitration. However, we did not sign the arbitration clause in the sales contract. Can arbitration be forced on us without consent? –Beth W.

DEAR BETH: No. Unless you signed a written contract that provides for binding arbitration, you can sue the home seller (and listing agent if you can prove that person knew of the alleged non-disclosed defect) for damages, presumably the $4,850 cost of repairs.

If you are a regular reader of this column, you know I do not recommend signing a binding arbitration clause in a home-purchase contract. When buying a home, that is no time to give up your legal rights if a dispute later arises to a jury trial, court procedures and rules of evidence, and the right to appeal.

If a dispute arises after the sale, as in your situation, the parties can then agree to binding arbitration to save time and money if they both agree to give up their rights. For more details, please consult your attorney.

WHAT IF HOME SELLER IS UNREASONABLE?

DEAR BOB: We want to buy a home in a specific neighborhood in a specific school district. Few four-bedroom homes come up for sale in this area, which would be ideal for our family of three children. When our buyer’s agent phoned us about this new listing, we immediately inspected it and made a purchase offer. The house is in terrible condition, but the asking price is based on recent sales prices of similar nearby homes in tip-top condition. The seller wouldn’t even counteroffer us. But the listing agent said “Bring a full price offer if you want to buy this house.” As we are African-American trying to buy a home in a mostly Caucasian area, do you think this is illegal racial discrimination? –Mark H.

DEAR MARK: No. Without more information, you simply encountered an unreasonable home seller. Sellers don’t have to, and often don’t, make counteroffers.

If you really want to buy that house, it’s up to you to make another purchase offer.

WHAT IF RENTAL PROPERTY EXCHANGER TRADES DOWN?

DEAR BOB: You often explain that Starker exchange rule for rental property owners to avoid capital gains tax by trading up. But I want to trade down to sell my 10-unit apartment building for a less-expensive, luxury two-unit duplex where I will live in one unit as my residence. Will such a down trade be taxable? –Eugene C.

DEAR EUGENE: To qualify for a tax-deferred exchange of business or investment property for another such property, Internal Revenue Code 1031 requires trading equal or up in both price and equity. In other words, you can’t take out any cash or net mortgage relief (called “boot”) without paying capital gain tax.

The number of rental units is immaterial. To illustrate, you could trade from a $500,000 10-unit apartment building to a $1 million luxury two-unit duplex building and not owe any capital gain tax. However, all the units must be rentals. Your personal residence unit cannot be involved without owing tax. Please consult your tax adviser before proceeding.

DEEDING CONDO TO GRANDAUGHTER WAS COSTLY ERROR

DEAR BOB: Shortly before my grandmother died, she deeded her condo to me because she was living in an assisted-living center and had no plans to return to her condo. She died about three weeks later. However, I didn’t record the deed before her death. It turns out her will left the condo to her son (my uncle) who is now claiming it under the will. It is worth around $450,000 although grandmother only paid about $76,000 many years ago. Do I have a valid claim to the condo title? – Nancy R.

DEAR NANCY: Shame on you for not promptly recording your deed. If you had done so, you would clearly own the condo today.

Instead, your uncle can argue that because you failed to record the deed before your grandmother’s death, it was not delivered unconditionally so he inherits it under the will.

Also, because your grandmother deeded her condo to you before death, if your deed is determined by the probate court to prevail over the will provision, your adjusted cost basis will be grandmother’s low $76,000 adjusted cost basis rather than today’s $450,000 market value. My best advice is hire a super-sharp probate attorney.

The new Robert Bruss special report, “Probate Property Profit Secrets Revealed,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his Real Estate Center).

***

What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Inman News

Deciding how much to offer a seller for a home you’d love to own is rarely easy. Ideally, your offer price should not be above what you think the property is worth or what you can afford, but tempting enough to the seller that he can’t refuse to accept.

Arriving at that perfect offer price is harder in some markets than others, and it depends on a lot of factors that are beyond your control. For example, in buyers’ markets where there is a lot of inventory, you may find more realistic sellers who understand that they need to be flexible if they want to sell. In sellers’ markets where there are more buyers than sellers, you may have no choice but to offer more than the asking price if you hope to be the successful bidder.

The first step to arriving at an effective offer price is to find out how much properties similar to the one you’re interested in have been selling for recently. Look at the relationship between the list and sale prices of each listing. Did they sell for more or less than the asking price? How long did it take them to sell? Your real estate agent can provide you with this information. Ask for a Comparative or Competitive Market Analysis (CMA) for the listing in question.

Then ask your agent to talk to the listing agent and find out how much attention the listing is receiving. Are there any other buyers serious about writing offers? If so, you’ll have to offer more than you will if there is no other serious interest.

How much you need to offer to pique the seller’s interest will depend a lot on how long the listing has been on the market. A seller may snub a less-than-asking-price offer if the listing is new on the market. However, if the listing is weeks old and there are plenty of new listings coming on the market each week, you may be successful with an offer for less than asking.

How much a seller will negotiate usually depends on several factors: how long the property has been on the market, whether the seller is motivated (that is, he really needs rather than just wants to sell) and how realistic the seller is about the current value of his home.

HOUSE HUNTING TIP: You can save yourself a lot of time and aggravation by asking your agent to have a heart-to-heart talk with the listing agent before you make an offer, particularly if you intend to offer significantly less than the list price. If the seller is adamant about his price, and there are plenty of other similar listings on the market, devote your energies to a seller who is willing to sell at market value.

Some buyers wonder if they should pay over asking in a strong market that could lose steam over the next year as interest rates rise. That depends on how the listing is priced. If it’s priced below market value, it could attract multiple offers. If the property will suit your long-term needs, it may be reasonable to pay more than the list price as long as it’s not more than you can afford now and for the long term. You won’t lose money unless you have to sell during a down market.

Don’t be afraid to negotiate if you’re not in competition. Some motivated sellers still can’t resist trying for a higher price. Several rounds of counteroffers back and forth could bring about a successful conclusion.

THE CLOSING: But, promise yourself to walk away if the seller doesn’t see the light.

Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers,” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.

***

What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Dian Hymer

(This is Part 2 of a three-part series. See Part 1.)

Last week I pointed out that most borrowers don’t shop for title insurance, accepting the recommendations of their Realtor, lender or builder. Competition for business by title agencies is thus directed not at borrowers but at entities with referral power, which often results in kickbacks to referrers rather than lower prices or better service.

Kickbacks are illegal unless they have been sanitized by creation of an affiliated business arrangement (ABA) between a referrer and a title agency. ABAs make kickbacks legal but costly. The price of title insurance cannot be reduced by allowing kickbacks to be legalized at high cost, nor can it be reduced by suppressing illegal kickbacks.

The way to reduce the cost of title insurance (and also mortgage insurance and credit insurance) is to have the federal government mandate a general policy that any insurance that protects only lenders must be paid for by lenders. On any real estate transaction that involves a mortgage, lenders should pay the policy premium on the lender policy, plus related title costs.

Implications of Lender-Paid Title Insurance

If lenders had to pay for title insurance, prices would drop. Instead of millions of buyers a year taking one policy each, there would be thousands, each one purchasing many policies. The buyers would be knowledgeable rather than ignorant; they would be in the market continuously rather than once or twice; they would shop alternative sources rather than accept recommendations from interested parties; and they would have the clout associated with their purchase volume.

Of course, borrowers would pay for the lender policy in the price of the mortgage. The incremental price, however, would be a faction of what they pay now.

Lender Insurance Versus Borrower Insurance

On mortgage refinance transactions, lenders would pay for lender policies, and borrowers would have the option to buy or not to buy title policies that protect them. On home purchases in areas where home buyers purchase their own title insurance, they would have the same option. In both cases, borrowers would have to be persuaded that the incremental protection provided by owners’ policies are worth the price. This is as it should be.

In some areas, by law or custom, home sellers are obliged to purchase homeowner policies for the buyer. Lender policies are a “simultaneous issue,” often priced at a discount. Since home sellers, in selecting a title agency, will continue to be influenced by Realtors, instituting a lender-pay requirement on lender policies may not have much immediate impact on title costs. Hopefully, over time, the evidence of price declines elsewhere will generate pressures to eliminate the practice of having home sellers purchase title policies for buyers.

State Regulation a Partial Barrier

A potential impediment to price declines would be state regulation of title insurance premiums. Such regulation is supposed to protect consumers, which it doesn’t. In some states, it may provide the major title insurers with a convenient way to collude on premiums.

In Texas, New Mexico and Florida, the state actually sets the premiums. In some others, insurers are allowed to band together to propose premium rates that the state will then approve for all of them. In a third group, each company posts its own premium rates with the state; in some, the state must approve (“File and Use”), in others no approval is needed (“Use and File”). In all cases, the information is public and available to other insurers.

Resistance to declines in posted insurance premiums will be strong. The title insurance industry is highly concentrated at the insurer level, with the five largest companies writing about 90 percent of the policies. These companies also have a demonstrated ability to influence state legislatures.

Prices will drop nonetheless. Large lenders probably will negotiate package deals with the major insurers, who will be obliged to reduce their posted prices. Smaller lenders probably will negotiate deals with local agencies, which have cost structures swollen by high marketing expenses, including legal and illegal kickbacks. (On average, agencies retain more than 70 percent of all title insurance premiums). Large lenders could also deal with the agencies if the large insurers refuse to drop their posted prices.

The prospects for legislation that would require lenders to pay for their own title protection depend on the attitudes of the major groups that would be affected by it. This will be discussed next week.

The writer is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

***

What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Jack Guttentag

“Thou shalt not covet thy neighbor’s property” is part of the Ten Commandments. But real estate law in every state says it is all right to steal your neighbor’s land without going to jail if you comply with state law.

That news may be shocking. However, it’s true. In fact, statutes in every state encourage the theft of your neighbor’s unused property.

Purchase Bob Bruss reports online.

The selfish reason is the state wants to collect as much property tax as possible by keeping property in use.

But when a property is vacant and unused, the rightful owner often fails to pay the property taxes. So state laws encourage stealing property and returning it to the property tax rolls.

‘SQUATTER’S RIGHTS’ ARE THE LEGAL BASIS FOR STEALING REAL ESTATE. Every state except Louisiana adopted variations of English common law in the 1800s and early 1900s. Louisiana chose the French Napoleonic Code, which is often very “foreign” to non-residents.

For 49 states, English common law includes the tradition of “squatter’s rights.” Simplified, that means if I occupy your real estate without permission and pay the property taxes for the number of years required by state law, I can eventually claim full fee simple absolute ownership of your property.

For example, the house adjacent to mine has been vacant about three years. If I moved in and continuously occupied it, paying the property taxes when they come due, I could eventually acquire title to this property. However, I’m not going to do that.

The reason is I observe the legal owner occasionally visits his empty house. He has even applied for a building permit to remodel it. If he found me living in his house, he would summarily throw me out as a trespasser so I have no hope of ever acquiring title to that property by “squatter’s rights.”

TWO LEGAL METHODS TO STEAL YOUR NEIGHBOR’S PROPERTY. Each state has laws allowing two methods of stealing real estate without going to jail.

1. ACQUIRE LEGAL TITLE AND FULL USE. The most difficult method to steal your neighbor’s property is “adverse possession.” That means you must occupy the entire property without the owner’s permission for the required number of years.

California has the easiest “squatter’s rights” adverse possession law. Just occupy a California property for five years without the owner’s permission, pay the property taxes, and you can acquire full ownership by then suing the legal owner in a quiet-title lawsuit. It’s that easy.

However, Texas and several other states have much tougher adverse possession laws, requiring “open, notorious, hostile, exclusive and continuous occupancy” for 30 years. Needless to say, not many Texans claim title by adverse possession.

Other states have adverse possession limits between these five- and 30-year extremes.

The nation’s leading adverse possession case is Stevens v. Tobin (251 Cal.Rptr. 587), decided by the California Supreme Court. Thomas W. Stevens sued the legal owner in a quiet-title lawsuit. He proved that he adversely possessed for 15 years the San Francisco apartment building at 1899 Oak St. in the famous Haight-Ashbury District. Stevens showed open, notorious, hostile and continuous possession. However, he was unable to prove payment of the property taxes. Therefore, he lost his attempt to gain title to the building by adverse possession.

2. STEAL PART OF A PROPERTY BY HOSTILE USE. Perhaps you don’t want to acquire a neighbor’s entire property without paying, but you just want to use part of that property, perhaps to plant flowers or vegetables.

All you need is a prescriptive easement. The legal requirements in each state are usually the same as for acquiring title by adverse possession, but you don’t have to pay any property taxes.

In other words, you must occupy a portion of your neighbor’s land by open, notorious, hostile and continuous possession for the number of years required by state law. Interestingly, use need not be exclusive so you could share the prescriptive easement area with the property owner or another user.

However, permissive use defeats ever acquiring a prescriptive easement. If your neighbor says “Sure, go ahead and use part of my property,” you will never obtain a permanent prescriptive easement.

Prescriptive easement examples include driveways, paths or any portion of a property that is continuously used without permission.

To perfect a permanent prescriptive easement, after the required number of years’ use, the claimant should bring a quiet-title lawsuit against the titleholder.

PREVENT LEGAL THEFT OF ALL OR PART OF YOUR PROPERTY. Periodic inspection of your property is the best way to prevent someone from acquiring title by adverse possession or partial use of a prescriptive easement for the required number of years in the state where the property is located.

If you discover someone using all or part of your property, erecting even a temporary fence or evicting a trespasser blocks the continuous hostile use without permission.

To illustrate, years ago when I was a summer student at Stanford Law School, one Sunday morning I got in my car with a few of my law school pals to drive into nearby Palo Alto for breakfast (we couldn’t afford “brunch”). But the main drive was blocked with a barricade. The police officer directed us to a detour.

As a curious law student, I asked what was going on. He explained every summer Stanford blocks its private roads for a few hours on a Sunday to prevent anyone from acquiring a permanent prescriptive easement.

THE EASIEST WAY TO DEFEAT HOSTILE USE. If you are concerned someone might be occupying all or part of your property without your permission, there is a very easy way to avoid losing all or part of your property.

Just grant permission. Depending on state law, you can post a sign, record a notice or personally notify the hostile user that “permission to pass over my property is revocable.” Consult a local real estate attorney for exact details.

WHEN PROPERTY OWNERSHIP OR USE IS MOST LIKELY TO BE LOST. Millions of individuals own real estate they rarely visit. Or, owners die and their heirs and friends don’t know about a distant property they own.

For example, a few weeks ago I was talking with a Florida friend who bought Arkansas real estate last year on eBay. He was extolling about all its benefits. Then I asked when he last visited his land he said, “Never. I haven’t seen it yet. But at a $3,000 purchase price, how could I go wrong?”

That is a property just begging for an adjacent owner to adversely possess or at least acquire a prescriptive easement.

Inspection is the best way to prevent loss of title or use of a property to be certain nobody is trying to take over your real estate. Also, be sure your heirs, relatives and others know where and what property you own.

SUMMARY: The common law of adverse possession and prescriptive easements has valid purposes to promote property use and property tax collection. However, realty owners can prevent theft of all or part of their property by periodically checking to be certain nobody is occupying all or part of their real estate without permission. For more details, please consult a local real estate attorney.

(For more information on Bob Bruss publications, visit his Real Estate Center).

***

What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Inman News

Thanks to the ever-growing popularity of outdoor decks, which are in many ways an ideal do-it-yourself project, a wide variety of products and services have made their way into the marketplace to help you build that deck faster, easier and sturdier, with more professional results.

Deck Kits: If your plans are for something fairly basic, most of the larger lumberyards and home centers can provide you with a complete deck-building kit in several standard sizes and configurations. The kit contains all the lumber, hardware, fasteners, and other items you need, and some even include basic construction instructions. If you need a railing around your deck–required by most building codes if the deck is over 30 inches above the ground–there are rail-building kits available as well.

Deck building kits can offer you a simple and less expensive way to get started, and they provide a building block for future expansion of the deck as well. “Floating” decks, which sit on specially notched pier blocks and are not anchored to the house or into the ground, are another deck kit alternative for a building a quick and simple deck that you may want to remove or alter in the future.

Computerized Deck Design: Thinking a little larger then just the basics? Got the perfect deck idea in mind, but not sure where to go next? Many lumberyards and home centers also offer computerized deck design services that can save you hours and hours of planning, as well as avoiding wasted materials. The design consultant will walk you through several basic designs, and help you customize them to your exact size and layout requirements. They can add railings, stairs, benches, and other features, and then the computer will provide a complete material list from main girders to finish nails, along with simple assembly instructions to help you get the job done right.

Precut Stair Stringers: If your deck needs a set of stairs, you may have been scratching your head in consternation about how to build them. With the help of precut stringers cut from pressure-treated lumber, all the hard layout and cutting has been done for you. Just select the number of steps you need based on how high the deck is, and secure them to the deck and to the ground. Add the treads, which are usually built from the same lumber as the deck itself, and you’re all done.

Rail Parts: Deck railings are often part of a deck design just for aesthetic reasons, and they’re required by most building codes if the deck will be over 30 inches above the ground. As with the stairs, rail design and construction can be a cause of concern for many do-it-yourselfers, but the wide selection of rail parts on the market really simplify things.

Many retailers now carry precut two-by-two pickets that offer consistency and speed when building a railing–just install the horizontal rails and nail or screw the vertical pickets to them. To simplify rail attachment, there are also hardware brackets available that are sized to fit standard lumber. Some retailers even offer precut and pre-notched four-by-four posts in cedar, pressure-treated fir, and other materials to simplify rail construction even further.

Concealed Fastener Systems: For a truly professional look, you may want to consider something different from the standard method of installing deck boards with nails or screws driven through the top of the board. Concealed fastener systems, which offer a variety of different methods for attaching the boards to the support joists, eliminate visible nail and screw heads and helps prevent splinters and cracks.

Books and Videos: Nothing improves your confidence and your enjoyment more than having a solid game plan of how to attack that big pile of lumber that just showed up in the back yard. There are many great books available on deck design and construction, as well as a growing number of videos and DVDs that visually walk you through the whole construction process.

Remember that many decks require a building permit, and have certain construction standards that must be adhered to for safety. Check with your local building department before you get going on any deck design or construction project.

Remodeling and repair questions? E-mail Paul at paul2887@direcway.com.

***

What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Inman News

Hardly a day goes by that I don’t get a news release from some public relations firm touting their client’s latest ersatz Tuscan villas, or some decadent new cook stove for people with too much money. Nowadays these promotions arrive by the Internet instead of by mail, which no doubt saves those PR folks lots of money. Still, after a quick reading, most of them go straight into the digital garbage can.

The other day, however, I got a news release — actually, it still carried the old-fashioned heading “press release” — via the equally old-fashioned medium of a bulging manila envelope sent by mail. Inside I found the latest offering from Lloyd Kahn’s inimitable Bolinas, Calif.-based publishing house, Shelter Publications.

The new book was titled “Mongolian Cloud Houses: How to Make a Yurt and Live Comfortably.” It’s a revised and updated reprint of Dan Frank Kuehn’s 1980 how-to manual on building these nomadic circular houses out of bamboo, canvas and rubber bands cut from old inner tubes.

Kahn may be the only publisher in America who can pull off a title like that without veering into irony. His 1973 book, “Shelter,” has sold some 250,000 copies to date, and for the past 30-odd years, while the housing world has gone hurtling down the path of conspicuous consumption, heading for God-knows-what, Kahn has stuck fast to his convictions. In 2004, he released a sequel to “Shelter” called “Home Work.” It contains dozens of iconoclastic homes built of mud, straw, brick, boulders, branches and other natural materials, not one of them less than interesting, and some of them lyrically lovely.

So when Kahn’s press release informed me that “Mongolian Cloud Houses” (a title suggested by poet Lawrence Ferlinghetti) is “by far the most comprehensive and current book available now on the subject of yurts,” my natural tendency to guffaw quickly faded, and I found myself once again admiring Kahn’s utterly unswerving dedication to the cause of earth-friendly domiciles.

There are no doubt hundreds of housing developers, ace purveyors of beaux-arts detail rendered in Styrofoam, who’d have a jolly good laugh on Kahn for even proffering such a handbook, assuming they were interested enough to be aware of it. But then, you know what they say about getting the last laugh.

There is, after all, that nagging possibility that someday the market for 4,000-square-foot tract homes aimed at two-person families may cool off a bit. I’m not suggesting that many Americans will be living in yurts, now or ever. Even Mongolia’s nomadic herders, who’ve been building the originals for millennia, probably aren’t cranking them out like they used to.

But neither is there much doubt in my mind that America’s runaway obsession with huge and ostentatious houses will eventually run its course, as all housing fashions do. Granted, when the backlash comes, it’s probably not going to put us into round houses built of Johnson grass and canvas. But just knowing that these, too, can do the job might give us a bit of perspective.

***

What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Arrol Gellner