For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us. Vested Land Services LLC can help. Located in Fairfield, NJ, we are the title insurance agent that does it all for you. Contact us at 973-808-6130.
A Smaller Down Payment, and No Mortgage Insurance Required
Does the need for a 20% down payment to purchase that home have you stymied? Well, mortgage insurance, an expensive proposition, is on way. But this article from the NY Times has a solution.
How did they do it? They took out one loan equal to 80 percent of the
purchase price, and another loan for 10 percent — something that has
traditionally been called a piggyback loan or a second mortgage.
The key is to be within the income requirements of the lenders offering this program.
So, don't despair, get out your calculator, see if you qualify, and start looking for your home.
And don't forget to call us for the title insurance!
For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us at Vested Land Services LLC. We can help. Located in Fairfield, NJ, we are the title insurance agent that does it all for you.
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The New York Times real estate section takes an educated guess at what the real estate market will be like in 2016.
Some predictions:
Home price appreciation will slow down.
Buying will beat renting.
The mix of buyers will change.
How does that affect you? Read the full article here.
For your next title order or
if you have questions about what you see here, contact
For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us. We can help. Located in Fairfield, NJ, we are the title insurance agent that does it all for you.
For your next title order or
if you have questions about what you see here, contact
Stephen M. Flatow, Esq.
Vested Land Services LLC
165 Passaic Avenue, Suite 101
Fairfield, NJ 07004
Tel 973-808-6130 - Fax 973-227-0645
E-mail sflatow AT vested.com
In-House Counsel
Red Flags Rule and Identity Theft Protection Compliance
Tyler W. Mullen, The Legal Intelligencer
Have you ever been many miles from home, perhaps on vacation, when suddenly your bank notifies you that your credit card account has been frozen? Such occurrences always seem to happen at the most inopportune moments. However, the credit card freeze may simply be the bank's attempt to comply with the so-called "Red Flags Rule."
In our ever-evolving technological landscape, consumer information may be more vulnerable now than ever before. Instances of identity theft—using another's personal data fraudulently or deceptively, usually for financial gain—occur at an alarming rate. In 2014 alone, an estimated 17.6 million U.S. residents experienced some form of identity theft, according to the Bureau of Justice Statistics. In an effort to curb the identity theft epidemic, various federal regulators administer the Red Flags Rule, requiring certain financial institutions and creditors to take extra care in protecting consumer financial information. Although general counsel of banks, savings and loan associations, and credit unions clearly should take note, the rule is very broad, and less obvious entities may also need to comply with the rule.
What is the Red Flags Rule?
The Red Flags Rule, originally born under the Fair and Accurate Credit Transactions Act and implemented by the Federal Trade Commission, is a regulation designed to combat consumer identity theft. Although first implemented only by the FTC, Dodd-Frank expanded the number of agencies responsible for enforcing the rule. Now, many agencies including the FTC, U.S. Securities and Exchange Commission, U.S. Commodity Futures Trading Commission (CFTC) and Federal Deposit Insurance Corp. (FDIC) each enforce substantially similar versions of the rule within their respective regulatory spheres.
The rule requires covered persons and entities to implement written identity theft prevention programs designed to detect, prevent and mitigate identity theft by monitoring "red flags." Red flags are patterns, practices, or specific activities indicating the possible existence of identity theft. Some examples of common red flag categories include unusual account activity, inconsistencies in personal information, or alerts from credit reporting, according to the FTC's "Fighting Identity Theft With the Red Flags Rule: A How-To Guide for Business."
Which Entities must Comply?
Financial institutions and creditors offering or maintaining covered accounts are subject to the Red Flags Rule. Therefore, the first step in determining whether the rule applies involves identifying whether an entity constitutes a "financial institution" or "creditor." The second step is to decide whether such financial institutions or creditors offer or maintain "covered accounts."
• Financial institutions or creditors.
Financial institutions include banks, savings and loan associations, mutual savings banks, credit unions, and other person or entities holding consumer transaction accounts. A transaction account is an account from which owners may make multiple payments to third parties. Furthermore, under the SEC's version of the rule, financial institutions includes certain brokers, dealers, investment companies and investment advisers.
The definition of creditor is relatively less clear and likely more inclusive. Creditors are determined by conduct under the rule, not class. Creditors include any entity or person that, regularly and in the ordinary course of business, extends or arranges for credit and (1) obtains or uses consumer reports in connection with a credit transaction, (2) furnishes information to consumer reporting agencies, (3) advances funds to or on behalf of a person based on a repayment obligation, or (4) offers or maintains credit accounts subject to reasonably foreseeable identity theft vulnerabilities.
Thus, the definition of creditor is extremely broad and covers a wide spectrum of businesses, from banks and finance companies to automotive dealers and utility companies. The definition does, however, expressly omit those who advance funds for expenses incidental to services provided by the creditor, which shelters many professionals who allow delayed payment for services. However, determining whether an entity or person constitutes a creditor is ultimately a fact-specific inquiry with no bright-line rule.
• Covered accounts.
Finally, as mentioned above, only financial institutions or creditors offering or maintaining covered accounts are subject to the rule. Covered accounts include both (1) consumer accounts used for personal, family, or household purposes involving multiple payment transactions, or (2) any account entailing a reasonably foreseeable risk of identity theft, or risk to the safety and soundness of the financial institution. Credit card accounts, mortgage and automobile loans, and checking and savings accounts fall into the first category; they are all consumer accounts from which multiple payment transactions can be initiated.
The second covered accounts category is the catch-all. Individual risk assessments should be performed to determine whether accounts involve reasonably foreseeable identity theft risks. Common factors to consider include how the account is opened or accessed. For example, accounts that may be accessed remotely are typically higher risk than accounts requiring the physical presence of the account holder.
Penalties for Noncompliance
Beyond exposing consumers to the ever-increasing threat of identity theft, failure to comply with the Red Flags Rule can prove costly for businesses. The FTC may seek monetary penalties of up to $2,500 per knowing violation of the rule, or injunctive relief requiring the entity to comply with the rule. Penalties are assessed based on the degree of culpability involved, history of prior conduct, ability to pay, the effect on the business's ability to continue, and other factors as justice requires. Additionally, as many general counsel know, disputes with federal regulators typically involve hefty legal expenditures and opportunity costs.
How do Covered Entities Comply?
So, how can covered entities protect their customers from identity theft while also protecting themselves from administrative enforcement? Simple: Covered entities must implement a written identity theft prevention program consistent with the Red Flags Rule. The rigor and comprehensiveness of a particular entity's program can be commensurate with the level of risk posed to consumers. However, each program should include four basic elements.
First, programs must identify relevant red flags, which may vary depending on the nature of the business and type of account. For instance, a common red flag indicating stolen account information involves purchases in locations not typically associated with the account. The rule gives some guidance on categories of common red flags, which include alerts from credit reporting companies, suspicious documents, inconsistent personal identifying information, unusual account activity, and notices from law enforcement or customers.
Second, programs must be designed to detect relevant red flags. Perhaps the most common method of detecting red flags involves personal identity verification procedures. You may have applied for a credit card recently, only to spend what seemed like an eternity answering detailed questions about your past addresses or employers. Such procedures—though mildly annoying—are designed to protect consumer information. Other methods, such as password encryption, PIN number usage, and restricting the ability to open accounts from telephones outside an applicant's home, may also be employed.
Third, programs must dynamically respond to red flags to prevent or mitigate identity theft. Freezing the account, contacting the account holder to verify account activity, or simply monitoring the account for a specified period of time may be appropriate. However, even measures as drastic as notifying law enforcement may be necessary.
Finally, programs must include procedures for periodic reassessments and updates as necessary. Identity theft techniques will evolve as technology develops and criminals become more tech-savvy. Means of preventing identity theft will also undoubtedly evolve. Each program should be revisited periodically in order to stay abreast of any relevant developments.
Such identity theft prevention programs must be approved by a company's board of directors, or other senior management if no board exists. Programs should also outline applicable staff training procedures, teaching the appropriate people to implement the programs and identify red flags. Periodic oversight by either the board or senior management is also highly advised.
In light of recent technological advancements and the need for protecting sensitive consumer information, identity theft compliance, as governed by the Red Flags Rule, is an important consideration for general counsel. •
For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us. We can help. Located in Fairfield, NJ, we are the title insurance agent that does it all for you.
Millennials, those in the 18-34 years age bracket, are investing in real estate. No, not to live in but to collect rent and garner some appreciation in value. So reports the New York Times,
For all the talk about the so-called millennial generation — often defined as those between ages 18 and 34 — being slow to move toward homeownership, some young adults are, surprisingly, drawn to real estate as an investment opportunity.
I find this phenomenon interesting. What do you think?
For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us. We can help. Located in Fairfield, NJ, we are the title insurance agent that does it all for you.
The Value of Title Insurance for the Cash Purchaser
The Claims Corner is a TitleNews Online feature provided by ALTA’s Claims Committee, which reviews claims that have a unique or interesting set of facts or triggers an unusual aspect of a title policy. FACTS: An owner’s policy of title insurance was issued in the amount of $1.2 million, concurrent with the insured’s purchase of vacant land in an extremely high-value area. The transaction was an REO sale of property, recently foreclosed upon by a local bank, and the insured, Ms. Able, received a quitclaim deed in exchange for the large purchase price in cash. Soon after closing, the insured Ms. Able began the process of building her dream home on the lot. All was well—right up until she got sued by the former owners of the property who had been foreclosed.
Let’s go back in time a bit. A number of years before our insured transaction, during the real estate boom, the former owners, Mr. and Mrs. Solomon, purchased this nice house and the vacant lot next to it. They owned the property as tenants by the entireties. Over the years, Mr. Solomon racked up a couple of million dollars in liens on the property after failed business dealings. Things started to get a bit sketchy for Mr. Solomon, and the Solomons transferred title to the vacant lot to Mrs. Solomon individually. A few years after that, they transferred title to the house lot to Mrs. Solomon.
Apparently, these transfers angered one of Mr. Solomon’s many creditors, who sued them both, saying that the transfers of the properties were a fraud on creditors. The creditor got an attachment for $500,000. The court in that case ordered that, as to the house lot, title must be re-vested back into both spouses. The court left title to the vacant lot in Mrs. Solomon. Finally, the court ordered that neither property could be further encumbered by the Solomons.
Soon thereafter, the parties to that case (the creditor and the Solomons) tried to settle up some of their issues; rates were falling, and they agreed that the Solomons would refinance of all of the existing debt on the properties, with the creditor getting a nice pay-down and subordinating its attachment to the new loan. The Solomons agreed that they wouldn’t get a penny from the refi. The Solomons went to the local bank and told their story. The bank knew it needed to be very careful here—there was a court order after all—so their counsel took the step of getting a new court order allowing the refinance transaction.
It all sounds good, right? Well, remember the state of title—house lot owned by both spouses and vacant lot just in Mrs. Solomon’s name? The bank set up the refinance transaction for BOTH properties with Mr. Solomon as the sole borrower on the note, and Mrs. Solomon as the only mortgagor on the mortgage. Wait, what? [Now, we all know we can do this kind of transaction, but it’s complicated and there has to be some documentation of what’s going on. For example, the bank could have set up Mrs. Solomon as a non-recourse guarantor, and she could have secured the guaranty with the mortgage, but the bank did none of this]. The $2.7 million refinance transaction took place, and all was well until the loan went into default and the bank proceeded with foreclosure.
To make matters worse, during the non-judicial foreclosure proceeding, the bank gave notice to Mrs. Solomon only, as the mortgagor, rather than to both spouses. The foreclosure sale was conducted, and the bank took back title to the property as REO. The bank sued the Solomons for eviction, and obtained a default judgment whereby the Solomons were ejected from the property. Interestingly, the bank chose to sell off the property separately. They sold the house lot to another investor for $1.8 million and the vacant lot to our insured Ms. Able for $1.2 million, which brings us back to the time of the insured transaction.
Our insured was happily building her dream home on the vacant lot when she was served with a lawsuit initiated by the Solomons. The lawsuit argued:
As to both lots, the entire mortgage was void, due to a failure of consideration. He was the only borrower. She was the only mortgagor.
As to the house lot, because they owned it as husband and wife, but only she executed the mortgage, the mortgage was not enforceable as to the house lot. (In the state where this claim occurred, a mortgage by only one spouse where title is held by the entireties is an unenforceable interest in only half of the estate, and that half interest only becomes enforceable upon death or divorce.)
As to both lots, the foreclosure was void, because the bank only provided statutory notice to Mrs. Solomon.
Ms. Able filed a claim with her title insurance underwriter, who was faced with an allegation of an absolute failure of title for $1.2 million. Sure, the Solomons didn’t exactly have clean hands. They had signed a court order to get approval for the very transaction that they were now trying to void, and one hoped that they would have trouble defeating any reformation action necessary to fix up the loan documentation. And as to the lot which purchased by Ms. Able, the bank did give Mrs. Solomon notice as the only owner of that property, so that was in the insured’s favor. As we all know, however, foreclosures are statutory creatures that must be done correctly or done over, so there were nerves all around. Outcome: Counsel was engaged at the underwriter’s expense to defend the insured, and a motion to dismiss the Solomons’ complaint was filed based upon numerous theories of bad faith, laches, fraud, estoppel and res judicata. It’s never fun to be hanging your $1.2 million hat on murky equitable defenses from law books, but that’s what happened here, and thankfully the court in this case got it right. The court ruled that because the Solomons had allowed a default judgment to enter in the bank’s eviction proceeding against them, the issue of the bank’s rightful title to the property had already been adjudicated. Any claim by the Solomons that the loan documents were bad, or that the foreclosure was void, was barred by the doctrine of res judicata. The case was dismissed, and good title rested in the hands of Ms. Able. Lesson Learned: There are some interesting points to consider from the perspective of the title agent and the insured on the value of title insurance, especially had things not gone so well in court:
When underwriting a transaction where a foreclosure or other statutory process is in the back chain, title agents must confirm—often by review of off-record evidence—that every statutory base was tagged. The consequence of a bad foreclosure is more often than not a complete failure of title.
Ms. Able purchased the vacant property for $1.2 million, and that was the amount of the policy coverage. Having designed and substantially begun construction at the time of the lawsuit, Ms. Able’s damages in the event of a failure of title would have grossly exceeded policy limits.
More interesting, what would have happened if Ms. Able hadn’t purchased title insurance at all? Even though the litigation to defend title was successful, it was as a cost of tens of thousands of dollars, all of which was covered by the title insurance policy. Had the defense not been successful, her large purchase price in cash, as well as at least that much in construction costs, would have been at risk without the policy. How many investors purchase foreclosed property for cash, and then pump money into it for improvements before selling? For the prudent purchaser, owner’s coverage is never an “optional” investment!
This claim summary was prepared by Michele Green, vice president and senior underwriting counsel for First American Title Insurance Company’s Agency Division.
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