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Residential Real Estate


Metrostudy sees positive outlook for Texas
The Greater Houston Builder Association (GHBA) held itís mid-year forecast luncheon with Mike Inselmann of Metrostudy presenting 2008 and 2009ís outlook of the housing markets in Texas. Metrostudy is a nationwide provider of real estate housing market information as well as related industries. Mr. Inselmann projects that 2009 we will see an increase in home starts and a move toward a progressive real estate market rebound. Where will this happen? Texas, of course...
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Career Advice


Thinking about a career as a Professional Home Inspector
Would you like a career where you are your own boss and work your own schedule? A professional Home Inspector allows you the flexibility to work for yourself, set your hours and spend a great deal working outside. It is a great career for entrepreneurs who like spending time outside and helping people with one of the most important purchases they will make in their lifetime. Follow the simple steps below to get started.
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Mortgage Fraud

There is hardly a more pervasive problem in lending today than of mortgage fraud. It always involves a conspiracy between a loan originator and an appraiser. Additional conspirators can include a buyer’s broker (who may also be the mortgage broker), a title company, and the seller’s real estate agent. An overlooked conspirator could be the secondary market who is encouraging loan originators to make loans as fast as possible, so the loans can be purchased in the secondary market (even though they are the “victims” who sue!). Since the vast majority of these loans are packaged, processed, and sold based on credit scores and tax returns, most of them are sold with very little due diligence as to the quality of the borrower.

The properties also fall into a pattern. They are (1) on the market for a long period of time, (2) in a good neighborhood with higher appraised values, and (3) involve sellers that need to sell. The homes may have failed to sell for a number of reasons. The house was originally over-priced, became “stagnant,” and brokers don’t show it. There may be something quirky about the house that turns buyers off. The sellers may be difficult to work with, then become desperate to sell. These things don’t show up in an appraisal.

It could also involve builders who sell several homes in a “volume discount” to buyers (1) who resell to unsuspecting borrowers or investors, or (2) have “special incentives” for buyers (use my title company and mortgage company).

The Fact Situations

The “Flip.” While not illegal on their face, “flip” closings have been blamed for a number of mortgage fraud transactions in which the title company was allegedly complicit, resulting in fines in the millions of dollars against various title companies throughout the United States, levied both by the Department of Housing and Urban Development and the respective States’ Department of Insurance.

In a “flip” transaction, there is usually a straw man established in the middle of the transaction.  For instance, in a typical A to B to C transaction, B would be a mere nominee (straw company) who is buying at a low price from a legitimate seller, but selling it at a much higher price to a buyer. The appraisal reflects property value much higher than its real sales price (on the sale from A), and a loan application to a lender is for far more than what the property is worth.

There are two transactions here. In a legitimate “flip,” B is obligated to buy from A, finds a buyer C while the contract is pending, then has two closings. B can, and is capable of, buying the tract regardless of C’s ability to perform. The problem in the fraudulent transactions is that the sale from B to C has to close before the sale from A to B so that funds are available to pay A.  For instance, assume a $400,000 initial sales price, and a $600,000 conveyance from B to C, the lender has to fund on the $600,000 in order to get

the $400,000 to pay A.  The straw man (B) nets the $200,000.  Under most computer programs used in closings, the transaction is caught because you can’t close the second transaction until the first transaction is closed (B is not in title yet. What if A, the seller, backed out at the last second?).  In an effort to appease the greed, however, the escrow officer may override the program or use no program at all (filling out the closing documents by hand).  For the title company, it’s difficult to defend if a lender discovers the fraud.  The escrow officer has to step out of standard office procedure in order to complete the transactions.  If the A to B transaction closes at one title company, and the B to C transaction closes at another, it may be easier to juggle the timing, but the “conspiracy” net grows to include the other title company, who must help coordinate the closings.

Who is “C”? C can vary. He or she could be foreign born, relatively uneducated, and a recent attendee at “B”’s investment seminar on how to get rich in real estate. He could be a first time homebuyer lured by easy, sub-prime financing arranged by B. C could be completely fictitious. B finds a good credit application, changes the names, pays John Smith $200 to show up at closing and sign mortgage papers. In setting up a flip, the number of alternatives becomes exponential, therefore harder to catch unless your “red flag” traps are systematic.

Chuck Jacobus teaches Real Estate MCE at Champions School of Real Estate in Houston, Texas and is an attorney practicing in Bellaire, Texas as well as Executive Vice President of Charter Title Company in Houston, Texas. Chuck is a pre-eminent author of several books about Texas Real Estate and Texas Real Estate Law. He is currently a member of the Texas Real Estate Commission's Broker/Lawyer Committee and is Chairman of the State Bar of Texas Title Insurance Committee.

About ChampionsSchool.com:

Champions School of Real Estate® is owned by Rita Santamaria and has been providing the highest quality education for Texas real estate agents since 1983 with online courses and campuses in Austin/Round Rock, Dallas, Forth Worth, Houston, San Antonio and satellite campuses across the state. Champions also provides Loan Originator, Home Inspector and Appraiser Licensing and Continuing Education courses.


Real Estate News


Getting Past the Mortgage Crisis
Compliance is now the buzzword when it comes to the mortgage lending industry. The industry, after the huge fall-out, is now going back to the way it used to do business. Proof of income, proof of assets and good to excellent credit scores are once again the benchmarks by which consumers are able to obtain loans. Gone are the days where you just had to have a pulse (in some states a pulse was not even needed) to qualify for a loan.
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