In 2009, there were 4,000 new homes started and 14,000 sold. At the end of 2009, there were 13,438 units of new-home inventory in metro Atlanta. Seven out of the top ten top-selling residential communities were in north metro Atlanta. Consequently, the pending shortage of new homes is going to be more pronounced in this area.

New home prices could rise, and rise sharply. Because of the financial condition of most banks, construction lending is non-existent. As a result, builders will not be able to increase supply easily or readily. So new home buyers will be clamoring for an ever-shrinking supply of new homes, bidding up prices.

Existing home demand will increase as a result. New home buyers are going to be forced to seek an alternative in existing homes. This demand will bode well for clearing supply of foreclosed homes on the market. Because of the countervailing price reduction of foreclosures, it is unclear what values will do on the net for existing homes, but the demand created by the shortage in new homes will provide valuation support to the existing homes sales market.

Lastly, it is unclear what the end of the Federal Reserve’s purchase program for residential mortgage backed securities will do to interest rates. It has been documented that rates will rise though; it is just unclear by how much. Moreover, the same is true for the tax credit given to home buyers. It is slated to go away around April 1, 2010.

While I sound more like an economist than a real estate lawyer, understanding the economic and financial conditions that underpin the legal work I perform for clients is essential to understand whether or not there will be any demand for my services. So pardon my professional deviation; now, back to work.

In other words, a buyer who is borrowing money to acquire real estate cannot be forced or made to purchase title insurance from a particular title company as a condition to the transaction by the seller. Without going into the gory details of the definition of a “federally related mortgage loan,” know that the vast majority of buyers of real estate, or borrowers refinancing real estate, are taking out “federally related mortgage loans.”

Attorneys and Title Companies

A real estate closing constitutes the practice of law according to the State Bar of Georgia. The State Bar of Georgia in Formal Advisory Opinion No. 86-5 stated that a closing is defined as the entire series of steps or actions taken to convey title from one party to another. Since a closing involves the practice of law, a closing must be done by a Georgia licensed attorney, and part of a closing involves the issuance of title insurance policies to the lender and possibly to the buyer if the buyer chooses to purchase a policy.

Title companies are precluded from closing real estate transactions in Georgia. Attorneys and title companies enter into agency agreements whereby attorneys act as agents of title companies. Agents of title companies fall under the definition of Title Company under RESPA, making an agent of a title company a “title company.” Since RESPA forbids a buyer from being forced to purchase title insurance from a particular title insurance company, RESPA’s effect on closings in Georgia is to preclude a seller from telling a buyer which attorney or law firm is going to close the transaction.

Your Ticket to Success and Solvency

Section 9 of RESPA can be intelligently and strategically used to facilitate smoother, better closings for real estate agents and buyers. You no longer have to close with law firms and attorneys whose service and execution threaten to drive you out of business. Realtors tell me frequently how the law firm the borrower “had” to use did not return phone calls, did not respond to e-mail, did not give them a check at closing, etc. I always ask, “[w]hy did you close at that firm, and I always hear either, “we had to use the seller’s attorney,” or “the seller paid for the buyer’s attorney fees” or something that cost about $300.

The reason why they thought they had to use attorney X is because no one ever explained the implications of RESPA Section 9 to them. With respect to paying the attorney fees, I ask if it was worth it. If a Realtor puts a per hour value on their time and multiply that amount by the number of hours spent trying to get someone on the phone, return phone calls, give them their check, respond to e-mail, etc., they will come up with an answer greater than the fees paid by the seller for the buyer. In other words, the seller paid a fee of the buyers and then delivered terrible service thereby indirectly imposing the cost on you, the real estate agent. The real estate agent is the one paying the price for using the seller’s closing attorney, not the buyer. Sucker!

There are other costs to the Realtor for closing at the seller’s law firm. By not getting a check at closing, the Realtor is losing the time value of their money. The seller and its closing attorney are not paying interest on money due the Realtor not yet dispersed to the Realtor. Also, the Realtor spent money on gas to go to the closing. So added all up, the Realtor pays a big price for closing at a seller’s closing attorney. It would be better to tell the buyer to close at a law firm who focuses on execution and service, such as Craig Long.

Your Failure Guaranteed

If you refuse to utilize this one provision of RESPA to your advantage, you will not see the beginning of 2010 as a real estate professional! You may ask, what if the seller gives me grief and is persistent and insists. Below are the RESPA enforcement rules that list the actions that can be brought against a seller who violates Section 9:

• The financial penalty payable to a buyer who is forced to use a particular law firm is three times the title insurance premium.
• Moreover, a complaint can be filed with the Department of Housing and Urban Development at the address below.
• HUD has the authority to impose financial penalties on violators of Section 9 and to impose enormous costs on those it brings regulatory action against.
• Moreover, there is always the possibility that a class-action lawsuit would be appropriate in certain situations.

HUD Enforcement of RESPA

Civil Law Suits

Individuals have one (1) year to bring a private law suit to enforce violations of Section 9. Lawsuits for violations of Section 9 may be brought in any federal district court in the district in which the property is located or where the violation is alleged to have occurred.

HUD, a State Attorney General or State insurance commissioner may bring an injunctive action to enforce violations of Section 9 of RESPA within three (3) years.

Filing a RESPA Complaint

Persons who believe a settlement service provider has violated RESPA in an area in which the Department has enforcement authority, may wish to file a complaint. The complaint should outline the violation and identify the violators by name, address and phone number. Complainants should also provide their own name and phone number for follow up questions from HUD. Requests for confidentiality will be honored. Complaints should be sent to:

Director, Office of RESPA and Interstate Land Sales
U.S. Department of Housing and Urban Development
Room 9154
451 7th Street, SW
Washington, DC 20410

When someone initially purchases real estate, and they borrow money, the lender is charged a fee for a Lender’s title insurance policy. The owner has the option to purchase an Owner’s title insurance policy. Whether the borrower decides to purchase an Owner’s title insurance policy or not, the lender will not loan money without being issued a title insurance policy protecting the lender’s secured interest in the property. Rather than paying the fee for the policy, the lender passes the cost on to the borrower by including the fee in the borrower’s settlement charges.

As for refinancing the property initially purchased, a new loan represents a new risk of loss for the refinancing lender because of a potentially different priority position or level in the property. Consequently, there are new legal risks of loss for the lender, so the lender will require a new Lender’s title insurance policy.

The title insurance premium charged for the Lender’s title insurance policy on the refinance should be less than the premium charged at the purchase because of “Reissue” rates. Title insurers charge Reissue rates when an interest being insured has been previously insured by a “reputable” title insurance company within the last ten (10) years. The reissue rate charged by Craig Long, LLC, who underwrites title insurance for Stewart Title and Guaranty Company and Chicago Title, is sixty (60%) percent of the previous market, or published, rate charged. However, if the lender and borrower were given a discount, the Reissue rate does not apply.

Another fee charged and itemized on page two of the HUD-1 Settlement Statement is Intangibles taxes. When a purchase of real property occurs and the buyer borrows money to make the acquisition, the seller conveys to the buyer an interest in the property and the buyer in turn conveys to the lender an interest in the property. These interests obtained by the buyer and lender are “intangible” personal property rights the State of Georgia has decided to tax. The State of Georgia taxes a lender’s “intangible” property at closing and the lender makes the borrower pay the tax for the lender.

In a refinance context, the Intangibles taxes can be mitigated and possibly avoided. The regulations of the Georgia Department of Revenue provide that Intangibles taxes are not assessed against the part of the new loan that represents a refinancing of the current unpaid principal. Any amount over and above the current unpaid principal represents “new” money being loaned and is charged the normal Intangibles taxes of $1.50 per $500.00 of debt. For example, if I borrowed $100,000.00 last year and now have an unpaid balance of $95,000.00 and call you to borrow $110,000.00; I will pay Intangibles taxes on the difference of $15,000.00, or $45.00, rather than on the $110,000.00, or $330.00, if I borrow money from the same lender.

These two fees charged to borrowers on the HUD-1 Settlement Statement can be significant. You now know how to help mitigate these fees for your clients and hopefully close more transactions by reducing the costs. Give us a call at 678-679-0680 if we can help you succeed this year.