Death and Taxes - The Blog

"Certified" Deed Scam

A few months ago, I recorded a deed by which my clients transferred their residence into their living trusts.  My clients were then contacted by a company that said my clients should purchase a certified copy of the deed for their property -- from the company, natch -- for a fee of $150.  I told my clients not to bother. 

This month's IICLE Flash Points newsletter on Real Estate Law (written by Steven B. Bashaw) says that my clients' experience was not an isolated incident:

[T]he Recorder of Deeds of Cook County, Eugene Moore, is alerting lawyers to scams that may impact their real estate clients. The first scam involves letters sent to unwary senior citizens suggesting that something may be wrong with the title to their home and they had better investigate. The method suggested to do this is to order a “certified” copy of the deed to their property at a cost of $150.00. Of course, the same document can be viewed on-line without cost (www.ccrd.info) and a hard copy obtained for less than $1.00.

My Office Situation

For the past two years I have rented office space in Oak Park (at 1101 Lake Street).  However, my lease ends on July 31, which means that a move is in order.  After looking at a lot of other office space, and doing a lot of thinking about my needs and the needs of my clients, I've decided not to go with a formal office arrangement.  The reasons are fairly simple:

1. I don't have a lot of client visits.  I neither have nor seek walk-in traffic, and I interact with my clients a lot via e-mail and telephone.  It seems a little silly to maintain a permanent office when I probably have one client meeting per week.

2. I have always made "house calls," and I think that's one of the things clients -- especially elderly clients, and clients with small children -- like about me.  I'll continue to do that.

3. The rents for the office space I looked at were almost double what I am currently paying in rent.  I'm not willing to eat that increase myself, and I'm reluctant to pass it on to my clients by raising my rates.

4. I was able to work out a virtual office arrangement with a company called HQ.  This allows me to schedule client meetings at what will be my main office (One Westbrook Corporate Center, Suite 300, Westchester, Illinois 60154).  I can also schedule meetings at other Chicago-area HQ offices (and there are a lot of them).

My biggest concern in getting rid of my office is that it creates an unprofessional look for my practice.  I don't want to be perceived as "the lawyer who works out of the back of a van," or some such thing.  On the other hand, I'm not interested in spending "money for nothing" just so I can create a certain image for myself -- I'm more concerned about doing good legal work.

Bob Bruss on Probate Property

Real estate writer Bob Bruss heads into JG Banks territory with this article, which discusses making a profit on probate properties.  I like the discussion of the risks of buying these properties, but have two criticisms:

1. Mr. Bruss states that "[f]inding probate properties isn't easy," but then goes on to detail some fairly easy steps you can take to locate these types of properties:

... [C]lip the daily newspaper obituary notices, look for published legal notices to creditors and notices of petition to administer estates, check probate court public files to determine if the deceased left real estate to be probated, and check with estate executors and administrators to learn if real estate will be sold.

2. Mr. Bruss says that investors should try to buy directly from executors and administrators, stating that "[b]ecause most executors and administrators are 'amateurs,' they usually want a quick, easy sale and are not motivated to get top dollar."  As I said before in this post about JG Banks probate seminars, "executors and administrators owe certain fiduciary duties to the beneficiaries of an estate, and... selling estate property at a discount would seem to me (absent other compelling facts) to be a violation of these duties."  I suppose you can just say "seller beware," but do you really want to profit by trying to convince executors and administrators to violate their fiduciary duties?  There have to be easier ways to make a buck.

Twinkies, Shortstops, and Gangsters: Homes of Famous People

Two things:

1. Last week The Chicago Tribune ran a story about an Oak Park couple that recently discovered an interesting fact about their home: James Dewar, the inventor of the Twinkie, once lived there.  (The article is here, although registration is required.) 

2. I recently learned that Chicago Cubs Hall of Famer Joe Tinker (of "Tinkers to Evers to Chance" fame) once lived one block west of me in Oak Park.  (Mr. Tinker's house at 832 Gunderson was built for him in 1907, and just appeared on a neighborhood housewalk sponsored by The Historical Society of Oak Park and River Forest.) 

This got me thinking some more about whether having a house with a famous former occupant could help you in the real estate market.  (I pondered this question with respect to gangster's homes last year.) 

I have to think that the internet can be a huge help in marketing these properties.  After all, a person interested enough in gangsters to buy Sam Giancana's house may not necessarily reside in the Chicago area.  Instead of marketing only to Chicagoland residents, a savvy realtor engaged to sell the Tinker house might try to stir up interest among baseball fans generally or among Cubs fans (or fans of baseball history) in particular.  This tactic probably won't work in all cases --  I don't know whether there would be anyone willing to pay a premium for The House That Twinkie Built -- but this kind of niche marketing may be worth exploring in some cases.  After all, the goal in selling a house is to sell to the person who values it the most, and it only takes one huge Twinkie fan (no pun intended) to create a windfall for the seller.

New Multi-Board Residential Real Estate Contract

A few years ago the Illinois Real Estate Lawyers Association (IRELA) drafted a form contract called the Multi-Board Residential Real Estate Contract 3.0 -- the form is available as a pdf document here. 

Contract 3.0 was very good, and pretty widely accepted in the Chicago area -- it was approved by the Chicago Association of Realtors as well as attorney and realtor groups in DuPage, Lake, Kane, and McHenry counties (among others).

IRELA has now prepared a new version of the Contract (4.0), which is available to its members on IRELA's website -- hopefully a version of Contract 4.0 will become available to the general public in the near future. 

The website also includes commentaries related to Contract 4.0 -- because IRELA's site is so horrible to navigate, I've linked to these commentaries (all of which are pdf documents) below:

Comparison of Contract 4.0 to Contract 3.0 by Joseph R. Fortunato, Jr. (link)

Contract 4.0 Key Revisions And/Or Additions At a Glance chart by Ralph Schumann (link)

Amendment, Notice and Response Forms 4.0 (link)

Inability to Satisfy Contingency And/Or Mutual Cancellation Agreement 4.0 (link)

Real Estate For Sale Websites

Yesterday's Wall Street Journal had an informative article about websites that are starting to challenge the supremacy of Realtor.com in the real estate listings game.  Here's a partial list of other sites you may want to visit if you are thinking of buying a home:

Craigslist Chicago (real estate for sale is here)

Oodle Chicago (real estate is here)

Propsmart

Trulia (which doesn't currently have any Illinois presence)

ForSaleByOwner.com

Google [Added 4/9/06: thanks to Anthony Cerminaro for his link in the comment below]

Offer and Acceptance: Contract Law and Real Estate

At its heart, an agreement for the purchase and sale of real estate is just a contract.  As such, the agreement needs to conform to the requirements of a valid contract under state law.  A key aspect of a valid contract is the "meeting of the minds" -- the parties need to agree on the actual terms of the contract.  This is the law -- it's also common sense.

Let me present a (slightly altered) timeline for a transaction on which I'm currently working:

November 4: Buyers offer to purchase real estate for $210,000, with a $5,000 inspection credit (in other words, $205,000 net offer)

November 5: Sellers make a verbal counter-offer of $215,000 with $5,000 inspection credit ($210,000 net offer)

November 6: Buyers present a signed contract to Sellers offering $215,000 with $6,000 inspection credit ($209,000 net offer)

November 7: Sellers cross out the purchase price and inspection credit amount on the Buyers' contract, write in $216,000 with $5,000 inspection credit, and sign the contract ($211,000 net offer)

We now have a contract signed by both parties, but the contract isn't valid.  The Sellers have agreed to a $216,000 purchase price with a $5,000 inspection credit, but the Buyers haven't.  We're pretty close to an agreement ($209,000 net offer vs. $211,000 net offer), but we aren't there yet.

A separate issue arises when the parties have entered into a valid contract, one that includes an attorney review provision.  (This provision, which is very typical in residential real estate contracts, allows each party's attorney to propose modifications to the contract.)  Let's suppose that the buyer's attorney sends a letter to the seller's attorney, asking that certain provisions in the contract be modified.  The question then becomes whether or not this modification request constitutes a rejection of the original contract and a counter-offer.  As Helen W. Gunnarrson explains in this very insightful article from the Illinois Bar Journal, practitioners differ in their take on the effect of an attorney modification letter.  Some attorneys do indeed view the modification request as a rejection of the original contract and a counter-offer, while others simply think of the modification request as a proposal of some kind.

Real Estate Disclosures and Sales "As Is"

The recent Second District decision in Bauer v. Giannis has opened some eyes among Illinois real estate attorneys.  The facts are as follows (this synopsis comes from Steven B. Bashaw's "Real Estate Law Flash Points" for November 2005, available online here -- the Bauer case is point #4):

In executing the Residential Real Property Disclosure Act Report at the time of the contract with Bauer, the sellers misrepresented that they were not aware of flooding or recurring leakage problems and concealed the fact that the property had flooded the year before and sustained $425,000 damage due to flooding. The home was on the market at the time of the flooding, and taken off for repairs by a civil engineer, including constructing a berm and a comprehensive grading plant. When a contract was prepared between the parties, and after a number of inspections (at least six) by the Bauers (during which time the Bauers testified Giannis never advised them about the flooding or repairs, but Giannis testified otherwise), an "As Is" Rider was added to the contract by their attorneys.

The Court found that, because the sellers did not make the appropriate disclosure on the Residential Real Property Disclosure Act Report, the "As Is" rider was not a defense against a fraud action by the buyers. 

The moral of the story for sellers?  Disclose disclose disclose.

Intro to Mortgage Fraud

"Mortgage fraud" is an overly-broad term for fraud involving a mortgage.  I say "overly broad" because mortgage fraud isn't limited to one type of scam; rather (and unfortunately), crooks seem to come up with new types of mortgage fraud on an almost daily basis.  It's also important to realize that mortgage fraud can be perpetrated by many different parties, including (but probably not limited to) home buyers, home sellers, lenders, real estate attorneys, closing agents, realtors, appraisers, and mortgage brokers.

Let me give a couple of examples of mortgage fraud:

1. In order to get a loan, a home buyer makes false statements on his loan application ("my annual income is $100,000," when it's actually $50,000) or when signing the closing documents.  One popular false statement is for the home buyer to claim that he or she will occupy the property when in fact he or she is an investor, and plans to rent out the property.  (Interest rates for investment property are higher than they are for owner occupied property, so the home buyer is lying in order to get a better interest rate.)  Note that, in the never-ending quest for a commission, the home buyer's mortgage broker may be encouraging or assisting the home buyer in making false statements to the end lender.

2. Another mortgage fraud scam is known as "flipping," and works something like this: A person (let's call him Sam) buys a distressed property for $60,000.  Sam does a very minimal amount of work to the property and, two months later, lists it for sale at $90,000.  A friendly (and crooked) appraiser appraises the property at $90,000, and a buyer makes a bid (after having secured an $80,000 mortgage).  Once the deal is done, the buyer -- and his or her lender -- discover that the property isn't actually worth $90,000.  The buyer and his or her lender are then stuck -- the buyer can't sell the property without losing money (neither can the lender), and the buyer may also not be able to afford his or her mortgage payments.

Cases of mortgage fraud seem to be on the rise in this strong real estate market, and threaten the strength of this real estate market (and, potentially, the economy as a whole).  To get a better feel for mortgage fraud, you may want to check out The Mortgage Fraud Blog.

Realtor Battles in Missouri

This article has a good summary of the ongoing war between regular real estate brokers and so-called discount brokers, and how it has resulted in new legislation in Missouri. 

Discount brokers offer specific services -- like listing a property in the Multiple Listing Service -- in return for a smaller fee or commission than a regular real estate broker would charge.  The Missouri legislation (which passed their House and Senate unanimously, and has been signed by the Governor) requires brokers to be involved in handling and negotiating offers and counteroffers for their clients.  What does all this mean to home buyers and home sellers?  Follow the money and the influence:

-Regular real estate brokers are under a lot of pressure from discount brokers.

-The legislation was sponsored by a real estate agent.

-The Missouri Realtors Association spent $50,000 for a lobbyist to get the Governor to sign the legislation.  The lobbyist has close ties to the Governor's father.

-The Justice Department and the FTC both believe that the legislation (a) will reduce competition among brokers, "causing some home sellers to pay thousands of dollars more in commissions," and (b) "does not address any demonstrated consumer harm."

I think there could be an analogous situation to my estate planning practice here.  A discount broker might be the equivalent of an estate planning attorney who charges a small fixed fee to review estate planning documents drafted by the client using Will and Trust software.  Would I ever offer such a service?  No -- I think the risk (potential malpractice because I didn't catch a mistake in a document I didn't draft) far exceeds the reward.  But do I oppose the right of all Illinois attorneys to offer such a service?  Of course not.  Even though I think my rates are reasonable, I know that not everyone agrees and that not everyone can afford (or even wants) my services.  Shouldn't consumers who want less be able to pay less?