Condominium and HOA Approval Issues - Part 2

            In addition to the issue of Association and landlord denying approvals based on criminal history, many Associations and landlords are restricting, limiting or outright denying applicants based solely on credit history, employment issues and past bad conduct unrelated to a criminal matter. These restrictions, coupled with the already restrictive criminal matters, has made purchasing and leasing property even more difficult for those people with a previous felony conviction, bad credit, short employment history, or other background matter that, in the past, would not have prohibited the purchasing or leasing of property as long as the prospective buyer or tenant had sufficient funds to consummate the transaction.

            A credit check of a prospective buyer or tenant is now a very common requirement of Associations and landlords. Obtaining the credit score of any prospective purchaser or tenant is an inexpensive way to weed out candidates who may not be financially responsible. The real question is whether or not a credit score is determinative of a person’s ability to pay assessments as an owner or rent as a tenant.

            Much of what determines a person’s credit score is proprietary based on the formula created by the Fair Isaac Corporation.  The company uses credit data included in a consumer’s credit report consisting of the following five elements: payment history; credit utilization; length of credit history; new credit and credit mix.  These five items are then put through a proprietary system by the Fair Isaac Corporation to create a credit score which ranges from 300 to 850 (for the most common FICO8 program). 

            The FICO score does not include a person’s employment, income or bank account information. Therefore, having a low FICO score does not necessarily equate to having low income or low savings. Many people who go through a divorce or a difficult medical issue may have had their credit score fall substantially, either due to a short-term inability to pay past due obligations, the running up of credit to cover substantial medical expenses, or even have issues relating to a spouse or child or issues due to identity theft.

            Fair Isaac provides scoring but does not specifically state the value of each number. However, a typical breakdown of the various scores is as follows:  

580 and below             very poor credit score

580-660                       fair credit score

661-720                       good credit score

721-799                       very good credit score

800+                            excellent credit score

            Utilizing the foregoing system, many landlords and Associations are conditioning approval on a minimum credit score for each occupant over 18. This score generally ranges from 620 to 700 as a minimum for approva,l regardless of an applicant’s other information. In addition, many Associations and landlords impose conditional approval on scores below 700, adding additional requirements that other applicants may not have to address, such as additional deposits or a third-party guarantor. 

            Currently, the average credit score is 695, which is below the threshold that some Associations or landlords have established for approval. In addition, a majority of Americans have a credit score between 660 and 720, and at least 15% have no credit score.  This means many candidates for purchasing or leasing a property may not qualify due to credit score restrictions.  At least one third of all consumers have a credit score below 620. These low scores can make purchasing or leasing a property virtually impossible, and a whole industry has sprung up to help people improve their credit scores due to the debilitating effects that a low score can have.

            Some consumer advocates have stated that imposing restrictions on leasing and purchasing based on credit score is a form of discrimination, but so far no guidelines have been promulgated by the HUD regarding same as they have done for the issues relating to approvals and past felonies. It is possible that such guidelines may arise, or a court may determine that the usage of a credit score to deny an applicant is, on its face, discriminatory.

            In processing any application for lease or purchase approval, it is recommended that the credit score be a factor but not the only determining factor in whether or not to grant approval. Age, employment, income and savings should be used side-by-side with the credit score in order to determine an applicant’s suitability and financial ability. Furthermore, if an applicant is denied as a result of the credit score, it is imperative that the Association or landlord provide adequate written notice of the denial based on credit score and the name and address of the credit reporting agency that provided the credit information.

Condominium and HOA Approval Issues - Part 1

     A few years ago a client sought to purchase a small cooperative unit on Palm Beach at a price far south of $100,000.00.It was a cash purchase by a very successful independent contractor.  The contract was summarily rejected by the Cooperative Association without any written explanation.  When pushed, they said it was an income issue, they had just completed a large project with high monthly unit expenses, and they were concerned that my client did not have sufficient “regular income” to pay the estimated $1,300 extra per month.

     My client amended the contract to add her daughter as a purchaser, and resubmitted the application, showing that the daughter, a salaried employee made six figures a year.  The revised contract was also summarily rejected by the Cooperative Association, again without any written explanation.  At this point my client called me and after threatening the Association with a lawsuit, they agreed to approve the sale, subject to our client maintaining a three year escrow of assessments of nearly $40,000.  While there was a suspicion of animosity toward my client due to her religion, it was never proven and she has had no further issues.

     This story illustrates a growing problem for certain buyers and tenants looking to buy or rent in many communities in South Florida.  Communities are increasingly adopting tighter rules regarding ownership and occupancy, in order to improve their communities and to reduce the number of investors and renters in favor of family owners who will reside in the home full time.

     The tools adopted by Associations relate to criminal history, credit, employment and past history.  The starting point for any Association is having the actual power to restrict ownership and leasing.  This power must be in the Declaration of Covenants or Declaration of Condominium.  Absent enabling power to regulate sales and leases, the use of simple Board level rules is suspect at best and most likely unenforceable if challenged in court.

     Assuming the power to regulate ownership and leasing is granted in the Declaration, the Board has authority to establish rules regarding such powers (as long as such rules are not unreasonable, discriminatory or exceed the authority granted in the Declaration).

     To enforce these rules, Associations require all applicants for ownership/residency to submit a detailed application about their past living and employment history as well as an applicant’s agreement to submit to a credit and criminal background check. Fees for the application may be charged and are capped by the Condominium Act at $100 per person (husband and wife are considered one person).  Most Associations also charge for the criminal/credit check, which can run $30-$70 per person.

     Many Associations have adopted outright bans on any applicant with a criminal history, regardless of the length of time since the act or the nature and severity of the criminal act.  These restrictions have been challenged successfully based on the grounds that such bans are discriminatory in nature since many felonious applicants are minorities. 

     The US Housing and Urban Development has issued guidelines regarding this issue, after a study showed that the recidivism rate for felons was no greater than non-felons after seven years and the Supreme Court allowed challenges to rental restrictions based on past criminal behavior.  This means that banning someone for a felony more than twenty years ago would, on its face, be deemed discriminatory in most cases.  In addition HUD requires Associations to adopt reasonable rules regarding those with criminal backgrounds, including whether a conviction was obtained, was the criminal conviction for a violent or non-violent crime, how long ago was the crime committed, how old was applicant at the time of the crime and other factors to show that the Association is using the least discriminatory policies possible.

     At least two exceptions exist with regard to the foregoing limitations, a criminal act relating to a felony conviction for drug manufacturing and distribution and a felony conviction as a sexual predator.  It appears that lifetime bans for these actions may be reasonable and enforceable by an Association. 

     In my next post I will address the Associations review relating to credit, employment and life history, and address possible compromises to assist owners and tenants in obtaining approvals.

    

Think you are ready to buy a house? Here's 4 signs (Guest Blog)

“Am I ready to buy a house, or should I just keep renting?”

It is one of the questions that we hear most often and something

to which first-time home buyers often spend months, if not years,

trying to figure out the answer.

Below are a list of four tell-tale signs that you are ready to bite

the bullet and take the leap into home ownership:

Sign #1: You are ready to settle down

The first sign that you are in the right mindset to become a

homeowner is that you are ready to stay put -- at least for a little while.

Conventional wisdom states that in order for your purchase to

make financial sense, you’ll want to plan on staying put for at

least the next five years. When you sit down to think about house

hunting, you’ll want to use that time frame as your reference point.

Ask yourself the following questions:

Can you see yourself staying at your job for that

long, or will you be looking for new opportunities?

If the right position came along, would you be willing

to move for it?

Do you like the area you are living in, or would you

like to explore other options?

Do you see your living situation changing soon?

Are you planning on moving in with a significant

other or expanding your family?

If these questions make you squirmy, the idea of looking five

years into the future still feels a little too far ahead for you to

grasp, or you still want to see where life life takes you, you may

want to consider renting for a bit longer or thinking about

a for-a-few-years home vs. a forever home.

2. You are done living paycheck-to-paycheck

Let’s face it, becoming a homeowner is expensive.

Not only is there a monthly mortgage mortgage payment to

consider, which will likely be more than your current rent

check, but prospective home buyers need to be prepared to

come up with a sizable down payment, shoulder a portion

of the closing costs, and have the dough to take care of any

necessary repairs.

Luckily, there is a way that you can prepare for the added

financial pressure before the big day comes and understand

how much house you can afford. Use a mortgage calculator

to estimate what a monthly payment could based on the

type of home you are looking to buy. Then, subtract the

amount you pay in rent each month, and aim to put the

the remainder into savings.

Start by working towards a down payment that could

be worth 3%-10% of a home’s sale price, and then move

onto a separate emergency fund.

3. You are ready for more responsibility

Once you find a home and actually buy it, that is really

where all the fun begins.

Yes, owning a home means that you have a lot more

freedom to improve the property as you see fit --

whether that means putting in an entirely new kitchen

or redoing the hardwood floors.

However, in addition to that creative freedom comes

an added layer of responsibility. As the homeowner,

you are the one who is responsible for any necessary

maintenance and upkeep on the property.

Think about what you are like as a tenant now.

Are you willing to roll up your sleeves and help

with small tasks or are you relieved to know that

you have someone to call? If you are less handy,

you may want to take some time to familiarize yourself

with common home maintenance tasks before committing

to buying anything. It always helps to have a fair idea of

what you are getting into.

4. You know what you are looking for

Last, but not least, though it may sound self-explanatory,

when you are trying to determine whether or not you are

ready to buy a home, it is useful to have an idea of what

you are looking for.

You don’t have to have every single detail set in stone.

(In fact, it is preferable if you leave some room to flexibility

in your home search.) That said, though, having a basic

set of parameters in mind will make the home buying

process go much easier.

Here, you’ll want to think about the most important

factors that you absolutely must have in a home. These

will be the things that you would not feel comfortable

buying a home without. This may include details like

your preferred location, an ideal number of bedrooms and

bathrooms, a target sale price, or any specific must-have

features like that perfect picture window view.

If you have a strong idea of your must-haves and can't

see that changing in the near future, and the above signs

sound like you, you may just be ready to take the

plunge into home ownership. If not, there is no

shame in the game waiting.

This article originally appeared on OpenListings.

New Home Purchase Scams

     I just purchased my first new home in sixteen years and my family was very excited.  We still have our old house to sell, which gives us the luxury of the slow move, but with the burden of carrying two houses.  Since we moved in we have been inundated with unsolicited mail, many of which are either scams or overpriced rip-offs.

     The most direct scam was a very official looking letter that offered to provide me with a copy of my deed and property appraiser’s report for the small price of only $86.00, with free shipping.  This type of letter preys on people’s fear, by implying in legalese that these are “must have” documents.  This company simply downloads the information, for free from the county, and then passes it off as if it was some valuable, expensive and hard service to justify the price.

     If you do not have a copy or the original of your deed, you can download a copy from oris.co.palm-beach.fl.us/or_web1/or_sch_1.asp.  In the search box, type your name (last first with no comma) and you can restrict the results to deeds, by placing a “D” in Restrict Search by Document Type Code box.  From the list, select the deed you want, then select “get image” to see a copy.  From that screen you can print or save a copy as a pdf (with a big This is Not a Certified Copy watermark).  If you want a certified copy of your deed, you can request a copy by mail to Clerk & Comptroller, Palm Beach County, P.O. Box 4526, West Palm Beach, FL 33402.

     When ordering a deed, you will need to include the Official Records Book and Page and the number of pages of the deed, along with payment.  The charge is usually $1.00 per page plus an extra $2.00 to certify the copy.  So a two page deed will only costs $4.00 plus postage, far cheaper than the scam artists. 

     If you want the information available from the property appraiser, simply navigate to www.pbcgov.org/papa.  Input your name (if you closed recently it will take a while to be updated, I closed September 7 and as of October 20 my property is still shown as owned by my seller), or your street address.  The property appraiser will provide detailed information about size, exemptions, structures and sales of the property searched, and you can easily print a property summary for your records.

     The second scam was letters purporting to be from or on behalf of my mortgage lender suggesting that it is necessary to purchase special mortgage insurance to protect my family if I died.  While the concept is not truly a scam, the sheer quantity of letters (two dozen to date) and the presentation as being “sanctioned” by my lender, makes the requests very suspicious.  These companies simply monitor the public records for new mortgages being recorded and then pounce and are not sanctioned by your lender (though your own lender may also try and sell you the same product).

     Also known as credit life insurance, it is really a protection for the lender, not the borrower.  Mortgage life insurance costs more than regular life insurance for the same type or amount of coverage, the lender is the beneficiary of the policy, not your family, and mortgage life insurance is not required for taking out a loan (though some lenders try to imply that it is as the commissions are very high).

     The policy works by paying off your mortgage loan should the borrower die.  The costs is often rolled into the monthly mortgage payment or paid monthly to a separate insurance company.  State Farm, for example, sells this product at a cost of $258 a year for $100,000 of coverage on a 30 year mortgage.  They age limit this coverage to those under 45 at the time of the policy issuance.  This is a bad deal compared to regular term life insurance.  For example, Geico quotes a healthy 40 year-old male can buy a $500,000 term life policy with a 20 year rate guarantee for just $345 per year.  That much coverage under the State Farm plan would be four times greater.

     The lesson is to be wary of any unsolicited letters selling services that appear to be from an official source, whether from the local government or your home lender.  In most cases these are scams or over priced products.  A simple online search can easily confirm the validity and value of such products.

Michael J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County.  He specializes in real estate law.  They can be reached at 561.594.1452, or at mjposner@warddamon.com

Contractor Fraud on the Rise: What You Need to Know

Contractors in the construction market make up a large portion of the overall employment statistics for the industry. There are more than six million employees who work in construction industry each year across an estimated 650,000 employers, many of which represent themselves as independent contractors. Without construction contractors, many residential and commercial projects would remain unfinished. However, not all contractors in the construction industry are created equal.

In a recent case brought in Washington, D.C., an individual home improvement contractor was found guilty of defrauding customers and avoiding personal and business creditors through misleading statements in bankruptcy court. The case found that the contractor neither had the skills nor the intention to complete the projects he was paid to do, leaving homeowners with significant financial loss. More and more of these cases are brought to light, even for contractors with the right licensing and bonding requirements in place. As contractor fraud continues to rise, it is important for homeowners to recognize the common types of fraud and warning signs.

Common Types of Fraud

Construction contractor fraud comes in many forms which makes it difficult to spot from the start. However, the most common types of fraud include the following:

Fraudulent billing schemes – some contractors make up payments to suppliers and vendors on paper and pocket the funds, while others charge an excessive amount for materials or equipment.

Theft – contractor theft can be costly and it is fairly common in the industry. Contractors can take materials and supplies paid for by the customer that are difficult to track down or to recoup after the fact.

Equipment use – tools, construction equipment, and vehicles may all be abused or used for personal gain instead of the job at hand, leading to higher costs over time.

Any combination of these common fraud types may be a challenge to see as a project progresses. This makes it difficult for homeowners and small businesses to know that they are being taken advantage of until after the work is completed. The worst types of fraud involve a contractor promising to complete a job but instead, taking the deposit/payment and never looking back. Individuals in need of a construction contractor can look to the possible warning signs below to help protect against fraud.

Warning Signs

Construction contractors who ask for a large upfront payment, in full, should signal a red flag for homeowners and business owners. In many cases, receiving full payment for a new project gives little to no incentive for bad actors to come back and complete the job, and if they do, it may not be up to building standards. In addition to receiving large upfront payments, contractors without the appropriate licensing through the state or county, or the right type of surety bond in place should not be hired for a project. Surety bonds are required for nearly many large construction contracts, and the price paid for having this peace of mind in place is minimal for most. Contractors who are unwilling to provide these details should not be trusted.

Additionally, contractors who do not present the customer with a written contract to sign before starting a new project may require more review. A contract helps protect both the customer and the contractor, and without one, there is no proof that a job was agreed upon or what the project actually entails. Finally, contractors who fail to provide references from satisfied customers or those who have little to no online presence or business location may not be trustworthy.

Protecting Your Investment

Homeowners and business owners can take certain steps to protect their investment in a construction contractor, starting with understanding common fraud types and the warning signs mentioned above. A contractor should be willing and able to provide documentation of licensing, bonding, and insurance, as well as references from past customers or online reviews. If these items are not readily available, check with the state or county’s licensing board to see if a contractor is listed. If he or she is nowhere to be found, or represents they have a license when they do not, may mean there is no intention of completing the work requested.

Take care to select a contractor that checks the right boxes before making any  payment, and keep an eye on the progression of work as agreed upon in the contract. These small actions can make a significant difference in getting a construction job done correctly and in-budget.

Author: Eric Weisbrot is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry under several different roles within the company, he is also a contributing author to the surety bond blog.  

Palm Beach Post one-sided attack on title insurance continues

       In an article nominally addressing the possible merger of two large title companies (https://tinyurl.com/yd5p3ew7 April 14, 2018) the post took the opportunity to again lambaste the cost of title insurance.  here is my letter to the editor which the Post has so far refused to run:

Dear Editor:

          I read with dismay Craig Elmore’s piece in April 14, 2018 Post about the merger between Fidelity National Financial and Stewart Title.  Instead of addressing the issues that the merger may cause, the main thrust of the article is to lambast the cost of title insurance in a one-sided rant replete with mistakes and misstatements.

          First Elmore claims it is, “It’s a kind of insurance designed to defend and compensate buyers and lenders in case of challenges to the title ownership, involving records that show who has rightful legal claim to the property.”  That is only one thing title insurance insures for under the policy.  It also provides coverage for unpaid liens, assessments, missed mortgages and mistakes (deeds with missing witnesses, errors in abstracting, etc.).  Also, title insurance does not simply wait for challenges but will affirmatively take action to fix issues when discovered by either filing suit or paying compensation.

          Elmore also states that shopping around is fruitless because no simple task to locate dramatic price differences, as title insurers wearing a whole raft of different brand names operate in a handful of corporate “families,” implying that underwriter’s set prices for title premiums.  This is simply false in Florida.  Prices are set by the Florida Department of Insurance, and these fixed premiums have fallen over 30% against inflation in the last 25 years.  Local title agents will compete on price and may Realtor shop closings to save their customers hundreds of dollars.

          Premiums are rising because the economy is doing better plus prices have recovered from there dramatic drops, not because the costs of coverage has increased.  In fact premiums have not increased at all since 2011 (or in fact since 1994 in Florida).

          Comparing loss ratios for title insurance to casualty insurance is also without merit.  Buy a home and pay a one-time title premium for lifetime coverage, or pay more than that per year to cover casualty insurance.  They are simply not equivalent coverages.

          The claim of the CFA about “huge kickbacks, expensive gifts, and other inducements from the insurers to real estate professionals” is simply not true for the most part.  These activities are illegal in residential real estate with federally insured loans, and has had no effect or premiums to “raise the price of title insurance to “absurdly high levels.” 

          Elmore’s last fallback is to tout Iowa’s low costs for coverage.  What he fails to state is that Iowa has a government run not-for-profit company that issues policies.  I am sure if Florida took over FP&L and ran it as a not for profit, our electric bills would be cheaper too.  What Elmore fails to mention is that if losses exceed revenue, the taxpayers of Iowa must cover the difference.  He also fails to mention that to get that cheap $110 policy, one must hire an abstracter to abstract title and an attorney to issue a title opinion.  Abstracts in Iowa costs about $350 and up, (versus $75-125 in Florida) and title opinions prices vary by attorney.

          This is the second time the Post has run a one-sided article about title insurance.  This type of coverage belongs in the editorial section, not as unbiased business news reporting.

Home Title Lock/Property Fraud

     If you listen to the radio you probably have heard an ominous radio advertisement about thieves taking title to your home, refinancing the mortgage and leaving you to suffer when the mortgage is not paid, resulting in you being served as the unknown tenant in the bank’s foreclosure.  The advertisement then offers to protect you by monitoring your property title for only $9.99 per month.  Their tag line is “Title Insurance Doesn't Protect You and Neither Does Your Bank or Identity Theft Protection. HOME TITLE LOCK DOES!”

     According to the FBI, property and mortgage fraud is the fastest growing white-collar crime in the United States. The threat described above is real and I have been involved in property fraud cases in the past.  These usually involved sophisticated parties with knowledge of deeds, recordings and the like, and the willingness to steal notary seals and alter corporate records.  The game has now changed due to online records and images, high quality printers and e-recording.  My most recent property theft case was against a lender who had foreclosed a property in 2014 that sat vacant for two years.  Thieves simply created a deed template, used Photoshop to insert a real signatures and notary stamp from prior recorded deeds in New Jersey on the Florida forgery, added a few fake unintelligible witnesses and then slipped a clerk at a title company a few dollars to e-record the deed. 

     The thieves used a fake title company name as the deed preparer, and a fake trust name as the new owner, without naming an actual Trustee (which is required to have a valid grantee/buyer in Florida as Trusts alone cannot hold title under Florida law).  Since the property had been foreclosed, it was free and clear of liens and mortgages, and the deed forger could have easily obtained a loan secured by the property.  Alternatively, and the more common criminal act, is the deed forger uses the deed to take physical control of the property, acting as landlord to rent the home while its true owner thinks it is vacant, waiting for a future sale.

    The forgery was discovered by the new owner who purchased the house days after the forged deed was recorded.  She was denied homestead, made a claim on her title policy and we successfully filed suit to quiet title.  The cost was paid by the title company because the forged deed was recorded before her insured deed.  However, if this happens to you after your deed is recorded, your title insurance owner’s policy will not insure the title claim, forcing you to have to cover the cost of any lawsuit to correct the defect.

   

   Home Title Lock is a for profit company that claims to protect your title for only $9.99 per month.  Essentially they monitor the title to you property by searching public records for any changes, such as any newly filed deeds, mortgages or liens.  They claim that they use “proprietary technology (that) forms a virtual perimeter around your home and property title.”  If an instrument is recorded, they claim they “ALERT you immediately with key information such as names involved with the transaction, the amount of loan, date of such loan, (and sic) document name.”  They also claim that if a detected activity is not authorized to “mobilize all our resources to help you shut it down - FAST!”  However, the website provides no documentation on this last element, which would normally require local legal assistance and a high legal cost. 

    Alternatively you have two other free options that you can use to protect the title to your property.  The easiest approach is to simply act as your own monitor of title by searching the public records to see if any changes have occurred.  All counties in Florida maintain a name index which is accessible online (Using www.tinyurl as a prefix: Palm Beach: qejqo; Broward: ycmj9fce; and Miami-Dade: ybzr6xds).  Simply search your name to determine if anyone has tried to file a deed or lien using your name as a forgery.  A ninety day search of my own name showed a deed, notice and mortgage (but not any of my own property), so no issues.

         

   An alternative offered by some County Clerks of Court is a Property Fraud Alert registry.  Palm Beach County (tinyurl.com/ya9m766b) allows owners to register to receive free alerts when a document such as a deed or mortgage is recorded with the clerk using your name or business name.  Sign-up is a one page application that simply requests your name and whether you wish to be contacted by phone or email. 

  Being vigilant regarding your most valuable possession is the only way to protect yourself from this growing problem.  Monitor your title, register for fraud alerts, petition your local county to offer this service if not yet available, and take quick action if anything is recorded.  To be forewarned is to be forearmed, and in this battle, that is the real key.

Michael J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County.  They specialize in real estate and can assist owners in addressing title fraud issues.  They can be reached at 561.594.1452, or at mjposner@warddamon.com