The Urban Institute’s Housing Finance Policy Center has released its November 2017 Housing Finance at a Glance Chartbook. The Introduction looks out how this summer’s big storms have pushed up delinquency rates:
Scam Detector quoted me in 10 Real Estate Scams That You Need To Avoid Today. It opens,
The real estate industry is a sector that’s extremely profitable if done right. If you think about it, a house is the most expensive item that a person buys over his/her lifetime. Big money, big opportunities. However, on the same token criminals prey on the weak and use creative ways to make a lot of money by scamming victims all over the world, whether buyers, sellers or realtors.
Amongst the most notorious fraudulent practices on the market, we have already exposed and shared information about real estate investment scams, home buying scams, residential real estate tips and the Real Estate Agent Scam.
This week we caught up with a few fraud prevention experts and real estate professionals. We invited them to share new tips and expose some prevalent scams they’re aware of, which are happening now.
Here are 10 real estate scams that you need to avoid today:
1. Hackers Stealing Your Down Payment: Mortgage Closing Date
“A hacker could fool you into thinking he’s your agent and trick you into sending him money, which you’ll never get back. It’s so bad the FTC even sent an alert warning consumers that real estate agents email accounts are getting hacked.”, says Robert Siciliano, fraud prevention expert with IDTheftSecurity.com.
He continues: “Let’s say your realtor’s name is Bill Baker. Bill Baker’s e-mail account gets hacked. The hacker observes Baker’s correspondences with his clients—including you. Ahhh, the hacker sees you have an upcoming closing. The hacker, posing as Bill Baker, sends you an e-mail, complete with instructions on where to wire your closing funds. You follow these instructions. But there’s one last step: kissing your money goodbye, as it will disappear into an untraceable abyss overseas. This scam can also target your escrow agent.”
“It’s obvious that one way to prevent this is to arrange a home purchase deal where there are zero closing costs”, says Siciliano. “The scam is prevalent, perhaps having occurred thousands of times. It was just a matter of time until scammers recognized the opportunity to target real estate agents and their clients.
The lax security defences of the real estate industry haven’t helped. Unlike the entire financial industry who have encrypted communications, the real estate industry is a hodgepodge of free e-mail accounts and unprotected communications.”
In addition, Robert points out: “Realtors, who are so often on the go and in a hurry, frequently use public Wi-Fi like at coffee houses. Anyone involved in a real estate transaction can be hacked, such as lawyers”.
When it comes to preventing this particular scam, here are a few points that Siciliano suggests:
– Eliminate e-mail as a correspondence conduit—at least as far as information on closings and other sensitive information.
– On the other hand, you may value having “everything in writing,” and e-mail provides a permanent record. In that case, use encrypted email or some setup that requires additional login credentials to gain access to the communication.
– For money-wiring instructions, request a phone call. And make this request over the phone so that the hacker doesn’t try to pose as your Realtor over the phone.
– Any e-mailed money instructions should be confirmed by phone—with the Realtor and the bank to send the money to.
– Get verification of the transfer ASAP. If you suspect a scam, have the receiving bank freeze any withdrawal attempt of the newly deposited funds—if you’ve reached the bank in time, that is.
2. Real Estate Agents Assigning The Sales To Themselves
“I know a victim of a realtor who is scamming his buyers by taking advantage of sudden traumatic life events”, says Mariko Baerg from Bridgewell Group.
A buyer had purchased a house. Between the time it was a firm deal and the title transfer date he got in a severe car accident and could no longer work for the short term.
The realtor that was representing him had coerced the buyer into assigning the sale to the realtor himself for a discounted price because he fearfully convinced the buyer that he would have difficulties keeping his financing from the lender.
Assigning to yourself is a clear conflict of interest, the realtor did not try to market the assignment to anyone else, and the sale amount was $100,000 less than market value! He also forged the seller’s signature to convince the buyer that it was OK to assign the property.
The issue could be avoided by making sure you have a power of attorney lined up in the case that you have an accident, making your realtor show you comparables to confirm what market value is before transferring. Also, if you have a feeling there may be a conflict of interest always obtain legal counsel or receive a second opinion to determine what your options are.”, explains Berg.
3. Arc Fault Breaker Swap Out Scam
This next fraudulent practice is exposed by Jeff Miller, co-founder of AE Home Group: “Arc fault breaker swap outs are a common scam I’ve seen in the flipping industry. Modern building code requires that electrical boxes contain arc fault breakers as opposed to traditional breakers in order to further prevent electrical fires.
While safer, these arc fault breakers can add upwards of $800 to the cost of the renovation. Following the issuance of a use and occupancy permit, some flippers will return to the home and replace these expensive arc fault breakers with the cheaper traditional breakers, adding profit to their bottom line.”, says Miller.
4. Real Estate News: Bait and Switch Scheme
Another fraudulent real estate practice is the “bait and switch” scheme, explained here by Lucas Machado, President of House Heroes: “The scam occurs when a prospective buyer offers an “above market value” price to a home seller. The seller – blown away by the high offer – excitedly signs on the dotted line.
Sadly, the unscrupulous buyer has no intention to purchase the property at this price.
Once the seller signs the contract, the seller may only sell to that buyer for a specified time (weeks to even months) for the buyer’s purported due diligence. When that time ends, the fraudster asks to extend the contract a few weeks to work out closing details. Sounding reasonable, the seller agrees to the extension blinded by the high offer.”, warns Machado.
“There are two impacts on the seller. The seller keeps paying taxes, maintenance, utilities, insurance and develops an emotional commitment to sell.
Here’s what happens in the bait and switch: the buyer comes back to the seller with an excuse as to why this price no longer works, requests a reduction to below market value, and threatens to cancel if their demand is not met. Stressed by passage of time and on-going costs, the frustrated seller agrees to the reduction.”
Machado offers a concrete example: “Our company had a scenario where we offered $185,000. The seller accepted a $220,000 offer. The “buyer” asked for extension after extension, for 12 months, and then the tired seller agreed to sale price $180,000. The victimized seller had on-going costs around $10,000 and lost approximately $20,000 by not accepting our offer a year ago.”
How can you avoid the bait and switch scheme?
a. Confirm proof of funds at time of executing the contract.
b. Do not grant unreasonable extensions or reductions.
c. Set expectations early on.
d. If extension or reduction is based on condition, request an inspector or general contractor report verifying claims.
5. Duplicated Listings
Leah Slaughter with OmniKey Realty warns about a scam constantly happening in the real estate business: the Duplicated Listings.
“We often see companies copy our legitimate rental listings and post on Craigslist for a much cheaper price. Unfortunately, many people fall for these fake listings and wire or overnight money to the owners of these fake listings and then cannot get access and eventually locate us and all we can do is refer them to the police.”, says Slaughter.
“When searching for a rental, do your research and make sure you are working with a reputable company or a licensed agent/broker. If a landlord says they are not local and cannot give you access to the property, that is an immediate red flag.”
6. Real Estate Lawyers: Fake Profiles
David Reiss from Brooklyn Law School warns about a new type of scam: impersonating real estate lawyers. “In this case, the scammer takes control of the proceeds of a real estate closing by impersonating one of the parties to the closing and redirecting proceeds to an account controlled by him/her. The criminal might impersonate the seller’s lawyer and instruct that the proceeds from the sale be redirected to a new account.”, says Reiss.
“All such changes should be confirmed by a phone call (to a number that you know to be valid!) to confirm that they are from the real seller.”
The Supreme Court issued a decision in Bank of America Corp. v. Miami, 581 U.S. __ (2017). The decision was a mixed result for the parties. On the one hand, the Court ruled that a municipality could sue financial institutions for violations of the Fair Housing Act arising from predatory lending. Miami alleged that the banks’ predatory lending led to a disproportionate increase in foreclosures and vacancies which decreased property tax revenues and increased the demand for municipal services. On the other hand, the Court held that Miami had not shown that the banks’ actions were directly related to injuries asserted by Miami. As a result, the Court remanded the case to the Eleventh Circuit to determine whether that in fact was the case. This case could have big consequences for how lenders and others and other big players in the housing industry develop their business plans.
For the purposes of this post, I want to focus on the banks’ activities of the banks that Miami alleged they engaged in during the early 2000s. It is important to remember the kinds of problems that communities faced before the financial crisis and before the Dodd-Frank Act authorized the creation of the Consumer Financial Protection Bureau. As President Trump and Chairman Hensarling (R-TX) of the House Financial Services Committee continue their assault on consumer protection regulation, we should understand the Wild West environment that preceded our current regulatory environment. Miami’s complaints charge that
the Banks discriminatorily imposed more onerous, and indeed “predatory,” conditions on loans made to minority borrowers than to similarly situated nonminority borrowers. Those “predatory” practices included, among others, excessively high interest rates, unjustified fees, teaser low-rate loans that overstated refinancing opportunities, large prepayment penalties, and—when default loomed—unjustified refusals to refinance or modify the loans. Due to the discriminatory nature of the Banks’ practices, default and foreclosure rates among minority borrowers were higher than among otherwise similar white borrowers and were concentrated in minority neighborhoods. Higher foreclosure rates lowered property values and diminished property-tax revenue. Higher foreclosure rates—especially when accompanied by vacancies—also increased demand for municipal services, such as police, fire, and building and code enforcement services, all needed “to remedy blight and unsafe and dangerous conditions” that the foreclosures and vacancies generate. The complaints describe statistical analyses that trace the City’s financial losses to the Banks’ discriminatory practices. (3-4, citations omitted)
Excessively high interest rates, unjustified fees, teaser interest rates and large prepayment penalties were all hallmarks of the subprime mortgage market in the early 2000s. The Supreme Court has ruled that such activities may arise to violations of the Fair Housing Act when they are targeted at minority communities.
Dodd-Frank has barred many such loan terms from a large swath of the mortgage market through its Qualified Mortgage and Ability-to-Repay rules. Trump and Hensarling want to bring those loan terms back to the mortgage market in the name of lifting regulatory burdens from financial institutions.
What’s worse, the burden of regulation on the banks or the burden of predatory lending on the borrowers? I’d go with the latter.
Realtor.com quoted me in How to Build a Fence Without Ending Up in a Feud With Your Neighbors. It opens,
Good fences make good neighbors, but how do you make a good fence, exactly? After all, it’s not just a question of marking the division between two pieces of property. Do you and your neighbor both have a say on the height, style, and color—and should you split the costs evenly?
If you’re facing any of these questions as you contemplate some fence work, read on.
Does your neighbor have a say on your fence?
Whether your neighbor can weigh in depends largely on where you live, according to Marc Markel of Roberts Markel Weinberg Butler Hailey in Texas. Laws and regulations vary by state: In California, for instance, the “good neighbor fence” law requires neighbors to split the cost evenly.
To find your own local regulations, search online for “fence permit” along with your county and/or state. You can also visit statelocalgov.net: Click on your state and county to get to your local government’s website, where you can find info on fence permits or a phone number under “planning and zoning” to get your questions answered.
Fences may also be regulated by a homeowners association and/or your home’s restrictive covenant, which is typically found in your property deed and states how your land can be used.
For example, the height limit for fences is typically 6 feet for back and side fences and 4 feet for front-yard fences. Some covenants will spell out how repairs and new fences should be handled between neighbors—even if you build the fence entirely on your own property—while others will not. If there are no stated restrictions, then it’s basically up to you and your neighbor to work it out together, hopefully in a friendly manner.
David Reiss, a professor at Brooklyn Law School, says it’s always best to get your neighbor’s input rather than just forging ahead. In the best-case scenario, “they may volunteer to share the cost 50-50,” he points out. Plus, there may be aesthetic issues to discuss: “Do you save money by installing a cheaper fence with a front and a back, or do you spend more money and get a fence that looks good on both sides?”
Your neighbors may have strong feelings about these issues. It’s better to hear them out sooner rather than later.
The New York State Independent Conference issued a report, Tourist Tenements in the Making. The report concludes,
New York City has long been at the forefront of ensuring that its housing stock is safe for residents. We have instituted laws such as the Multiple Dwelling Law, the Housing Maintenance Code, and the Fire Code to ensure that buildings are constructed to the right standards for their intended uses, and have passed laws to prohibit activities that endanger people’s lives. One such action is turning residential properties into illegal hotels hosting over a dozen guests.
Residential properties are not meant to host dozens of transient guests. The IDC’s investigation found over 100 ads featuring residential spaces for groups of more than a dozen people, some claiming to house over 30 people. This kind of behavior not only creates an inconvenience for neighbors, but creates real dangers to both residents of this city and those guests that may choose housing not knowing that it is an illegal posting, since they saw the ad on Airbnb. We should not wait for a tragedy to strike before taking actions to curb illegal rentals that create dangerous conditions.
It is important that the State government take steps to protect our residents and tourists visiting New York from this kind of irresponsible behavior. As such, the Executive should act and sign into law the recent bill passed by the Legislature that will impose fines on individuals advertising illegal short term rentals and the Legislature should examine additional steps necessary to make sure that illegal short term rentals are handled not only in multi-family buildings but in private homes as well and that hosting websites be made responsible for the content they profit from. (11)
While the sharing economy is here to stay, it is hard to imagine that it will not face some form of increased regulation after reports like these come out. One Airbnb rental highlighted in the report advertises space for 16 people in a two-family house and another claims that it can house 32 people. The pictures in the report tell a thousand words each — bunk beds, beds in the kitchen, air mattresses lined up one next to the other.
This report shows some extreme examples of what can happen when the free market for residential space goes unfettered in a high-cost city. But, as the report notes, the government has a legitimate interest in protecting the health and safety of its residents and visitors. New York first regulated tenements over a hundred years ago. No doubt, they will soon act on this 21st century version of them, hopefully before a Triangle Factory Fire-type event strikes.
- Inflation and Activity – Two Explorations and Their Monetary Policy Implications, Olivier J. Blanchard, Eugenio Cerutti & Lawrence H. Summers, HKS Working Paper No. 070.
- Real Estate Value Impacts from Fracking: Industry Response and Proper Analytical Techniques, Richard Roddewig & Rebel A. Cole, Real Estate Issues 39(3), 2014, 6–20.
- How Auctions Amplify House-Price Fluctuations, Alina Arefeva.
- Marketing and Product Description: Value Added in the Real Estate Market, Sebastien Gay & Allen T. Zhang.
- Strategic Information Disclosure and Bank Lending, Sumit Agarwal, Souphala Chomsisengphet & Qi (Susie) Wang.
- S. Bank Market Structure: Evolving Nature and Implications, David G. McMillan & Fiona Jayne McMillan.
- Before a Fall: Impacts of Earthquake Regulation and Building Codes on the Commercial Building Market, Levente Timar, Arthur Grimes & Richard Fabling.
- Demand and Supply of Mortgage Credit, Alex van de Minne & Federica Teppa, De Nederlandsche Bank Working Paper No. 486.
NYU’s Furman Center has posted a short Research Brief, Compact Units: Demand and Challenges. The brief notes that there is no formal definition of a compact or micro unit of housing, but
the term is typically used to refer to units that contain their own bathroom and a kitchen or kitchenette, but are significantly smaller than the standard studio apartment in a given city. Accessory dwelling units (ADUs) are self-contained units located on the property of a single-family home. Sometimes ADUs are separate structures, like a cottage on the same lot as a primary dwelling; sometimes they are attached to the primary structure, located in a basement, in an extension, or over a garage.
Proponents of compact units argue that they allow seniors to live independently, respond to changing household sizes and demographics, reduce sprawl through urban infill, mitigate the environmental effects of larger developments by reducing energy consumption, free up larger units for families, and help cities provide housing affordable to a wider range of households. (2)
The brief is a very useful overview of the debate concerning compact units but my own take is that they represent a mere molehill of possibility when it comes to affordable housing. No new construction in cities, unless heavily subsidized, is geared toward low-income households and probably only a small portion of such new construction is geared to moderate-income households. The economics of new construction just don’t allow it.
This is not to say that New York City shouldn’t change its larger-than-average minimum unit size regulations (400 square feet) so that they are in line with those of other cities (220 square feet). These small units could work well for all sorts of one-person households, which, by the way, make up more than half of all households in NYC. They just wouldn’t be low-income households. But, by expanding the total number of units available, they can put at least some downward pressure on rents.
My bottom line: compact units are good, but they will not provide the mountain of affordable housing that some claim they can.