Unbeknown to you the latest real estate industry scam is running full speed ahead placing a cloud on title. You've listed and advertised your property. An offer is made and accepted and you anticipate a quick close. But there is a skeleton in the closet!
The lender calls to tell you, Sorry- loan denied. This home has a re seller fee clause and is not deliverable to Fannie Mae or Freddie Mac. Since these two buy most of the mortgages you can pretty much guarantee without an all cash buyer willing to pay the re seller fee, your deal is dead.
What is a re seller fee clause? I wrote a blog post about this last month. Click here to read it. To watch the video click the Scam Alert box below. Unfortunately I could not retrieve the HTML code to embed the video.
Whenever regulations are put in place to prevent abuses a new line of abuses is born. Unitl the new abuses are discovered, recorded and new legislation passed the criminals reap big profits. So a new law is passed to stop it and the next scam replaces it.
Preventative measures to combat this problem. Call your escrow company and request a preliminary title report on a property you want to list. Read it thoroughly. Make sure there is no re seller clause. If you are representing a buyer wanting to buy new construction read and understand every page of the contract because the re seller clause is likely slipped in there somewhere in the back out of plain view. You can take it a step further and recommend to your client that a real estate or contract law attorney review the builders contract for this clause.
I have a feeling this may not be limited to new construction. I don't know the inner workings of how this type of clause is implemented. Considering the potential residual profits from this scam I'm sure these criminal ideas are trying to find their way into existing home sales too.
Isn't it great that we have a place to share the latest news affecting our industry?
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In 2007 in San Diego County, the cloud on the title seemed to be the original way to mess with the foreclosure. Thanks for sharing this information.
Great information you're providing here Nevin. And, you're so right about this being such a great place to share the latest news affecting our industry.
Nevin, this is important information, and good to send out to all. Some agents routinely order Preliminary Title reports for their listings, but then don't bother to read them or ask questions about things they don't understand.
And yes, this is a great forum for getting out the word on important industry trends, laws, news, etc.
In my opinion, the builders make their money when a newly constructed home is sold. Why would they think they're entitled to gain every time a property changes ownership? R-i-d-i-c-u-l-o-u-s! Thank you for bringing this up again and I am going to call a title rep I know to see if this is becoming a common practice in this area. I appreciate you sharing your expertise Nevin!
Hi everyone! Apparently the link tot he video was broken. It's up and running now
As if we didn't have enough to worry about in the Real Estate world. Thanks for bringing this up.
Hi Joe! What's up buddy?
I remember reading the post you wrote about this "tack on" fee. I did not know it would show up on title. I'm a little confused, however. (No kidding!!) If the home is a new construction, then this fee would be on title yet, until it's agreed to in the contract?
And you're absolutely correct. Whenever there is one scam discovered, exposed and brought to light, another emerges.
Carla - Sorry if I created confusion- If you are representing a buyer on an existing home review the prelim to make sure the home wasn't one of these with this clause if the home isn't very old. If it's a brand new home review the contract carefully.