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Legal Matters
Best of the Legal Hotline - Responding to Mortgage Fraud
by Debbi Conrad
The following Legal Hotline questions demonstrate that situations involving potential fraud upon the secondary market persist throughout our state. The answers to these questions show the steps brokers may take in response to these scenarios.
| Q. A broker has an offer on a property that involved a counter-offer. In the original offer, the buyers requested that the seller pay $3,000 toward the buyers' closing costs. The original offer was for $75,000 and the seller countered it at $79,900. The mortgage broker has stated that the underwriter will not lend if the seller is paying closing costs and there is a price adjustment in the counter-offer. The underwriter wants the broker to rewrite the offer to show a $79,900 sales price and backdate the new offer to the date of acceptance in the original offer. |
| A. It would be fraud to do this-it is representing things that simply are not true. § RL 24.085 states, "no licensee shall draft or use any document which the licensee knows falsely portrays an interest in real estate."
It is possible to rewrite the offer in an honest manner, but it may not satisfy the mortgage broker. The offer can be rewritten to specifically state that the new offer supersedes and replaces the original offer for $75,000, dated ____, which is hereby cancelled and withdrawn. The replacement offer must use the current dates, including the dates on the signature lines. To do otherwise would be leading the parties down the road to committing fraud, a fraud to which the broker would be a party.
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| Q. If the licensee prepares an amendment that provides for a $10,000 credit for roof repairs, and shares the amendment with the lender, but the lender instructs the title company not to put the credit on the closing statement, is this inappropriate? Is this something that should be done? What should a broker do to stop the apparent fraud? |
| A. The broker-and any affiliated title company-must not participate in any act of fraud. Licenses can be lost and criminal prosecution is possible. The broker may wish to warn all parties and companies involved that if there is a $10,000 credit agreed to in an amendment that is not reflected on the closing statement, there is a potential fraud upon the secondary loan market. If the seller pays the buyer $10,000 under the table, the parties will have created a phantom $10,000 downpayment on the part of the buyer and will have falsely inflated the purchase price.
The broker should be sure that the title company and all parties have a copy of the amendment and the parties should be referred to their attorneys. If the lender and others continue with a course of apparent fraud, the broker should cease all participation. There would also seem to be a risk for the title company to knowingly prepare a closing statement that does not reflect the complete agreement of the parties and gives a false picture of the transaction.
The broker may file a complaint with the Department of Financial Institutions
(DFI) in Madison. Call (608) 261-7578; fax to (608) 261-7200, or go online to
www.wdfi.org/fi/mortbank/mbapp.htm to read the guidelines for fraud complaints, to read the mortgage banking complaint introduction page, and to complete the complaint form.
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| Q. Closing. A broker received a call from a lender who is going to make a loan in the amount of the appraised value rather than the offer price. The offer price is $62,000, but the lender is going to lend $69,000 to the buyer. The lender wants the broker to rewrite the offer for $69,000 and wants the seller to give the buyer $7,000 back at closing. Is this legal? |
| A. The broker cannot participate in an act of fraud. Wis. Admin. Code § RL 24.085 provides that "False portrayal of interest, prohibited. No licensee shall draft or use any document which the licensee knows falsely portrays an interest in real estate." The broker may ask the lender to put the request- and any explanation-in writing. The broker may then forward the written request, along with the other details of the transaction, to
DFI.
DFI admits that there is no nice black and white test that can be applied to determine if there is fraud being committed. DFI suggests that brokers continue to apply the sniff test: if it smells funny, carefully examine what is happening. If it appears to be fraudulent, DFI requests that brokers submit detailed accounts of what has happened to them. DFI seems to be aware that there may be some "bad apple" mortgage brokers out there, but DFI needs specific examples of what is going on in order to take effective action.
In summary, if brokers believe that a lender is steering the parties towards committing fraud upon the secondary market, the broker should:
- Prepare any rewritten offers to purchase to be 100 percent accurate and inclusive and to refer back to the original offer, purchase price and dates therein.
- Ask for the lender's request in writing.
- If the lender and/or others persist with a fraudulent scheme, issue a written memo or letter to the parties, the lender and other involved providers warning of the fraud and urging them to consult with their attorneys and rectify the fraud. If they do not, the broker ceases participation.
- Report the situation to DFI in detail, with copies of relevant documents.
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Publications
Accessibility Features Report Questions and Answers
by Debbi Conrad
The Accessibility Features Report (AFR) is an optional property condition report designed by a certified architect for features that may be desirable to a homebuyer with disabilities. The AFR is intended be used by real estate agents who are listing or previewing a property to determine if the property may be appropriate for a person with disabilities. The AFR simply notes the presence or absence of specific property features, rather than leaving real estate agents to determine what is or isn't an "accessible" or "barrier-free" property. It also may be used with a buyer to identify the architectural features he or she needs in a residential property.
The AFR may best be used in conjunction with multiple listing services (MLS). A broker who has listed a property that has potential for a person with disabilities may indicate on the MLS data sheet that an AFR is available. The cooperating broker can request a copy of the AFR from the listing broker and get a thumbnail sketch of some of the property's dimensions and features: the width of interior doorways, the height of thresholds, the kind of door handles, the method of window operation, etc. Anyone interested in a property based upon an AFR must, of course, inspect and evaluate the property for him or herself.
A listing agent would like to advertise a house as wheelchair accessible, as it is built at ground level. The listing agent was told the remainder of the house, and especially the bathroom, would also have to be wheelchair accessible. Is this correct?
The term "accessible" has many connotations. What may be accessible for certain persons with special needs may not be so for others. To address this issue, the WRA has created the Accessibility Features Report (AFR) to assist brokers in marketing properties that may be potentially suitable for persons with special needs. The agent may find the AFR forms on ZipForms. In addition, the agent may wish to review
Legal Update 01.03, "Providing Good Customer Service to Persons with Disabilities and/or Special Needs".
An agent showed a ranch-style home to a buyer who was not very interested in the property. It occurred to the agent, however, that this home might, with a little remodeling, be suitable for a buyer he was also working with who uses a wheelchair. When the agent asked the listing agent why she hadn't filed an Accessibilities Features Report (AFR) for the home, the listing agent replied that her broker wouldn't allow the agents in her company to use AFRs because of the liability risk. The broker feared that there would be liability if the property was represented as accessible when it wasn't. Is that correct?
The Accessibility Features Report (AFR) doesn't represent that a property is accessible-it simply includes a checklist of some features that may make it desirable for persons with special needs, and a grid where the person completing the report may check "yes," if the feature is present, "no," if the feature is not present, or "easily adaptable," if the feature is not present but the property readily could be modified to provide the desired benefit. Instead of labeling a property as "accessible," a term that has no precise, commonly understood meaning, the AFR simply gives information about potentially accessible or adaptable components in a home, such as whether grab bars are in the bathroom or could be easily installed.
A broker who lists a property that has potential for a person with disabilities may put "AFR" or some other notation in the MLS listing. This will let cooperating brokers know that the property has some accessibility features and that an AFR is available-this doesn't mean that the broker is representing that the property is "accessible." The cooperating broker can request a copy of the AFR from the listing broker and get a better idea of the special needs features the listed property might have-and perhaps rule out properties that do not meet a buyer's criteria.
A copy of the AFR can be found on the WRA Web site under Forms, and on the
Customers with Disabilities
REALTORŪ Resource page.
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Old Orchards May Have Lead and Arsenic in the Soil
by Rick Staff
In response to concerns about health risks associated with pesticides used in orchards until the 1960s, the WRA has worked cooperatively with the DNR and the Department of Agriculture, Trade and Consumer Protection (DATCP) to develop an addendum which addresses the issue. The Lead/Arsenic Pesticide Addendum can be used to obtain disclosure of seller's knowledge of the history of the property as an orchard and any knowledge of pesticide contamination. The addendum also provides buyer with the option of a contingency to investigate the levels of pesticide residue that may remain in the soils. Although the form was developed in cooperation with the Door County Board of
REALTORSŪ (because of the large number of orchards in Door County) it can be used for any property which may have been an orchard in the past. The form will be available on
ZipForm and in hardcopy in mid-November. The next Wisconsin REALTORŪ will include a more detailed explanation of the form. The following article has been provided by DATCP and was authored by Susannah Michaels, the Lead Arsenate Program Coordinator.
Lead arsenate pesticides were used to control insects in orchards from the 1890s to the 1960s. Research shows that the lead and arsenic remain in the soil long after the pesticide was used. As long as the soil remains covered with trees and grasses, there is not much of a health concern associated with the soil. It is when orchards are converted to residential areas, where people could have long-term exposure to bare soil in play areas and gardens, that the lead and arsenic in the soil can become a health concern. Childhood exposure to lead can cause developmental and nervous system problems, and high levels can also affect the nervous system and kidneys of adults. Long-term exposure to arsenic can cause several types of cancer. DATCP is working to raise awareness among various organizations and the general public about the possibility of lead and arsenic contamination on old orchard properties.
RealtorsŪ) will play a key role in making sure that this information is disclosed to potential buyers of old orchard properties.
The WRA has recently developed a disclosure form specifically for old orchard properties, whether they are new developments or lots on old orchard properties that have been developed in the past and are now changing hands. The form, called the "Lead/Arsenic Pesticide Addendum" can be used in any part of the state. It asks the seller to disclose if he has knowledge that:
- the property was used as an orchard prior to 1960,
- lead or arsenic-based pesticides were used on the property,
- unsafe levels of lead or arsenic-based pesticide residues remain on the property.
In turn, the form allows the buyer to make the offer contingent upon soil sampling results.
Soil sampling results will fall into one of three categories. These categories-background, pesticide-use, and priority-are described in the DATCP guidance document titled "Identifying and Cleaning up Sites Contaminated with Lead and Arsenic from Historic Pesticide Use." This document, along with a Question and Answer Sheet that discusses some basic information for homeowners and home buyers, can be found on the DATCP lead arsenate Web page at
http://datcp.state.wi.us/arm/agriculture/pest-fert/pesticides/accp/lead_arsen.htm
The categories of soil sampling results are summarized as follows:
Background Level: Some amount of lead and arsenic can be expected in all soils, since these elements are naturally-occurring. A concentration of arsenic less than five mg/kg and lead less than 50 mg/kg are considered background levels. No action or reporting are necessary.
Pesticide-Use Level: If the concentration of arsenic is between five and 100 mg/kg and/or lead is between 50 and 400 mg/kg, no reporting is required, but basic site management practices are needed (see below).
Priority Site Level: If the concentration of arsenic exceeds 100 mg/kg and/or lead exceeds 400 mg/kg, it is likely the result of a spill. If these levels are found, the information must be reported to the DNR and a site investigation, cleanup, and implementation of site management practices are all necessary. These sites are eligible for reimbursement of some costs from DATCP's Agricultural Chemical Cleanup Program
(ACCP).
The majority of properties on old orchards will likely have "pesticide use levels" of lead and arsenic, in which case residents can minimize their exposure by taking the following steps:
- Keeping a good grass and vegetative cover on lawns, not leaving bare soil exposed.
- Washing hands and face after gardening and before eating.
- Washing garden vegetables well. Uptake of lead and arsenic in the vegetables themselves is less of a concern than the actual dirt particles sticking to the vegetables.
- Keeping toys and pacifiers, things that children are likely to put in their mouths, clean.
- Bringing in sand for a sandbox for kids; discouraging them from playing in the dirt.
- Avoiding tracking dirt into the home.
Questions about the DATCP lead arsenate program can be directed to (608) 224-4513. For health-specific issues, see the Wisconsin Department of Health and Family Services fact sheet at
www.dhfs.state.wi.us/eh/ChemFS/pdf/LeadArsPest.pdf
or call DHFS at (608) 266-1120. For questions about the WRA lead / arsenic disclosure form, contact Rick Staff, WRA General Counsel, at (608) 242-2265.
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