Shill Bidding May be Banned in CA

Shill bidding at real estate auctions occur when an individual, or company, places a bid on a property without the intention of actually buying it. Instead a bid is placed for the purpose of influencing other people to bid, and thus, increasing further bids placed on that property.  This method of bidding on one’s own auction to artificially drive up the price of a property has been used many times by real estate companies, such as Auctions.com, but it has just recently gotten the California Association of Realtors to stand up against it.

When the California Association of Realtors first began digging into this shill bidding issue they found that there is no law against it in California. In the article REAL ESTATE: Group wants to ban ‘shill’ bidding on auctions, Alex Creel, a chief lobbyist for the California Association of Realtors, explains, “while companies like eBay publicly proclaim shilling is not allowed on their site, auction companies can and do put up a reserve the seller doesn’t always publish for the benefit of bidders. This secret reserve motivates some auction houses to put in real bids from ghost-bidders to hit that price.” However, Rick Sharga, Executive Vice President for Auction.com, believes Realtors are deliberately misrepresenting what’s going on and openly defends the use of shill bidding by pointing out that their website states that it uses the tactic.

Ultimately, this shill bidding problem has caused the formation of a Realtor-backed bill, Assembly Bill 2039, which is currently pending before the California Senate committee after having passed the lower house of the Legislature. The Assembly Bill states it would, “with respect to an auction that includes the sale of real property, prohibit a person from causing or allowing any person to bid at a sale for the sole purpose of increasing the bid on any real property being sold by the auctioneer. The bill, however, would allow an auctioneer or another person to place a bid on the seller’s behalf during an auction of real property if prior notice has been given that liberty for that bidding is reserved and the person placing that bid contemporaneously discloses to all auction participants that the particular bid has been placed on behalf of the seller. By expanding the scope of an existing crime, this bill would impose a state-mandated local program.”

Hidden Property Liens

If you are going to spend time looking for liens on real estate you don’t want to just get the most basic obvious liens, you want to make sure you are getting every lien there is, including the hidden liens. There are many types of liens but here are the seven most common types of hidden liens.

UCC Filings – Also known as universal commercial code filings, these are normally not filed in the land records office but rather with the secretary of state. If you are looking in the county records you may not find UCCs that exist for the property. The secretary of state may have a filing that can encumber the personal property.

Mechanics liens – These are liens and encumbrances that occur when a contractor, builder, or an individual does work on a property, for example putting on a new roof, and if the property owner did not pay for the roof then the contractor has a lien by statute on the property even if there is nothing filed in land records. This is the law in many, but not all, states. Most counties have a very specific procedure for the contractor to be protected on their efforts in improving that piece of real estate.

Civil court records – A property owner could have a judgment against them personally that automatically attaches to their property by statute. If this were the case it would not be stated in the land records. You would need to look in the civil court records, small claims and superior court to find something like this.

Probate records – Probate records can put encumbrances on a property. If there are transfers of property by statute, in the case of death or divorce, then that can affect the property and have liens accrued to the property.

Delinquent taxes –If you check the tax assessor’s office you may find that there are past due taxes on a property. If someone were to buy a property now and the previous property owner did not pay their property taxes for the previous year the new owner would be responsible for paying those delinquent taxes which could potentially be thousands of dollars.

HOA underfunding – If you are buying a house in a homeowners association or a condo complex and that complex has obligations like fixing the pool or paving the streets and they have not accrued money in their budget over the years, that HOA underfunding becomes a defacto lien on the properties because whoever owns them is going to have to pay for it when it comes due.

Easements – If you look at a property’s mortgages and deeds you may not find that there are current easements that allow adjacent property owners to have access to your property or even financially benefit from it. Generally, easements are written and recorded with the local assessor’s office so you would need to look there for any existing easements.

Once a lien has attached to a property there are very specific methods to have that lien removed. One way is to have the lien holder actually sign a release of lien that has to be filed in the land records. Until it’s filled, it will still show up on the title search. Another way is by statute. There are certain types of liens that automatically become inactive after a certain period of time. This depends on the type of lien, the statutes of the county, and what the laws were when the lien was filed.

When looking for liens on a specific property, remember to check for UCC filings, mechanics liens, the civil court records for judgments, probate records, delinquent taxes, HOA underfunding, and easements.

Foreclosed Property with Power Purchase Agreements

A Power Purchase Agreement, or commonly referred to as a PPA, is an agreement in which home and business owners, along with nonprofit and government groups, have a photovoltaic (PV) system installed on their property by a third party developer who typically owns, operates, and maintains the PV system and the property owner, or host, purchases the power that is produced by it. Depending on the agreement, there is usually no upfront cost for the host of a PPA and the agreement typically results in predictable electric bills and overall monthly savings. The right to receive the electricity is tied to the ownership of a property and thus is transferred with the title of the property whether it is a voluntary transfer or a foreclosure.

Many solar companies are doing property due diligence prior to signing a PPA to ensure the host who is signing is the owner of the property and that the property isn’t in the process of foreclosure. The reason for this is due to the fact that most property owners are paying off a mortgage to a bank when they sign a PPA and if that property owner were to fall behind on their payments then the bank would have the right to foreclose on the property. When a foreclosure occurs, the bank can then take the land, the house or building on the property, and all permanent fixtures attached to the house or building. According to Solar PPA Protection in Foreclosure, if the PV system is separate property, aka personal property or chattel, then the solar company can repossess it.  If the PV system is deemed a “fixture” then the bank that is foreclosing the property has the rights to the system. When this happens the solar company not only loses the ongoing energy payments they were receiving but also the money and resources it took to install the system itself.

It is recommended that any third party developer entering a PPA have a title search done on a property. A title search would generally help the developer protect their investments, assuming that, if a foreclosure is in the foreseeable future, they would either not proceed to enter the Power Purchase Agreement or they would ensure that the system is considered separate property so they could repossess it if a foreclosure were to occur.

Lowest Foreclosure Filings Since 2006

Is the national foreclosure crisis behind us? Some people seem to think so and there is definitely evidence to support the notion. Rick Sharga, the executive Vice President of Auction.com, stated that at the peak of the crisis roughly 14.5 percent of all loans were in the process of foreclosure or were delinquent. As of June 2014, approximately 7.5 percent of all loans were either delinquent or in the foreclosure process making it half of what it was during the peak. In Good News, Bad News in Foreclosure Activity Sharga states that he believes in the next couple years the 7.5 percent should work its way down to the “normal market” which is between 4 and 5 percent.

RealtyTrac’s findings in their U.S Foreclosure Market Report are another indicator that the nation is coming out of the foreclosure crisis. It showed that there were 109,824 foreclosure filings in May 2014 which was a 5 percent decrease from April 2014 and a 26 percent decrease from May 2013. In fact, it was the lowest amount of reported default notices, scheduled auctions and bank repossessions since December 2006.

However, even though national foreclosure filings are the lowest they have been in years, several states have recently seen an increase in foreclosure activity. Bank repossessions were down nationally this May by 6 percent from the previous month and were the lowest they have been since July 2007. However, they increased in 25 states, most predominately in NY, NJ, CT, MD, OR, and CA. And while there were 47,085 scheduled foreclosure auctions in the U.S. this May, making it the lowest level since December 2006 and down 22 percent from a year ago, foreclosure auctions nevertheless increased significantly in UT, OR, NJ and MA.

What is the Difference between a Deed and a Title Search?

In real estate the words deed and title are referenced frequently and interchangeably but they are two completely different things. Many people are used to seeing a title when it comes to a vehicle, and that car title document is the only title ownership document that exists in its entirety. In real estate the word title is an abstract term pertaining to the status of a specific property. On the other hand, a deed in real estate refers to a single document that references a particular event in the history of that property.

A deed is simply a record stating the transfer of ownership of a property. A new deed is created every time a property is transferred from one person to another whether it is just some or all of the property rights. The deed does not connect to any other documents for the property. There may be liens, judgments, mortgages, easements, or other transfers related to a property but they will not be stated because the deed is a historical document. A deed simply states that on a specific date one person transferred some property to another person.

A title report is as current as of the day in which it is created. It is not historical but rather combines different documents which may exist for a certain property. Determining the title status of a specific property comes down to reviewing dozens maybe even hundreds of documents about a property by performing a title search. The documents being reviewed could be liens, mortgages, deeds, releases, assignments, or judgments which are available to the public. However, a title search is normally presented on a certified property title abstract which is not part of public records but rather is created by a certified title abstractor who goes through all those documents and creates a title search report. Essentially, a property title report tells the whole story of a property and its’ current status, as opposed to a deed which is one single event.

When looking at a property you should be sure to consider whether or not you only need the deed or, in most cases, an actual property title report, which is created by a professional researcher through a title search when needed. For more information regarding this subject watch the short video, Property Title vs. Property Deed.

5 Reasons to Run a Title Search on Your Own Property

There are several different reasons people choose to get a title search done on a property. Forbes lists unreleased mortgages, incorrect liens, property vesting, document fraud, prior owners records, assessed value, deed copy, other party mortgages, pre-purchase research, and after sale verification as the Top 10 Top 10 Reasons to Check Your Property Title Search. Here is a little more in depth look at a few reasons people get a title search.

  1. Verify Ownership: When purchasing a property, the ownership of said property should be verified to make sure that the person being dealt with is the actual owner of the property and has authority to sell it. A title search can confirm if the ownership is current, if there has been a transfer of ownership, and make sure there aren’t any other owners by looking at vesting. A title search will list if the property is owned solely by an individual, jointly, or by a corporation.
  2. Liens: If there are liens on a property a future owner, investor, or a current owner will have some type of obligation that could stand in the way of a sale, refinance, or other uses of the property. When looking into a lien on a property you should find out what type of lien it is, when it was recorded, and who is owed money.
  3.  Mortgage Status: By taking a look at mortgages you can see who the mortgage holders are, if there is a first mortgage or a second mortgage, what the amounts are, and if it is through MERS. You will also be able to find out if any of the mortgages are in default or if there are foreclosure filings.
  4. Verify Legal Description: The legal description is a description of the actual parcel that combines to make the property location. It is usually two or three paragraphs of text detailing the boundaries of the property. It is wise to check if a property’s legal description matches the parcel that is being contemplated and that the boundaries of the property are what is expected by the buyer. Checking for encroachments on a property, such as a fence or extended driveway could affect easements as well.
  5. Check Document Details: When getting a title search don’t just look at the title but also look at the terms and conditions of mortgages, the interest rate on liens, and the other details of the document. The deed to a property might allow for the use of the property by a third party or have restrictions such as a life estate. It is best to know all the details of the document so you have a clear understanding of the property and ownership.

MERS: What is it and how might it affect your mortgage?

mers

MERS

Often times on a title search report a reference to MERS appears in the mortgage section. But what does it mean and what is it referring to? MERS, the Mortgage Electronic Registration System, is a collection of recordings that was establish in the 1990s by the largest mortgage lenders of that time. Essentially, it was created to decrease the legal costs incurred by these lenders when transferring mortgages between themselves. They had begun doing such a large volume in mortgage exchanges and assignments that it was costing them millions of dollars. Thus, they created this electronic registration system which allowed them to keep the original mortgage recorded in MERS and then, within the system, identify who was the lender responsible for collecting payments, who owned the mortgage, etc. However, the question of whether or not it was constituted as a valid mortgage or valid assignee arose when the foreclosure crisis began in the mid-2000s. Even so, in most court cases, it has been established that as long as the underlying lender has the proper documentation then they have the authority to foreclose under MERS.

If you have a title search that shows MERS as the lender then, in theory, it is the lender of record but in all reality there is an actual bank behind it. However, the bank lender is not something that is reported in an official real estate property title search. For this reason, having a title representative do an extended search to look up the lender of record specifically within MERS so there is no doubt or question as to the actual beneficiary or lender is recommended.

Today, there are many ongoing cases of homeowners battling legal issues involved with the process of their property being foreclosed and questioning MERS as a beneficiary. However, MERS seems to be coming out on top. The court has been recognizing “assignment of mortgages through MERS and its equivalents as valid and enforceable, and that MERS may assign a deed of trust just as any other hold or beneficiary.” For example, this was the case in the ruling of Citing Martins v. BAC Home Loans Servicing, according to RealEstateRama. In a similar case, Opraseuth v. HSBC Bank USA, “the borrowers filed a suit against defendants alleging, among other claims, that the assignment from MERS was invalid because MERS did not specify it was acting as a subsequent lender’s nominee,”  as described in the article Northern District of Georgia Dismiss Borrower’s Challenge to Validity of MERS Assignment. This ruling found that, “the plaintiffs lack standing to challenge the assignment in this case because they were not parties to the assignment contract.” For an additional example, read Lexology’s Sixth Circuit Upholds Dismissal of Borrower’s Challenges to Foreclose on Their Property, in regards to the Dauenhauer v. Bank of New York Mellon case.