Accession Law LLC


Sep 10, 2014

Lease can be regulated financial product

We have received numerous inquiries for clarification (or to argue with the conclusion) that the Dodd/Frank legislation implicates lease/option transactions.

If interested, please see:
4) A transaction which includes a "lease" in which, at the inception of the lease, the intention is to transfer ownership of the property to the tenant is a "financial product or service."

This does not mean that all leases are financial products or that lease/option deals are impossible.  This does mean that lease/option deals may involve a regulated financial product or service in some circumstances.  In those cases, the lease/option deal would need to comply with the applicable regulations.

Aug 14, 2014

Lease-options and Land Contract Sales of Homes?

"That can't be right!  The government can't restrict my right to sell my real estate over time by land contract!  The government can't stop me from granting my tenant an option to purchase my property!"

I regret to inform you that the landscape regarding seller financing of homes has changed drastically.  I have been contacted by numerous people over the past two years who insist that they are able to use lease and option contracts to sell homes.  I also have argued with potential clients who insist that they can take a seller carry-back mortgage when selling a home.  Many times, the people tell me about how they have done it in the past.

I remind them that now isn't the past.  "The past" was before the SAFE act and Dodd/Frank.  For reasons that are not clear, those two pieces of legislation included regulation of seller-carry financing.

Land contracts are clearly implicated by the SAFE Act as I have noted previously.
/seller-financing-of-homes-requires.html   In many cases, a person selling a home cannot lawfully use a land contract or even a seller mortgage note.  Whether and when these tools can be used depends entirely on the facts.  One cannot assume that one of these techniques is permissible simply because it was permitted in the past.

Likewise, lease/option contracts for homes may be impermissible in many cases by virtue of the Dodd/Frank Act. The text of the Dodd/Frank act can be located at: /PLAW-111publ203/html/PLAW-111publ203.htm

Note the following definition:

A) In general.--The term ``financial product or service'' means--
            (i) extending credit and servicing loans, including acquiring, purchasing, selling, brokering, or other extensions of credit (other than solely extending commercial credit to a  person who originates consumer credit transactions);
(ii) extending or brokering leases of personal or real property that are the functional  equivalent of purchase finance arrangements, if—
(I) the lease is on a non-operating basis;
                        (II) the initial term of the lease is at least 90 days; and
                        (III) in the case of a lease involving real property, at the inception of the initial lease, the transaction is intended to result in ownership of the leased property to be transferred to the lessee, subject to standards prescribed by the Bureau;

The implications of offering a financial product of service are substantial.  The financial service provider must comply with a myriad of regulations set by the consumer financial protection bureau.  Compliance costs alone are prohibitive.  Further, many commonly used elements of a lease option may be prohibited.  

For example, a typical lease and option arrangement provides that a potential buyer will have an option to purchase a home for a period of 3 years for a stipulated price.  The potential buyer also will have the right to occupy the home by virtue of a lease.  If this arrangement is determined to be a financial product regulated by CFPB, it is conceivable that these two transactions in concert could be construed as non-amortizing financing in violation of the Dodd/Frank Act. 
Until litigation establishes the parameters of these regulations, it is unclear whether a landlord can safely grant an option to purchase (or perhaps even an offer to purchase) to a residential tenant. 

Aug 7, 2014

Investors involved in alternative financing must exercise caution

2010 Mortgage Fraud Report of FBI

  • Interthinx reports that property owners are fraudulently decreasing their income and property values to get their debt reduced for their loan modifications.29 They are fabricating hardships and filing false tax returns to this end. Also, individuals who first perpetrated fraud in loan origination are now attempting to defraud again during their loan modification.
  • Freddie Mac reports that 2010 loan modification fraud trends include strategic defaults, which are accompanied by false statements about income, assets, or the homeowner’s inability to pay.30  Loan modification perpetrators are misrepresenting occupancy and income (by stating it is lower), altering pay stubs, and seeking modifications without an actual financial hardship.31
  •  HUD reported 2010 loan modification scams in the form of principal reduction scams, rent-to-own-leaseback, bankruptcy fraud, and false reconveyance.32 In addition, HUD reported that fraudsters are trolling unemployment offices, churches, and public foreclosure rescue fairs targeting vulnerable homeowners. 

Feb 1, 2014

Seventh Circuit Court of Appeals Rejects First Weber's Claim

First Weber Group, Inc.'s claim against one of its former agents arising from a 2002 transaction was rejected on appeal by the United States Court of Appeals for the Seventh Circuit.
First Weber v. Horsfall

Some facts from the opinion that may be of interest to consumers:

First Weber had a listing contract with the Seller.  A Buyer submitted an offer to purchase using a First Weber agent, but the transaction was never completed.  After the listing contract expired, and after the agent had left First Weber, the Buyer submitted a new offer which was accepted and which closed without involving First Weber.

Six years later, First Weber sued the Seller and its former agent.  Both the Seller and the agent eventually declared bankruptcy.  First Weber obtained a judgment against the former agent.  It then pursued its claim through the bankruptcy proceeding, US District Court, and ultimately the Seventh Circuit Court of Appeals. 

Over a claim for less than $11,000.00 arising from a transaction which occurred over 10 years ago, First Weber has been litigating for almost 5 years losing at the Bankruptcy Court, the US District Court, and now the Seventh Circuit Court of Appeals!?!

Note for consumers:  Many sellers do not realize that the standard form listing contract default language includes a 1 year "tail" for protected buyers.  This means that the listing company may have a claim for commission even when the buyer submits an offer after the listing agreement has expired.

Further, unbeknownst to many "flat fee MLS" sellers, a broker may have a claim to commission even in cases where the buyer appears to be unrepresented. 

Dec 4, 2013

Congratulations to the Graaskamp Program and the UW BSchool

The University of Wisconsin real estate program was rated as the best in the country.  Congratulations and keep up the fine work.

Jun 7, 2013

Seller Financing, Dodd/Frank and the SAFE Act

The regulatory landscape relating to seller financing of residential purchases (including land contracts and lease/options) has changed significantly in the past two years.

The NAR has published a helpful summary relating to some of the issues: 
Impact of Loan Originator Final Rule on Seller Financing

As usual with legislation, especially that adopted at the federal level to address an "emergency" or "crisis," people are well-advised to avoid using reasonableness as a guide to compliance.  "How could the solution to the financing crisis possibly involve removing all alternatives to conventional large bank financing," I have been asked.   

In my opinion, the SAFE Act and Dodd/Frank included fixes to largely imaginary problems  - ie consumers getting seller financing through fraudulent means or on unfair terms.  I can offer no explanation for the restrictions on seller financing except that the legislation to "fix" the financial turmoil caused by large financial institutions was drafted by the lobbies for those same large financial institutions.  Asking Dodd and Frank to guard the large bank henhouse probably makes less sense than asking Bernie Madoff to serve this function.  At least his story would make enough sense to fool the public.  There is no factual basis of which I am aware upon which to conclude that seller financing had anything to do with the financial meltdown.

To the contrary, general consensus concludes that the collaboration between the Wall Street investment banks and the mortgage lending syndicates created the home mortgage "crisis."  The financial bail-out, with which I have strenuously disagreed, covered the bets of these firms because they were "too big to fail."

Then, to add insult to our injury, these same firms drafted the legislation that is supposed to cure the problem they created.  Their cure restricts seller financing as an alternative means of purchasing a home.  They even include lease/options in the definition of a "financial product or service" under Dodd/Frank.

I have been working with clients including home builders, landlords who sell to tenants, and property rehab companies to work through this problem.  If you are considering selling or buying a home using seller financing such as a seller mortgage, a land contract, or an option to purchase concurrently with a lease, please contact me to discuss the implications of your particular facts.

NOTE:  This post, as always, is not intended as legal advice.  Further, this area of the law is in flux, and the author makes no representation or promise to update this information.

Attorney James N. Graham
Accession Law LLC

Apr 25, 2013

Adverse Possession Law in Wisconsin - Now With Even More Confusion!!!

Through adverse possession, a landowner can use a neighbor's land long enough and in such a manner as to take ownership of the property.  What would be theft in any other context and what is by definition trespass for a period of years translates into the ownership of title to real estate.

The necessary elements of adverse possession, though often repeated, are never clear when applied to the facts. "The use of the land must be open, notorious, visible, exclusive, hostile and continuous such as would apprise a reasonably diligent land owner and the public that the possessor claims the land as his own."

However, the case law chips away at the clarity of each of these elements.  "Continous" apparently does not mean uninterrupted in time.  "Exclusive" apparently does not mean that others do not use the land.

And now, according to the Wisconsin Court of Appeals, "hostile" and "that the possessor claims the land as his own" apparently does not require the possessor to believe that the land is his own or that he is there without permission.

Wilcox v. Lake Delton Holdings LLC, 2012AP1869 (April 11, 2013)