Big Sky Review | Issue 2 by First American Title - Agency Division

BIG SKY

2017 | ISSUE 2

Review

~ A M O N TA N A A G E N C Y N E W S L E T T E R ~

ALIEN INVASION? By: Justin Lischak Earley, VP, Corporate Underwriting

Have you recently had an encounter with an EBE? No, we aren’t talking about extraterrestrial biological entities; we’re talking about exotic business entities! In the past few years, new and strange forms of artificial persons have begun to appear in real estate transactions. Some examples include series LLCs, statutory business trusts, family limited partnerships, and asset protection trusts. Often, these creatures were engineered in the legislative laboratories in one state (Delaware, Texas, Wyoming, etc.), but the parties to the transaction want to use these creatures for a real estate transaction in a state different than the one that created them.

Page In This Issue

Alien Invasion?

New Twist on Wire Fraud

AgentNet® Content Library

News Flash

4-6

Economic Center

EBEs create a number of problems for title insurance underwriters. In situations where we are being asked to insure the EBE or a lender on the title purportedly owned by an EBE, it can be difficult to determine whether the EBE is capable of holding title in a state outside of its creation. If the EBE is already in title, it can be difficult to know whether a court may brush aside the separate existence of the EBE and permit liens and other encumbrances to attach to the property. And when the EBE is selling or mortgaging the property, it can be particularly challenging to sort out authority issues regarding the EBE. So, what to do? If you have a transaction involving a business entity that is out of the ordinary, reach out to underwriting early in the transaction for guidance. Armed with the right knowledge, you can stop your world from being invaded by EBEs. The information contained in this document was prepared by First American Title Insurance Company (“FATICO”) for informational purposes only and does not constitute legal advice. FATICO is not a law firm and this information is not intended to be legal advice. Readers should not act upon this without seeking advice from professional advisers. First American Title Insurance Company makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American, the eagle logo, First American Title, and firstam.com are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates. AMD: 05/2017

NEW TWISTON

WIRE FRAUD By: Michele A. Green, SVP, Senior Business Counsel - Agency Division

Over the past few years, First American Title has communicated with its settlement professionals that they are targets for fraudsters due to the large sums of money they are responsible for disbursing in the course of closing real estate transactions. These fraudulent schemes to divert funds continue, and losses to the parties involved are often devastating. In the classic scheme, the closing professional receives an email that provides disbursement instructions regarding the seller proceeds or loan payoffs. These emails appear to come from a party in the transaction, but are actually from fraudsters who have hacked into the email traffic associated with the transaction. Most settlement professionals now employ call-back procedures to confirm any instructions received via email, but mistakes are sometimes made and funds are lost.

THE NEW TWIST

WHAT CAN WE DO?

The latest evolution in this theft epidemic occurs after a closing professional has already wired funds to a fraudster’s account having relied upon fraudulent wire instructions.

Settlement professionals should institute and unwaveringly follow protocols that require verification of all disbursement instructions.

The fraudster then initiates contact with the closing professional and poses as the receiving bank for the wired funds, often using a spoofed caller identification to increase the appearance of legitimacy. The fraudster communicates that the funds were sent to an account flagged as being suspicious - and assures the settlement professional that the funds will be returned within a few days. This assurance tricks the closer into not contacting the true receiving bank to freeze the funds, and provides the fraudster sufficient time to move the funds beyond the reach of the parties.

• Most settlement professionals require at the very least outgoing call-back procedures utilizing a known, safe telephone number to confirm any instruction received via email. • Incoming telephone calls are not a substitute, due to the known risk of call spoofing. • Closing professionals should also take care to confirm direct contact with the funds recipient where possible. Funds have been lost when a closer relies on a call-back made to counsel for a recipient, but the confirming contact between the recipient and his/her counsel was via compromised email. • Many settlement professionals now require inperson, wet signature disbursement instructions from parties who have presented valid identification.

AS TO THE NEW TWIST Upon any indication that funds have or might have been misdirected, settlement professionals should initiate immediate, direct, outgoing contact with both the wiring and the receiving bank. Never rely on an incoming call to provide confirmation of contact. BE CAREFUL OUT THERE!

First American Title Insurance Company makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American, the eagle logo, First American Title, and firstam.com are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates.

First American Title | Big Blue Review | 2017 - Issue 2

AMD: 02/2017

www.firstam.com

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AgentNetÂŽ Content Library ALTA Endorsements The Content Library in AgentNet is a great resource available to agents and provides quick access to bulletins, manuals, guidelines and a library of information. The Content Library is also a great tool for accessing information about ALTA Endorsements associated with specific types of loan and real estate transactions. Log onto AgentNet https://agency.myfirstam.com 1. Enter User Name and Password 2. Select Content Library under the Services tab 3. Type name of ALTA Endorsement (e.g., ALTA 9) in the search field 4. Locate Montana-specific items by selecting Montana from the menu on the left 5. Refine the search by using the Sort tab to select Best Match, Name or Date The First American Title ALTA Endorsement Issuing Standards provide details regarding the purpose of the endorsements, whether underwriting approval is required and the steps to follow to issue the endorsement. Please contact the Montana Underwriting Department if you have any questions about the issuance of endorsements and the coverage they provide.

News Flash First American Title educational seminars will be held in multiple locations in September of 2017. Seminar information and Save the Date coming soon! First American Title | Big Blue Review | 2017 - Issue 2

Our offices will be closed on Tuesday, July 4th, in observance of Independence Day

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E C O N O M IC C E N T ER By: Mark Fleming, Chief Economist

Market Potential Caught in the Crosswinds of Surging Demand and Tightening Inventory First American’s proprietary Potential Home Sales model looks at April 2017 data and includes analysis from First American Chief Economist Mark Fleming on how the real estate market is performing versus its potential. April 2017 Potential Home Sales For the month of April, First American updated its proprietary Potential Home Sales model to show that: »» Potential existing-home sales decreased to a 5.69 million seasonally adjusted, annualized rate (SAAR), a 0.2 percent decline over last month’s revised data. »» This represents an 89.3 percent increase from the market potential low point reached in December 2008. »» In April, the market potential for existing-home sales fell by 0.1 percent compared with a year ago, a decline of 5,000 (SAAR) sales. »» Currently, potential existing-home sales is 674,000 (SAAR), or 11.8 percent below the pre-recession peak of market potential, which occurred in July 2005.

Market Performance Gap »» The market for existing-home sales is underperforming its potential by 0.6 percent or an estimated 32,000 (SAAR) sales. »» Market underperformance has improved 84.1 percent compared to this time last year. In April 2017, the housing market for existinghome sales was underperforming its potential by 200,000 (SAAR) sales. The Housing Market Faces a “Prisoner’s Dilemma” “Demand for existing-homes remains strong, as positive economic conditions and the demographic tail wind of Millennial demand continues to grow. Meanwhile, sellers are increasingly unwilling to list their homes for sale. The market faces a ‘prisoner’s dilemma.’ If everyone sells, there will be plenty of supply, but the risk Continued on next page

The market faces a ‘prisoner’s dilemma.’ If everyone sells, there will be plenty of supply, but the risk of selling when others don’t, the inability to find a home to purchase at the right price, is preventing homeowners from putting their homes on the market. - Mark Fleming, Chief Economist

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E C O NOMI C CE NT E R

CO NT INUED

of selling when others don’t, the inability to find a home to purchase at the right price, is preventing homeowners from putting their homes on the market,” said Mark Fleming, chief economist at First American. “The ‘prisoner’s dilemma’ in housing is restricting supply, causing increased house price appreciation and falling affordability.”

Chief Economist Analysis Highlights »» Conflicting market forces kept the potential for existing-home sales essentially unchanged in April, falling 0.1 percent compared to a year ago. »» Strong consumer demand fueled gains in market potential for existing-home sales, but the gains were offset by the deterioration in affordability driven by widespread tight supply conditions. »» According to the most recent report from the National Association of Realtors (NAR), actual existing-home sales surged to the highest rate seen since 2007, 5.71 million sales, indicating that demand remains strong, even as affordability falls. »» Healthy wage growth, which increased 2.5 percent over the past 12 months, and unemployment at its lowest level since May 2007, are both contributing to strong demand. »» According to the First American Real House Price Index, the fast pace of house price growth, combined with interest rates 40 basis points higher than a year ago, has had a material impact on affordability, which fell 11.0 percent compared with February 2016.

»» Analysis of Realtor.com data reveals that the

average number of days on market for homes sold in April was 73 days, down five days compared to a year ago, and 35 days less than the buyer’s market of 2012. As the seller’s market continues to strengthen, affordability is expected to decline further. Yet, it’s unclear if the declining affordability will begin to curtail demand. What Insight Does the Potential Home Sales Model Reveal? When considering the right time to buy or sell a home, an important factor in the decision should be the market’s overall health, which is largely a function of supply and demand. Knowing how close the market is to a healthy level of activity can help consumers determine if it is a good time to buy or sell, and what might happen to the market in the future. That’s difficult to assess when looking at the number of homes sold at a particular point in time without understanding the health of the market at that time. Historical context is critically important. Our potential home sales model measures what we believe a healthy market level of home sales should be based on the economic, demographic, and housing market environments. Continued on next page

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About the Potential Home Sales Model Potential home sales measures existing-homes sales, which include single-family homes, townhomes, condominiums and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales and U.S. population demographic data, income and labor market conditions in the U.S. economy, price trends in the U.S. housing market, and conditions in the financial market. When the actual level of existing-home sales are significantly above potential home sales the pace of turnover is not supported by market fundamentals and there is an increased likelihood of a market correction. Conversely, seasonally adjusted, annualized rates of actual existing-home sales below the level of potential existing-home sales indicate market turnover is underperforming the rate fundamentally supported by the current conditions. Actual seasonally adjusted, annualized existing-home sales may exceed or fall short of the potential rate of sales for a variety of reasons, including non-traditional market conditions, policy constraints and market participant behavior. Recent potential home sale estimates are subject to revision in order to reflect the most up-to-date information available on the economy, housing market and financial conditions. The Potential Home Sales model is published prior to the National Association of Realtors’ Existing-Home Sales report each month. “The ‘prisoner’s dilemma’ in housing is restricting supply, causing increased house price appreciation and falling affordability.”

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