For the last several years individuals interested in owner (seller) financing and hard money lending have been restricted by a cap on the interest that they could charge by virtue of a low Arkansas usury rate. The Arkansas Constitution set the rate at 5% above the Federal Reserve Primary Credit Rate or 17%, which ever was less. For the last few years the Primary Credit Rate has been .5 and .75 percent, capping the usury at 5.5 and 5.75 percent. Federal preemption exempted banks from the obligation to comply with this rate restriction however private investors have been limited in what they could lawfully charge in interest.

This limit has restricted the profitability of owner financing and hard money lending as an instrument of successful investing. Typically individuals found that the risk was not worth the relatively low return. However, all of that may have changed with the passage of Issue 2 last fall which modified interest rates limits on individuals acting as private lenders. This limit is now restricted to an interest rate not exceeding 17 percent per annum, which is the existing limit for consumer debt under the Arkansas Constitution, and there is no longer a restriction that interest rates charged cannot be greater than five percent above the Federal Discount Rate. This includes an interest rate on a real estate transaction in which an individual finances the purchase.

Conventional financing offers the benefit of the inclusion of a lending professional who is able to walk a buyer through the process and allows the seller to realize the funds in cash at the closing. This cash allows the seller the option to reinvest the equity in other property if necessary and to avoid the potential hassles that can be associated with acting as a private lender. In short, there are real benefits to conventional financing, however not all individuals or properties qualify for conventional financing.
For the transactions that may not qualify for conventional financing, the option of owner financing of real estate becomes viable, and possibly even highly profitable. This is with the road block of the low capped rate removed. This is because there are many advantages to owner financing and hard money lending for both the buyer and seller. Sometimes the benefits are greater for one or the other, but in most cases it is a “win/win” for both parties.

Advantages

Seller:

Sellers want to obtain the most money for their property as possible, and a fast closing with little hassle. Many Sellers also want to pay as little taxes as possible on the gains incurred. In many cases, the seller can have most of his desires satisfied by owner financing sale rather than a traditional cash sale.

1. Highest Price. More often a seller can insist on and receive a higher price when offering flexible owner-finance terms. In many cases, the seller can receive more than the fair market value of the property by offering these “soft” terms. People are often willing to pay a premium for easy-qualifying financing.

2. Cash. Nearly every seller says they want all cash, but few need it. What the typical seller wants is the most net cash from the deal. Often, the seller has to pay closing costs, title insurance, broker fees, and the balance of the existing financing.

In addition, there may be capital gains tax due to the IRS. In many cases, owner financing the transaction (particularly a “wraparound”) will net the seller more future yield than any source from which the cash proceeds were reinvested.

3. Fast Closing. Typically nothing holds up a sale more than qualifying for financing. It can take months for a buyer to qualify and close a new loan to purchase property. Since most standard real estate contracts contain a financing contingency, a seller may end up back at square one if their buyer does not qualify.

Furthermore, if the house is not particularly nice or unique, it may take some time to even find an interested buyer. Since the seller is competing with all of the other houses for sale.

There are very few “assumable” loans and few sellers are offering “soft terms.” Thus, an owner financing and hard money lending makes a house unique. Furthermore, an owner financing and hard money lending transaction can be consummated in a matter of days, since there is no appraisal, underwriting, or other preconditions of closing involved.

4. Tax Savings. On an installment sale, the seller only pays gains to the extent they receive payments each year. This can be particularly advantageous if you have owned the property for several years.

As you can see, the installment sale provides many advantages to the seller of real property.

Buyer

Despite the possibility of an elevated purchase price and higher interest rate, there are many advantages to a buyer who engages in privately financed transaction.

1. Easy Qualification. The buyer, in many cases, prefers a privately financed transaction to conventional financing because it does not require traditional bank income and credit approval. The buyer may have poor credit because of a divorce or recent bankruptcy. He may be self-employed and cannot prove income. He may be new to his job and cannot meet strict lender guidelines.

As you can see, there are dozens of reasons why a buyer cannot (or will not) qualify for a conventional bank loan. The privately financed transaction becomes the perfect solution for him.

2. Credit Rating. An installment sale may give the buyer a chance to improve his credit rating by owning a home and making payments timely.

3. Low Loan Costs. One of the biggest benefits for the buyer is the ability to avoid much of the costs associated with conventional loans. Points, origination fees, underwriting charges, appraisal, credit reports, etc. charged by conventional lenders can amount to thousands of dollars at closing. The buyer may be free from much these expenses with owner financing and hard money lending.

4. Fast Closing. Often a buyer can close and move into a property within days, since there is no third party lender.

In summary, we should all appreciate the lenders who work hard to provide loan products for a variety of individuals with a verity of needs, however there are many individuals and transactions which cannot fit into any loan product available today. For those individuals and transactions, owner financing and hard money lending may be the key to unlock what otherwise would be a dead deal.

“What is Usury in Arkansas?” That is a question that was well settled for years. The Arkansas Constitution set the rate at 5% above the Federal Reserve Primary Credit Rate or 17%, which ever was less. For the last few years the Primary Credit Rate has been .5 and .75 percent, capping the usury at 5.5 and 5.75 percent. Federal preemption exempted banks from the obligation to comply with this rate restriction however private investors have been limited in what they could lawfully charge in interest.

This limit has restricted the profitability of owner financing and hard money lending as an instrument of successful investing. Typically investors found that the risk was not worth the relatively low return. However, all of that may have changed with the passage of Issue 2 last fall.

Issue No. 2, House Joint Resolution 1004, was passed November 2, 2010 as a legislatively-referred constitutional amendment and went into effect on January 1, 2011. The measure modified interest rates limits on loans made by three groups of lending entities:

• Government entities,
• Federally insured depository institutions, and
• All other lenders

The constitutional amendment removed a 5 percent interest cap, but preserved the existing 17 percent cap for consumer credit and also applies it to other non-government debt.

A lawsuit was filed to strike the measure from the November 2, 2010 ballot, however the measure was not taken off of the ballot, due to a ruling by Pulaski County Circuit Court just before the election took place. There was also a lawsuit was filed with the Arkansas Supreme Court, who heard arguments from both sides on October 21, 2010. However, on October 22, 2010, the high court then threw out the lawsuit. According to Associate Justice Donald Corbin in the ruling, “Our review of Amendment 80 and this court’s well-established precedent leads us to conclude that our jurisdiction to hear challenges to amendments referred by the Legislature remains appellate in nature.” However, the separate lawsuit that was filed in Pulaski County Circuit Court was still ongoing at the time of that decision. However, the court refused to keep the measure off of the ballot, with the ruling stating that the ballot title was clear enough for voters to understand.

On June 16, 2011 the Arkansas Supreme Court heard arguments from attorney Eugene Sayre stating that the measure is unconstitutional. The newest legal challenge stated that the measure violated the state’s single-subject rule by including three different topics in one ballot measure. The state’s legislature can only refer up to three measures each election year, which Sayre claimed the lawmaking body tried to get around by putting the alleged multi-topic question on the ballot. According to Sayre: “We maintain these three are disparate and don’t have a common theme, purpose or subject.” At the hearing, Assistant Attorney General Scott Richardson told the justices that three aspects of the measure were related. He claimed that the items all deal with loans and financing. “That test could be used to invalidate a vast array of amendments in our constitution.”

On June 23, 2011, the Arkansas Supreme Court upheld the amendment, stating that the amendment should be allowed, as long as the proposals in the measure were “reasonably germane”.

In summary, under current Arkansas Law, individuals, acting as private lenders, would be restricted to an interest rate not exceeding 17 percent per annum, which is the existing limit for consumer debt under the Arkansas Constitution. However, there is no longer a restriction that interest rates charged cannot be greater than five percent above the Federal Discount Rate. This would include interest rates in a real estate transaction in which an individual finances a portion, or all, of the contract price.

You have a million things to take care of: packing, scheduling movers, utilities and the kids’ school records. But what actually happens in that period between contract and closing?

While there are differences among the 50 states as to “who handles what” in a real estate closing, the basic steps of transferring a land title are used throughout the United States. So whether your closing is handled by an attorney or a title company, there are six basic steps followed in somewhat the same order in every real estate transaction.

1. Opening the Title Order
Upon the execution of an “escrow” or “sales contract,” the road to closing begins with a unique order number issued to the file. A correct legal description for the property is required so the title work can be ordered.

2. Processing the File
At this point, the property’s tax information, loan payoffs, survey, if necessary, homeowner/maintenance fees, inspections/ reports, legal documents, hazard and other insurances as well as legal papers are ordered and title commitments/ preliminary reports are reviewed and sent out.

3. Title Search
Copies of documents are gathered from various public records. Records searched include deeds, mortgages, paving assessments, involuntary liens such as judgments or federal tax liens, wills, divorce decrees and other documents affecting the title to the property. Documents are copied and delivered to the title examiner/attorney for examination.

4. Title Examination
Documents found during the title search affecting the title to the property are examined in order to verify the legal owner of the property. Mortgages as well as other items in the “chain of title” such as easements, set-back lines and rights of way are documented. The title commitment is produced, summarizing all findings affecting the property.

5. Document Preparation and/or Request to Produce
Lender instructions/requirements are received and reviewed in addition to the title information and survey. Charges are assembled and settlement statements are prepared (HUD-1 statement for a residential loan). Affidavits or other forms are prepared by the title company or attorney.

6. Settlement/Closing the Transaction
The long-awaited day of closing is overseen by the escrow/settlement officer. The seller signs the deed and the purchaser signs the new mortgage. The current mortgage is paid off and the new mortgage — secured by the real estate and the deed — is executed. The seller, real estate brokers, attorneys and other parties to the transaction are paid.
After the Closing

While you’re shaking hands and exchanging keys, the settlement or escrow officer records the appropriate documents with the county clerk. The closing package is assembled and sent to the lender within 24 to 48 hours. Finally, the title policies are prepared and forwarded on to the owner and lender after the recording information is received from the county.

Congratulations — you’re a new homeowner!

We protect children’s well-being.
• We collect $325 million in past due child support annually enabling children to be properly cared for

We protect people from unseen dangers.
• We work with law enforcement to prevent and apprehend people committing fraud through
real estate transactions
• Our underwriter provides alerts on Specially Designated Nationals, as well as Fraud and Closing Alerts using information from the government to help prevent criminals/terrorists from purchasing real estate

We protect people’s investments in their homes.
• Over half of all real estate transactions have a problem somewhere in the chain of title; we find these issues and assist in taking corrective action to enable the transactions to go through

Our protection provides peace of mind that helps boost the economy.
• We provide assurance to homeowners that they can’t simply lose their title because of covered claims
• We provide assurance to lenders that their investment is protected, thus allowing homeowners to unlock the value in their home

We directly help boost the economy by making real estate transactions more efficient.
• We save consumers $10 billion annually in interest cost through timely closings, putting those dollars to work in the hands of the American homeowner
• By expediting the closing process we save consumers and the real estate industry $1 billion a day

We help strengthen our nation.
• We collect $1.75 billion in delinquent federal taxes annually, lessening the tax burden for everyone

The title industry is an integral and vital part of our country’s real estate market that benefits us as individuals and as a country.

Contact us to learn more about title insurance and why we’re the right title company for you.

A major reason for this is that buying a home has become a rather complex process. There are so many details to take care of that most people rely on the person handling the sale to take care of them—typically their real estate agent. They trust their agent to know the process and do what is required, including ordering services like the appraisal, home inspection, and title work. Since the buyer isn’t directly involved, they may not be knowledgeable about what many of these services entail.

What is Title Insurance?

An Owner’s Policy of title insurance assures that the home you are buying is free of issues that could cloud the title. Prior to issuing the insurance policy and before you close, title professionals conduct an exhaustive search to check for liens, encumbrances, easements, and other problems that could affect the status of the title. If a problem is discovered, title professionals typically take care of it, or notify you so that you can make an informed decision. If a title defect covered under the policy isn’t discovered until after you close, the insurance kicks in to cover your losses.

What are some typical problems that might cloud a title? There may be a lien on the property for unpaid property taxes by the previous owner, or a mechanic’s lien by a subcontractor who performed work on the property and was never paid. Other examples include a prior unpaid mortgage, or covenants and restrictions on the use of the property.

Sometimes there are problems that go undetected during the title search, such as fraud or forgery, a mistake in the public record, or an unknown heir claiming ownership. If this occurs, you would file a claim with your title insurance company.

The truth is, claims are rare in the title insurance business because of the due diligence that is performed before the policy is issued. Most of the premium dollar goes to pay for the upfront costs of performing the title search, and clearing up title issues before you close.

Understand Your Coverage

Title insurance is more than “just another fee”–it provides real protection should something happen to threaten the title to your home. Talk to your title representative to find out what is and isn’t covered in your title insurance policy.

For peace of mind, make sure you fully understand your coverage before you close.

In Arkansas, the priority of liens is generally determined by the maxim “prior in time, prior in right.” Dempsey v. Merchants Nat’l Bank, 292 Ark. 207, 210, 729 S.W.2d 150, 151 (1987). The doctrine of first in time, first in right is not always as clear and obvious as it may seem. This basic rule is subject to exceptions in Arkansas, one being the doctrine of equitable subrogation.

The doctrine of equitable subrogation has long been the rule in Arkansas where a senior mortgagee in good faith and without culpable negligence satisfied the lien of his mortgage on the record in ignorance of the existence of an intervening mortgage on the same premises and took a second mortgage as a substitute, equity will restore the lien of the first mortgage, provided it can be done without working hardship or injustice on innocent parties. Home Federal Sav. & Loan Ass’n v. Citizens Bank of Jonesboro, 43 Ark. App. 99, 861 S.W.2d 321 (1993); citing Wooster v. Cavender, 54 Ark. 153, 155, 15 S.W. 192 (1891). See also Stephenson v. Grant, 168 Ark. 927, 931, 271 S.W. 974, 976 (1925). The result under the general rule will not be affected by the fact that the overlooked intermediate lien was on record at the time of the release, provided the mortgagee was not, in so acting, guilty of culpable negligence; but if the mortgagee is chargeable with such negligence relief will be denied, as where the mortgagee had actual knowledge of the intervening lien. Home Federal Sav. & Loan Ass’n, 43 Ark. App. 99, 861 S.W.2d 321. While a court in equity has the power to grant relief from the consequences of a mistake, the application of this power must be largely controlled by the circumstances of each case. Spencer W. Symons, Pomeroy’s A Treatise On Equity Jurisprudence § 856b, at 340 (5d ed. 1941).

So in this age of juggling mortgages there is hope for the hurried mortgage processor who makes a mistake, however it may be best to do business with a careful title company who will update their search before they close on the refinance, rather than hope the mistake fits into this exception.

In addition, any alleged deficiency in the foreclosure may not be accurate. Nightmare scenarios that people will lose their homes only breed fear and prolong recovery. Title insurance coverage dispels these fears.

Kurt Pfotenhauer
Chief Executive Officer
American Land Title Association
Washington, Oct. 11, 2010

How Title Insurance Helps

This course offers Facilitated Discussion, On Line Video Presentations, and Case Studies to assist Arkansas Licensees in dealing with the Current Real Estate Market Conditions / Current Events Relating to The Real Estate Practice in Northwest Arkansas. Analysis of Market using MLS and Local Data will be provided.

Special Guest Attorney Bob Ballinger from Kings River Title will go over changes in Regulations relating to Closing Transactions and Title Insurance Requirements. Changes in Truth in Lending, Good Faith Estimates, RESPA and Lead Based Paint will be discussed.

“The Future is Now” Technology Updates and Tips regarding Internet Marketing, Lead Generation, Agent Efficiency and Effectiveness will be covered. Current Procedures/Marketing of Short Sales, Bank Foreclosures will be addressed

No Out of Town Folks Trying to Sell their programs, No Old Tired Stories that don’t relate, Just Lots of Good Stuff that will help you succeed in these challenging Times.

Completion of the 6 Hour session will meet the requirements for 2011 Arkansas Continuing Education License Renewal.

When = Tuesday, August 10 2010
Time = 9AM to 3:30 PM
Where = Springdale Country Club
COST = $30 [A deal Thanks to Sponsors]
Great Buffet Lunch Provided
Call
479-790-2772

Real Estate Education Center

Note: Seating is limited. Therefore, if you register and later determine that you cannot attend, please call as soon as possible to allow your spot to be filled from the waiting list.

In Arkansas neighboring property owners can legally modify the boundaries dividing their properties without any written instrument. This can be done a variety of ways, one of which is by a principal in the law called “boundary by acquiescence.” A boundary line by acquiescence can be inferred from the neighbor’s conduct over many years so as to imply the existence of an agreement about the location of the boundary line. Whenever adjoining landowners tacitly accept a fence line or other monument as the visible evidence of their dividing line and thus apparently consent to that line, it becomes the boundary by acquiescence. Walker v. Walker,8 Ark. App. 297, 651 S.W.2d 116 (1983). Even if there never was an express agreement to treat a fence as the dividing line between the two parcels of land, such an agreement may be inferred by the action of the parties. See Kittler v. Phillips, 246 Ark. 233, 437 S.W.2d 455 (1969). Whether a boundary line by acquiescence exists is to be determined upon the evidence in each individual case. See Hedger Bros. Cement & Materials, Inc. v. Stump, 69 Ark. App. 219, 10 S.W.3d 926 (2000).

Further, boundaries by acquiescence are frequently found to exist at locations other than those shown by an accurate survey of the premises. See Summers v. Dietsch, 41 Ark. App. 52, 849 S.W.2d 3 (1993). A fence, by acquiescence, may become the accepted boundary even though contrary to said survey line. Id. Thus, tacit acceptance of a fence line or other monument as the visible evidence of the dividing line for a long period of time manifests apparent consent. Id. The property owners and their grantees are then precluded from claiming that the boundary line thus recognized and acquiesced in is not the true one, although it may not be on the survey line. Id.

Therefore, if you have an old fence separating your property from your neighbor’s, you can be somewhat confidant that the boundary to your property is along that line.