Legacy Title Company Blog
Navigating the Current Housing Market: Finding the Brighter SideDecember 20, 2023
If you’ve been following the housing market, you’ve undoubtedly seen some discouraging trends. While it’s true that mortgage interest rates and home prices are rising to levels we haven't seen in a long time, it’s important not to forget about all the benefits of owning property. Whether you’re a prospective homeowner or real estate investor, there are still advantages to investing in real estate – even in the most challenging market.
1. Long-Term Appreciation: The housing market has a proven track record of solid appreciation over the long term. According to the Federal Housing Finance Agency (FHFA), the U.S. housing market has experienced positive annual appreciation since 2012. The Q3 2023 FHFA House Price Index (FHFA HPI®) reports that U.S. house prices rose 5.5 percent between Q3 2022 and Q3 2023, which was 2.1 percent higher than Q2 2023. To find appreciation rates in your state for the last quarter, year or five years since 1991, click here.
2. Historical Agility: The housing market is known to be cyclical, with distinctive highs and lows. There is nothing new about the current downturn in rising interest rates, escalated property values and scarcity of inventory. Mortgage interest rates fluctuate over time, and although they have doubled within the past few years, they are still historically low. During the 1980s, rates for a 30-year fixed-rate mortgage were as high as 18 percent, which is significantly higher than the current average of roughly 7 percent.
House prices are subject to fluctuations, as well. Supply and demand drive home prices; when there is a shortage of supply, prices often rise, and vice versa. Market factors, such as location, have a significant impact on real estate prices and national data only provides partial information. For instance, a downturn in California can mask a boom in Florida.
3. Hard Asset: Real estate is a physical entity, or a “hard asset” with intrinsic value, unlike stocks or bonds. It will never become valueless and has the potential to generate a steady cash flow. Regardless of fluctuations in the economy, hard assets are considered highly valuable.
4. Diversification: Real estate offers a large variety of property types, making it easier to diversify investment portfolios. Some of the various property types range from residential properties, vacation rentals and fix-and-flip investments to office and retail buildings, agricultural land and Real Estate Investment Trusts (REITs). A diversified investment portfolio provides several benefits, including flexibility, risk mitigation, income stability, capital appreciation and market exposure.
5. Tax Benefits: As a homeowner, there are certain tax benefits that could return money to your pocketbook each year. If you obtained a mortgage loan to purchase your home, the interest you pay may be included as a deduction on your annual tax return. The state and local real estate taxes paid to the taxing authority may also be included as a deduction. If you receive rental income from real property, such as a vacation home for short-term stays, you may deduct certain expenses on your tax return for managing and maintaining the property, such as interest, taxes, advertising, maintenance, utilities and insurance.
Real estate investors also benefit from tax programs such as the 1031 Exchange and the Opportunity Zone incentive. A 1031 Exchange allows an investor to defer payment of capital gains by reinvesting the proceeds of an appreciated property to acquire a like-kind replacement property. The Opportunity Zone incentive offers tax breaks for investment in low-income census tracts. The longer an investor holds the investment in a qualified opportunity zone, the greater the tax benefits. That includes the possibility of permanently excluding the gain when the qualified investment is sold or exchanged after 10 years.
6. Creative Funding: There are multiple financing solutions for obtaining real estate. Traditional real estate financing is often accomplished through a conventional bank loan, but there are several other options available, including, but not limited, to:
• Private Money Lenders: Money from private investors is leveraged for a predetermined interest rate and a shorter-than-usual payback time, generally a few months to a year. Acquisitions involving real estate investments are the main reason for this kind of funding.
• Hard Money Lenders: This type of financing is often used by home flippers with less-than-perfect financial histories who need a short-term loan for home renovations. It generally includes costs on top of the loan interest.
• Seller Carryback Financing: The seller of a property provides financing to the buyer, instead of the buyer obtaining financing through a bank or mortgage company.
• Rent-to-Own: A written contract that allows prospective homebuyers to rent a property for a period of time (commonly, two to five years) before owning it. For more information about rent-to-own agreements, click here.
7. Title Insurance as a Risk Mitigator: Title insurance is important because it helps to mitigate risks by ensuring that the property you are purchasing or refinancing has a clear and marketable title. Even after the most meticulous search of public records, there can be hidden title defects, such as tax liens, forged signatures and recording errors. These title defects can remain undiscovered for months, or even years, after you purchase the home. Without having title insurance in place, property owners risk incurring extensive legal fees or losing their entire investment.
If you’re a prospective homebuyer or real estate investor looking for answers to FAQs about title insurance, click here. You can also debunk eight common misconceptions about title insurance here, or explore common title problems and how title insurance protects your investment here.
When deciding whether to purchase real estate, don’t forget to weigh the pros with the cons. Doing so can help you answer the question, “Is real estate a good investment for me?” In many cases, the answer may be, “Yes!” According to the National Association of REALTORS® 2023 Profile of Home Buyers and Sellers, 82 percent of homebuyers continue to see purchasing a home as a good financial investment. Regardless of where you stand right now, if or when you choose to move forward, always do your homework and strongly consider consulting a real estate and tax expert to cover all your bases.
When you’re ready to make a move, Old Republic Title will be here to protect your property rights. We have a nationwide network of professionals who understand how important your investment is and offer products and services that fit your needs. To learn more about title insurance and working with Old Republic Title, contact a representative near you.
Email Impersonation Fraud: A Growing Tactic
Employees and customers alike beware! Email impersonation is on the rise – and hackers are constantly finding new ways to trick their targets, like in the scenario below.
John Baker was nearing the close on the sale of his home. He had one more task to complete before his signing appointment the next day – initiate a wire transfer for his closing costs. He was in line at the bank when he received an unexpected email from his title agent, Rob Lee:
Although a bit frustrated by the mistake, John felt fortunate that he saw the email before he reached the teller’s window and was able to update the bank account before wiring his closing funds.
The next morning, John walked into 123 Title Company where Rob Lee worked, excited for his signing appointment. As soon as Rob walked into the lobby to greet John, he said, “We haven’t received your wire. Did you send it?” John was baffled and replied, “I don’t know why not. I sent it yesterday with the updated information you sent me.” Rob’s facial expression immediately turned from confusion to fear. “I didn’t send you an email yesterday,” he stated. John replied “Yes, you did,” as he reached for his phone. He pulled up the email and handed the phone over to Rob. Rob looked up and said, “This isn’t good. I didn’t send this email.”
After discussing the incident, it was apparent that John and Rob were victims of a business email compromise (BEC) impersonation attack – a type of phishing attack where a malicious actor creates an email address that looks like it came from a legitimate business and impersonates an employee to fool consumers into diverting funds into a bank account owned by the fraudster. In this situation, the urgent request for change in wire instructions came from the email address roblee@123TiteCompany.com, but Rob Lee’s email address is roblee@123TitleCompany.com. The fraudster’s email was missing the “l” in “Title.” The phone number in the message also didn’t belong to Rob. Luckily, Rob promptly followed company wire fraud procedures and was able to recover John’s funds.
A Growing Tactic
While the names and details in the scenario above are for illustrative purposes, they are based on real events. Unfortunately, this scenario is only one of several types of email impersonation tactics seen in the real estate and title industries. Fraudsters aren’t just impersonating title professionals, but all parties to a real estate transaction, even the buyer and seller.
How to Outsmart the Fraudsters
Always be wary of unexpected communications that urge you to take immediate action – even if they appear to come from someone you know. Cybercriminals are super sneaky, so it’s up to us to stay one step ahead by following these best practices:
• Educate yourself on emerging schemes. Click here to learn more from the Federal Bureau of Investigation (FBI) about common scams and crimes, and how to prevent them.
• Practice good cyber hygiene. To help mitigate cybersecurity risks, implement good cyber hygiene habits like using strong and complex passwords, protect email accounts with multi-factor authentication (MFA) and using a virtual private network (VPN) when connecting to the public wi-fi. For more cyber hygiene tips, click here.
• Learn to recognize red flags. While phishing schemes are constantly evolving, most attempts include urgent requests and unexpected emails. Last-minute changes in wire instructions, like the one that John received in the story, are another telltale sign of fraud.
• Stay vigilant. Cybercriminals know we’re all multitasking, and they’re hoping we’re too busy to stop and question requests that appear to come from someone we know. Don’t fall for it!
• Never use contact information in an unexpected communication – even if you recognize the sender or have done business with them in the past. You can never really be sure who is on the other end of that communication, so it’s best to disengage and go straight to the source.
• Always call a TRUSTED phone number to verify the request BEFORE acting on it. If John would have called Rob using a trusted phone number to verify the change in wire instructions, he would have avoided exposing himself to fraud and potential loss.
Pro Tip: Customers should reference the list of phone numbers provided by their title professional when they open escrow.
Don’t worry about looking silly or offending anyone by double checking unexpected requests; true professionals will understand and appreciate the effort you put into verifying the request. If the company is unaware that someone is impersonating a current or former employee, reporting it gives them the opportunity to warn others and take steps to mitigate the fraud. (Which kind of makes you a hero, too!)
To learn more about common cybersecurity threats to your business, click here. Real estate customers can also check out these tips for preventing wire fraud, which often starts with business email compromise and email impersonation.
In recent years, there has been a significant increase in large organizations looking to reduce their carbon footprint. This has led several industrial and multinational organizations to negotiate Power Purchase Agreements (PPAs) directly with renewable energy project producers. PPAs offer organizations significant benefits, but they also come with some disadvantages. Is a PPA the right choice to fuel your corporate sustainability strategy? To help answer that question, we’ve compiled some important information for you to consider.
What is a Power Purchase Agreement and How Does it Work?
A Power Purchase Agreement (PPA) is a contractual agreement between two parties for the purchase of power generated by a renewable energy system, such as solar, hydro or wind power. The third-party generator owns and operates the renewable energy system and sells the system’s electric output to the customer, generally at a fixed rate for a specified duration of time. PPAs are most often a long-term period between 10 and 25 years, but shorter-term PPAs have been gaining traction.
There are different types of PPAs that vary based on the type and location of the renewable energy project and the amount of electricity delivered to the customer. The two basic types of PPAs are physical and virtual (also known as a financial or synthetic PPA).
- Physical PPAs allow a third-party power generator to build, maintain and operate a renewable energy system on behalf of an organization. Physical PPAs can be on-site or off-site. An on-site PPA generates electricity at or close to the place of consumption via a private-use cable. Off-site PPAs generate electricity at a different location, then transmit electricity via the public grid.
- Virtual PPAs allow a purchaser to acquire the renewable energy attributes of a project, rather than the electricity itself. The purchaser continues to receive electricity through the local utility provider but generally agrees to a fixed price with a renewable energy generator.
In both cases, a PPA allows organizations to enjoy the advantages of renewable energy without owning and operating a renewable energy system. In this blog, we focus on physical PPAs and what they entail for businesses exploring this option.
Physical PPA Eligibility
Some state regulations limit or restrict non-utility providers from selling electric power. To be eligible for a physical PPA, a renewable energy project must be located in a state or jurisdiction where third-party ownership of energy generation equipment is permitted. To find out if PPAs are available in your area, click here.
Considerations of a Physical PPA
Before entering into a physical PPA, it’s important that both parties evaluate all aspects of the terms of the contract, including any potential technical and financial risks, as each project and transaction will be unique. Some important considerations for a purchaser to keep in mind before entering into a physical PPA include, but are not limited to, the following:
• Upfront costs: Most PPAs require minimal to no money down and no payments until the renewable energy system begins to generate electricity.
• Stable and reduced energy bill: The electricity generated by the renewable energy system is typically sold to the purchaser at a fixed rate that is generally lower than rates offered by a utility company. The purchaser benefits from receiving stable energy at a low, predictable price for the duration of time specified in the PPA.
• Risk exposure: Fully evaluate the terms of the PPA and any associated risk exposure. Risks associated with PPAs often fall within the following categories: development, performance, pricing, length of contract, and legal and regulatory concerns.
• Government incentives: Federal, state and local governments encourage organizations to invest in renewable energy and may offer incentives for doing so. Incentives enabled through the Inflation Reduction Act, for instance, offer eligible organizations an Investment Tax Credit or Production Tax Credit to help offset the tax liability of investing in renewable energy. Grant and loan programs from federal government agencies such as the U.S. Department of Energy are also available, along with a host of state and local financial incentives. You can visit the Database of State Incentives for Renewable & Efficiency® (DSIRE) to identify any incentives in your area.
• Location: PPAs are largely restricted to organizations located in competitive electricity markets. In some instances, the organization must be located in the same power grid region where the electricity will be consumed. There are also state regulations that limit or restrict non-utility providers from selling electric power.
• Duration of time: The average duration of a physical PPA is 10 years or more, so if the organization needs to relocate to another property, or any other unforeseen issue occurs, it could pose some challenges.
• Contract complexity: PPAs are complex financing tools that include multiple facets of terms and conditions, including, but not limited to: pricing, third-party sales, underperformance or delays of generated power, breach of contract and termination.
• Making claims about renewable energy use: Renewable Energy Certificates (RECs) are used to account, track and assign ownership to renewable energy projects. Generally, for physical PPAs, RECs are conveyed to the power generator and not the purchaser. Accordingly, the purchaser may not be able to make renewable energy claims without obtaining exclusive rights to the associated RECs.
PPAs can offer organizations a credible way to meet their sustainability goals while also reducing their utility costs. Organizations considering a PPA may benefit from conducting a close analysis of the resources available to them and consulting with qualified legal counsel and a tax professional to evaluate the financial benefits and implications of these renewable energy financing tools.
Old Republic Title’s National Energy Title Division is a significant industry player when it comes to insuring title for renewable energy projects. Our dedicated team of professionals understands the unique risks and requirements of large energy projects, and has the knowledge, experience and expertise to successfully underwrite and close complex, high-liability transactions. For more information, visit oldrepublictitle.com/commercial/ncs/#energy.
Phishing may sound like a foreign language or one of the latest dance moves, but according to the Federal Bureau of Investigation’s (FBI) latest Internet Crime Report, it’s the leading crimes of the internet. It’s a word you need to become familiar with because anyone using a computer or smartphone could join the 300,497 victims who lost over $52 million to these crimes in 2022. Business Email Compromise (BEC) – one way that phishing can transpire – cost businesses and consumers over $2.7 billion.
This blog explores these crimes in more detail to help you avoid becoming another statistic – especially if you’re involved in a real estate transaction.
Why Are These Crimes on the Rise?
The reason is simple. More people than ever are online and deception is much harder to spot than it used to be. These days, cybercriminals are more likely to contact you pretending to be someone you actually know, like a family member, friend, coworker, or someone you’re doing business with. Cybercriminals can find your contacts by hacking into unsecure email accounts, searching the internet or public records, and browsing your social media accounts, then trick you into giving out financial information or login credentials they can use to steal data or funds.
Savvy cybercriminals changed their approach during the COVID-19 pandemic. They take advantage of remote work environments and supply chain issues to execute virtual meeting scams, exploit job recruitment websites, commit invoicing fraud and more.
Terms & Tactics
According to the FBI, each crime below targets a different form of communication, but all are designed to trick you into giving cybercriminals information they shouldn’t have access to. That includes personal and financial information and login credentials they can use to steal your data or funds.
- Phishing – These scams target email, often using spoofing techniques (slight variations on legitimate email addresses) to fool victims into thinking fake accounts are authentic.
For example, they may send email from an address like this: email@example.com (where the name of the company is slightly misspelled, but the difference is often undetected by many recipients) instead of using the legitimate email address: firstname.lastname@example.org.
BEC, which targets business emails, is a phishing scam designed to dupe the email recipient into performing the unauthorized transfer of funds.
Phishing has evolved and now has several variations that use similar techniques:
• Vishing – These scams happen over the phone, voice email, or VoIP (voice over Internet Protocol). Bad actors call claiming to represent a legitimate business but provide a fake phone number or website so they can intercept your funds.
• Smishing – These scams target SMS (text) messages, often by enticing recipients to click on a link. Doing so can download malicious code onto your phone, which could damage or disable it.
• Pharming – Not to be confused with real estate farming, these scams occur when malicious code is installed on your computer to redirect you to fake websites. Cybercriminals hope you don’t notice, so they can steal your account number or password when you attempt to log on.
2022 Crime Recap
The FBI formed the Internet Crime Complaint Center (IC3) in May 2000 to investigate and report on new and growing crimes. Here’s a breakdown of some of the crime types listed in their 2022 Internet Crime Report:
*Regarding ransomware adjusted losses, this number does not include estimates of lost business, time, wages, files or equipment, or any third-party remediation services acquired by a victim. In some cases, victims do not report any loss amount to the FBI, thereby creating an artificially low overall ransomware loss rate. Lastly, the number only represents what victims report to the FBI via the IC3 and does not account for victim direct reporting to FBI field offices/agents.
- Americans filed 800,944 complaints of internet crime in 2022.
- Financial loss from all forms of internet crime exceeded $10.3 billion.
- Phishing was the most reported cybercrime type with 300,497 reported incidents.
- The FBI received 21,832 BEC complaints with adjusted losses over $2.7 billion.
- Ransomware accounted for 2,385 complaints with recorded losses of $34.3 million.
- Cryptocurrency investment fraud rose from $207 million in 2021 to $2.57 billion in 2022, an increase of 183 percent.
Real Estate Transactions
It’s worth noting that IC3 created a category just for real estate crimes because the fraud and loss associated with these transactions is so high. Real estate deals are appealing to many cybercriminals because of the large payout. They also know that closing on a home can be a stressful time for consumers, who may not question any last-minute changes to wiring instructions that appear to come from someone handling their transaction.
Whether you are a real estate professional, a title agent, or a consumer, it is vital to remain vigilant throughout the entire transaction. Closing agents should communicate clearly and upfront to all parties about how the closing and funding processes will occur.
- Changes to wire instructions are RARE.
- Always verify any changes BEFORE wiring funds.
- Use a TRUSTED phone number to verify changes. NEVER use phone numbers that appear in unsolicited communications.
Own a business in the Title or Real Estate Industry? Learn more about how to protect it in Five Common Threats to Business Cybersecurity on Old Republic Title’s Company blog. Want educational materials to share with your customers? Check out our Wire Fraud Prevention Flyer and Beware of Wire Fraud Flyer. The American Land Title Association also offers a template for responding to cybersecurity incidents.
Consumers can take an active role in protecting themselves from internet crime. To learn about the latest scams and warnings, visit IC3’s Consumer Alerts page. You can also explore our other tips to spot phishing attempts, prevent wire fraud and respond to suspected wire fraud.
The country is a lot greener than it was just a few years ago, and not just in terms of renewable energy. Forty-seven states, the District of Columbia and four U.S. territories have legalized some form of recreational or medical marijuana, including cannabidiol (CBD). Fourteen states have legalized it in some form in the past two years alone.
Despite growing state support, marijuana remains illegal at the federal level, continuing to expose title professionals who handle transactions involving marijuana farms, dispensaries, or extraction facilities to a myriad of risks. However, that could all change if landmark legislation to reform federal cannabis laws clears the U.S. House of Representatives (House) and Senate and is signed into law by President Biden.
This article will briefly explore proposed legislation, how it could impact the title industry and why nearly a century of federal cannabis prohibition could soon come to an end.
Marijuana 1-to-3 Act of 2023
This act, reintroduced in January 2023, is designed to move marijuana from a Schedule 1 drug to a Schedule 3 drug under the Controlled Substances Act. Schedule 3 drugs have less potential for abuse, accepted medical application and low to moderate risk of dependence if abused.
Moving marijuana to a Schedule 3 drug would not completely mitigate risk for title professionals working with state-legal marijuana-related businesses (MRBs), but it would significantly reduce the likelihood and severity of associated penalties and fines.
The MORE Act
The Marijuana Opportunity Reinvestment and Expungement Act, better known as the MORE Act, was originally introduced to Congress in July 2019. It cleared the House but not the Senate. Democratic Senators have announced plans to reintroduce the bill this year.
The MORE Act is a historic bill that would remove cannabis from the list of scheduled substances under the Controlled Substances Act, eliminating criminal penalties for any individual who manufactures, distributes or possesses marijuana.
Decriminalizing marijuana would also make it easier for title insurance companies and title agents to do business with licensed MRBs. Under the Controlled Substances Act, the Drug Enforcement Administration currently has the authority to prosecute any entity that knowingly or unknowingly participates in unlawful activity (i.e., making Schedule 1 drugs available to the public). Removing marijuana from that list would allow title professionals to close transactions and insure title for properties that grow, sell or process cannabis where it is legal, without fear of penalty.
The SAFE Banking Act
The Secure and Fair Enforcement Banking Act, or SAFE Banking Act, was reintroduced in March 2021. It also passed in the House but stalled in the Senate. Democratic Senators have also announced plans to reintroduce the bill again this year.
The SAFE Banking Act would permit state-legal MRBs to access the federal banking system – something many have trouble doing now. That’s because most major financial institutions want to avoid the risks of dealing with funds generated from MRBs or complying with the U.S. Dept. of Treasury’s Financial Crimes Enforcement Network (FinCEN) guidance.
Proponents of the SAFE Banking Act argue that forcing MRBs to operate on a cash-only basis makes them sitting ducks for robbers. It also keeps them from holding checking accounts, getting loans, or wiring money, and it creates headaches for tax collectors and vendors who have to count bags of cash.
The SAFE Banking Act would keep banks from being penalized for working with MRBs under the Money Laundering Control Act. It would also alleviate similar concerns for other entities handling or settling financial transactions on their behalf, including title insurance companies and title agents. If MRBs gain access to banking services, it may also make it easier for title professionals to transfer real property (by working directly with lenders and customers to wire electronic funds and process checks).
After years of failed attempts to reverse or reform federal cannabis laws, you may be wondering, “Do these bills actually have a shot at becoming law?” That remains to be seen. A lot has changed in the last few years. Here are just a few drivers behind the momentum.
• Health and wellness. While only a fraction of states have legalized recreational marijuana, 38 of them have adopted it for medical use. Physicians prescribe medical marijuana to treat a variety of illnesses and conditions, and CBD products have become popular as a natural way to reduce anxiety, pain and inflammation in humans and their pets.
• Economy. The U.S. cannabis industry is a multi-billion dollar industry and is expected to grow exponentially over the next seven years. If marijuana is legalized and taxed on the federal level, it could provide a significant boon to the economy in terms of revenue and job growth.
• Environment. Hemp (which is low in THC, the ingredient that gets you “high”) is widely considered a sustainable and eco-friendly crop. It can be used to produce fabrics, paper, pharmaceuticals and much more.
• Increased pressure from constituents. Some form of marijuana is considered legal in 47 U.S. states.
• Growing acknowledgement/support in Congress. The Congressional Cannabis Caucus was established in 2017. Congress passed the FARM Bill in 2018, which removed hemp from the list of controlled substances. The MORE Act and the Safe Banking Act were both introduced in 2019 and passed the House in 2020 before stalling in the Senate. The Marijuana 1-to-3 Act of 2023 and the Veterans Medical Marijuana Safe Harbor Act were both reintroduced. More bills like these are expected to follow, with growing bipartisan support.
While the tide may be turning, until the gaps between state and federal cannabis laws close, title professionals are urged to continue carefully weighing all the risks before determining whether to handle marijuana-related business transactions.Old Republic Title