Baton Rouge Real Estate Lawyers Blog

Some of the nation's largest banks are on Louisiana's Most Wanted list in a case that treats them like parts of an intricate crime syndicate. Under Racketeer Influenced and Corrupt Organizations Act laws, 30 judges representing different parishes have targeted national banks with a recent lawsuit. At issue is the defendants' use of the Mortgage Electronic Registration System, which critics have claimed is responsible for everything from the illegal transfer of mortgage documents to the dissemination of title defects throughout the country.

Louisiana's action mirrors the claims of other states that MERS is simply a guise for big banks to rob states of the transfer fees. The states estimate that banks avoided paying millions in filing fees. Moreover, according to the complaint, the banks should have known of the improper filings.

We are continuing our discussion of the Industrial Development Board of New Orleans and the "payments in lieu of taxes," or PILOTs, program. The Bureau of Government Research, an independent, non-partisan government watchdog, is a long-time critic of the PILOTs program. Its chief concern is whether the community is getting enough bang for the bucks that real estate developments save with the tax breaks.

The IDB had been in place for some time when, in 2005, its work picked up considerably -- and understandably -- after Hurricane Katrina. When the federal government established the Gulf Opportunity Zone bond program, developers applied for PILOTs to maximize their savings. Both programs shared the goal of rebuilding after the storm.

Louisiana is no different from other states when it comes to economic development: We like it. A good business climate means jobs, jobs mean people, and people mean services to support them. Real estate values go up, and the tax base increases -- or does it? In some parts of the state, tax schemes for commercial real estate development have become a point of contention.

The independent Bureau of Government Research has long criticized the use of "payments in lieu of taxes," or PILOTs, as a development tool, especially in New Orleans. PILOTs give developers a tax break by setting a fixed rate at a considerable discount. In theory, the project earns the tax break by generating jobs, sales taxes and other economic benefits for the community.

New data on mortgage fraud in all 50 states indicates a 20 percent increase from the third quarter of 2010 to the same period in 2011. The study, conducted by the Financial Crimes Enforcement Network, is based on mortgage lenders' reports about residential real estate purchase loan transactions. Louisiana data indicates the state saw less fraud than about half of the states.

The March 2012 report details the facts concerning more than 19,934 Suspicious Activity Reports, or SARs, filed in the third quarter of 2011 by financial institutions. Each of these involved an attempt at mortgage fraud.

We are back to the reverse mortgage scam we were talking about last week. The nationwide fraud involved three mortgage loan officers, one title agent and $2.5 million stolen from elderly borrowers, mortgage lenders and the Federal Housing Administration.The four participants pleaded guilty to fraud charges and recently received notice that the Department of Housing and Urban Development has barred them all from participating in any future transactions, including residential real estate transactions, with the federal government.

When we left off, we were discussing the particulars of the scam. The team managed to push through $2.5 million in mortgages based on fraudulent documents. They had adjusted numbers -- equity stakes and appraised values -- that led lenders of FHA-backed reverse mortgages to believe the applicants were qualified. Not one of them was.

Though the number of foreclosures has decreased in many states, including Louisiana, the reason is not due to a more positive outlook. The first quarter showed the lowest level in almost five years, but the number of homes going into foreclosure rose last month. The decrease stemmed from a slowing of the process of removing people from the homes, according to RealtyTrac.

Roughly more than 570,000 property foreclosures were filed in the first quarter, which means about one in 230 homes in the United States were repossessed, given a default notice or auctioned. That number has decreased about 16 percent from last year, and 2 percent from last quarter, said RealtyTrac.

Real estate professionals offered a few glimmers of hope at the recent Baton Rouge Trends seminar. The Commercial investment Division of the Greater Baton Rouge Association of Realtors sponsored the review of the residential, industrial, office, multifamily and retail sectors. Overall, one presenter said, real estate lenders are beginning to welcome more borrowers -- and welcome them with very low interest rates.

While vacancy rates are lower, land sales remain slow. Sellers' expectations tend to be high, and that may put a damper on transactions. Attendees at the seminar remarked that some sellers still expect post-Katrina prices.