When the big boys are selling commodity ETFs, the party is over!  If I'm wrong, let me know.  If I'm right, choose global asset class investors like (NYSE) GTAA!

NOVEMBER 3, 2010
Fannie, Freddie Cut Ties to Law Firm
By NICK TIMIRAOS

Fannie Mae and Freddie Mac terminated their relationships with a top Florida foreclosure attorney on Tuesday, one day after the companies began taking back loan files from the firm that has processed thousands of evictions on behalf of the mortgage-finance giants.

Fannie and Freddie dispatched employees on Monday afternoon to begin removing loan files from the law offices of David J. Stern in Plantation, Fla. Those files are needed to process foreclosures, which must be done through courts in Florida.

Fannie and Freddie said they would begin redistributing the files to other local attorneys in a bid to resume evictions. Last month, the companies suspended all foreclosures that had been referred to the Stern law firm and had directed mortgage servicers, which handle day-to-day loan management, to stop sending new foreclosure and bankruptcy cases to the firm.

Jeffrey Tew, a lawyer for the Stern firm, declined to comment and a spokeswoman for Fannie declined to elaborate.

A spokeswoman for Freddie Mac, Sharon McHale, said it took the rare step on Monday of beginning to remove loan files after an internal review raised "concerns about some of the practices at the Stern firm." She added that Freddie Mac took possession of its files "to protect our interest in those loans as well as those of borrowers."

The Stern law firm has been at the center of allegations by the Florida attorney general's office of improper foreclosure practices and is one of four firms under state investigation. The office has released depositions of former law-firm employees who have alleged that the firm forged notarized documents and that employees signed files without reviewing them in an effort to speed through foreclosure filings.

In those depositions, former employees testified that the firms would go to great lengths to conceal improper practices during regular audits by Fannie and Freddie. A lawyer for Mr. Stern has dismissed the allegations as falsehoods made by disgruntled employees.

The mortgage bust had been good for business at the Stern firm, which last year processed more than 70,000 foreclosures. In December, the firm also spun off its foreclosure-servicing business, rechristened as DJSP Enterprises Inc., as a publicly traded company that is listed on the Nasdaq Stock Market. Mr. Stern was named "attorney of the year" by Fannie in 1998 and 1999, according to a biography included in DJSP filings. In trading Tuesday, the stock closed at 85 cents, down 9.6%.

But the boom in casework also attracted increased scrutiny from local consumer advocates and attorneys that uncovered examples of improper notarizations. In August, the Florida attorney general announced it would investigate Mr. Stern's firm and three other so-called foreclosure mills. In September, three members of Congress called on Fannie and Freddie to investigate the firm's practices.

Last month, Fannie and Freddie said they had begun conducting independent reviews of the Stern firm. Without any new business, the firm has been forced to lay off hundreds of employees. On Tuesday, Fannie and Freddie said the firm was cooperating fully with efforts to repossess loan files.

Fannie and Freddie don't directly manage defaulted loans, but instead rely on banks and mortgage servicers to do the work for them. Since the mid-1990s, Fannie and Freddie have used a designated-attorney model that provides lists of law firms that the servicers can use on behalf of the companies.

Attorneys are paid based on the volume of cases they complete. Some attorneys have criticized that flat-fee structure and say it encourages Fannie, Freddie, and its servicers to send the most business to those that foreclose the fastest.

Last week, Fannie said it was in the process of adding as many nine law firms to its legal network in Florida, doubling the current number of approved firms. 

Wow, now we can all chase guys like Apaloosa Management's David Tapper, Greenlight Capital's David Einhorn, and the Baupost Group's Seth Klaman.  What does that mean to the regular guy investor?  Mebane explains that quite nicely.  Tracking the "stars" can lead to some great ideas, even if you're not hedge fund rich!

Mebane also points out that a recent academic paper on Social Science Research Network, "Imitation is the Sincerest Form of Flattery" showed that simply by following in the wake of Warren Buffet's stock picks from 1976-2006, you would've outperformed the market by 11% per year!  Do the math!

The "stars" are picking up ESV (an offshore driller), no doubt because of the hammering all offshore drilling companies in the wake of the BP disaster in the Gulf of Mexico.

Read more about Mebane's ideas on page 88 of the August 30, 2010 Forbes magazine.

Don't say I didn't tell you so.  www.cambriainvestments.com.

AdvisorShares Announces Partnership With Cambria Investment Management to Develop a Global Tactical Asset Allocation ETF

Partnership Will Create an Actively Managed ETF That Will Take a Quantitative Approach to Global Tactical Asset Allocation ("GTAA")

BETHESDA, MD--(Marketwire - June 23, 2010) -   AdvisorShares Investments, LLC, a developer of and investment adviser to actively managed Exchange Traded Funds, announced today a partnership with Cambria Investment Management, Inc., a Los Angeles based investment manager, to create a GTAA strategy in an actively managed ETF. The proposed ETF would join AdvisorShares' growing stable of innovative actively managed ETFs which includes the Dent Tactical ETF (NYSE: DENT).

Mebane Faber, Chief Investment Officer of Cambria Investment Management said, "Buying and holding a diversified portfolio did little to protect countless investors from the global market meltdown in 2008 and 2009. In these volatile markets investors need to be more proactive in managing their risk."

Eric Richardson, Chairman and CEO of Cambria Investment Management, said, "At Cambria, our mission for our separately managed accounts and private funds has been to grow capital by seeking to produce long term absolute returns with reduced volatility and manageable risk and drawdowns."

To request more information on AdvisorShares, please contact Noah Hamman at 202.684.6383 or nh@advisorshares.com.

About AdvisorShares
AdvisorShares is a turnkey platform for investment managers seeking to offer their investment strategy in an actively managed ETF. AdvisorShares works with some best-of-breed money managers to combine their money management expertise with the benefits the ETF structure provides. AdvisorShares provides sales, marketing and educational support to help financial advisors use AdvisorShares ETFs to help them achieve their clients' investment goals and objectives. AdvisorShares is a leader in actively managed ETFs and is dedicated to investor education. Fund.com (OTCBB: FNDM) is the majority owner of AdvisorShares Investments, LLC. Visit our website at http://www.advisorshares.com to learn more about us.

About Cambria Investment Management, Inc.
Cambria Investment Management, Inc. is an investment management firm employing a disciplined multi-asset, global quantitative research process. Cambria provides investment management services through a number of portfolio strategies to high net worth individuals and institutions through separately managed accounts and private funds. Cambria believes that any single style or approach that relies on subjective methods can be inconsistent over time, may bias the investment process, and potentially hinder performance. Global diversification through asset allocation, coupled with prudent risk management, is the foundation of Cambria's investment philosophy. Visit their website at www.cambriainvestments.com.

Before investing you should carefully consider the Dent Tactical ETF's investment objectives, risks, charges and expenses. This and other information is in the Dent Tactical ETF prospectus, a copy of which may be obtained by visiting www.AdvisorShares.com. Please read the prospectus carefully before you invest.

Foreside Fund Services, LLC is the distributor of the AdvisorShares ETFs.
An investment in the Dent Tactical ETF is subject to risk, including the possible loss of principal amount invested. Other Fund risks include asset allocation risk, trading risk, early closing risk, turnover risk, and temporary defensive positions risk which can increase Fund expenses and may decrease Fund performance. The Fund is, also, subject to the risks associated with the underlying ETFs that comprise this "fund of funds". The underlying ETFs' risks, as detailed in the prospectus, include small and large cap company risk, real estate investment trusts (REITs) risk, interest rate risk, credit risk, fixed income risk, foreign securities and currency risks, emerging markets risk, derivative risk, and commodity-linked derivative investment risk. Newly organized, actively managed funds have no trading history and there can be no assurance that active trading markets will be developed or maintained.

©2009 Angel Reyes
www.ReyesLaw.com

©2009 Angel Reyes
www.ReyesLaw.com

CLICK HERE to view the CNBC video.

New Books Pitch Investment Strategies
Some books offer repackaged conventional wisdom-which has seen better days.
But one proposed strategy would have outperformed most others
BusinessWeek
Portfolio Strategy April 9, 2009, 5:00PM EST By Aaron Pressman
 
The market's crash during the past year has discredited many of the informal rules that investors rely on. Safe havens such as health-care and utility stocks dropped almost as much as the rest of the market, and many supposedly low-risk bond funds cratered because of the credit crunch. With conventional wisdom so upended, it's worth perusing the latest crop of investment strategy books to sort out which ones offer fresh guidance.
 
Some of the most recent continue to present standard stock-picking advice.  Money manager James Altucher's The Forever Portfolio and hedge fund manager Howard Lindzon's The Wallstrip Edge: Using Trends to Make Money both include solid suggestions about how to research individual stocks and long-term demographic trends, as well as details on deciding when to buy or sell. But both also feel slightly dated. Altucher's chapter on the strength of ultra-luxury brands in a recession, for example, hasn't proved true in this market downturn.
 
Money manager Alexander Green offers a more systematic approach in The Gone Fishin' Portfolio. Green gets off to a good start, accurately noting the long-term benefits of diversification and of minimizing fees by using index-based funds. But his suggestion that investors use a fixed allocation to 10 different exchange-traded funds (including U.S. stocks, high-yield bonds, and real estate investment trusts) didn't look so great once markets across the world started to fall in unison last year.
 
The Green portfolio would have lost 28% in 2008, better than the Standard & Poor's 500-stock index's 37% loss but considerably worse than a portfolio of 60% stocks and 40% bonds. Using that mix with two total market ETFs Green recommends would have brought a 19% loss. And while gold was a bright spot last year, Green included an ETF of gold-mining stocks, which performed dismally, instead of an ETF investing directly in the precious metal. It's fair to argue that Green's portfolio should be judged over longer periods, but making up losses on the scale of the current bear market could take a decade or more.
 
The most useful recent book could be The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets, by money managers Mebane Faber and Eric Richardson, who work at Cambria Investment Management. They analyze how the endowments of Harvard and Yale posted such world-beating performance. Then they offer a simplified model that regular people can adopt.
 
Their system starts with an equal mix of funds investing in U.S. and foreign stocks, bonds, real estate, and commodities. Although the universities include hedge funds, leveraged buyout funds, and venture capital plays, the authors excluded them because they aren't generally available to individual investors. And instead of staying fully invested at all times, the authors offer a useful warning system: If at the end of a month any fund is trading for less than its average price over the previous 10 months, move into cash until the price exceeds the 10-month average again. That average price could be higher or lower than when you bought, but it's a good measure that an upward trend has run out of steam.
 
The great irony of the book is that Yale and Harvard are suddenly suffering from their worst performance on record due in part to losses on hedge funds and LBO funds. Faber and Richardson's system, thanks to the timing element that put 80% of assets in cash last year, actually did far better, gaining 1.3%. Maybe the investing gurus at Yale and Harvard should take heed.

©2009 Angel Reyes
www.ReyesLaw.com

©2009 Angel Reyes
www.ReyesLaw.com

Obama Plans to Keep Estate Tax
Democrats Want to Freeze Levy at Current Levels Instead of Letting It Expire Next Year
Wall Street Journal
January 12, 2009

President-elect Barack Obama and congressional leaders plan to move soon to block the estate tax from disappearing in 2010, suggesting the levy might outlive the "Death Tax Repeal" movement that has tried mightily to kill it.

The Democratic stance on the estate tax contrasts with Mr. Obama's reluctance to press forward with his campaign pledge to raise income-tax rates on top earners, which he worries could have an adverse economic impact during a recession.

But Democrats are determined to act quickly to prevent the estate tax's scheduled repeal. Elimination of the levy on big inheritances was approved by Congress under President George W. Bush in 2001, with rollbacks phased in slowly and its full elimination slated to take effect next year.

The Senate Finance Committee will move within weeks on legislation to reverse that law, and Mr. Obama is expected to detail his estate-tax preservation proposal in his budget next month, congressional tax writers said.

Under the Obama plan detailed during the campaign, the estate tax would be locked in permanently at the rate and exemption levels that took effect this year. That would exempt estates of $3.5 million – $7 million for couples – from any taxation. The value of estates above that would be taxed at 45%. If the tax were returned to Clinton-era levels, it would exclude $1 million from taxation with the rest taxed at 55%.

In making their case for the restoration, Democrats contend that such a large additional tax break for the rich shouldn't go into force halfway through Mr. Obama's proposed economic-recovery package. They argue that the deficit is already in record territory, while their plan wouldn't have any impact on the economy since it would merely keep the estate-tax rate at its current level. Mr. Obama and his party also say that the affluent already have benefited handsomely from the Bush tax cuts.

They also reason that if they don't act now, it will be politically harder to go ahead with their plan to resurrect the estate tax once it has disappeared.

For small-business groups, farmers' associations and the affluent families that created and bankrolled the "Death Tax" repeal effort, the emerging Democratic plan marks a stark defeat.

Advocates of killing off the tax say the emerging Obama policy is the wrong medicine for the recession, arguing the levy is economically burdensome like the income tax. Bill Rys, tax counsel for the National Federation of Independent Business, said small businesses struggling with falling sales and layoffs shouldn't have to devote resources to estate planning.

"With auto sales at a 16-year low, dealerships are already struggling. Freezing the 2009 levels would put an even greater burden on the future," said Bailey Wood, chief lobbyist for the National Automobile Dealers Association.

At the level proposed in the Obama policy, all but the largest estates – fewer than 2% of annual deaths – would escape taxation. Over 10 years, the Obama plan would cost the Treasury around $324 billion more than if the Clinton estate-tax levels were maintained, according to the Joint Committee on Taxation. Full repeal would cost more than $500 billion over a decade.

The estate tax was enacted in the early 20th century as a levy on wealth and inherited assets. It was later amended to allow a spouse to avoid the tax.

Most such taxes are still collected from estates of the ultra-rich. But business and farm groups say small businesses and family farms struggle with it as well, at the very least devoting time and energy to planning ways to escape or minimize taxation as enterprises pass from generation to generation.

Patricia Soldano, an estate-tax planner in Southern California, was a pioneer of the movement launched in the mid-1980s. Backed by affluent families such as the Mars candy family, the Gallo wine family and the heirs of the Campbell's soup fortune, Ms. Soldano enlisted Republican pollster Frank Luntz to poll-test the "Death Tax" term, forged alliances with the young Republicans who would sweep to power in 1994 and teamed up with small-business and farm groups.

By framing it as a tax on dying rather than wealth and thrusting family farms and small businesses front and center, the movement was able to divorce the cause from the issue of dynastic wealth and broaden its appeal to Main Street advocates.

The campaign seemed to have succeeded in 2001 when, with huge projected budget surpluses, Mr. Bush pushed and Congress approved an estate-tax repeal.

But to win the necessary votes for the larger, $1.35 trillion tax cut of which it was part, Republican leaders used legislative tactics that mandated the entire tax package expire in a decade. To lower the 10-year cost, the estate tax didn't begin dropping significantly until the end of the window and wouldn't disappear until 2010.

During the long phase-in, the politics have begun to shift again. Almost since the change was put in place, repeal advocates have pushed for an earlier permanent elimination in the face of huge budget deficits, with no luck. They always sensed an estate-tax elimination set far in the future was tenuous at best, especially since the law as written has the repeal last only one year.

Then, anticipating Democratic majorities in Congress that would ultimately seek to block full repeal, the coalition began seeking compromises that would leave a minimal tax in place for a tiny fraction of estates. Estate-tax opponents agreed they would get the best possible deal with Mr. Bush still in office.

But sharp divisions in the coalition emerged between the super rich and the merely rich. Business groups have sought a measure of certainty with an estate tax that is free of graduated timelines or sunset provisions, with the largest possible tax exemption – $10 million, or $20 million per couple. The rate of taxation above that level was of little concern, since virtually every small business would be exempt from taxation.

Yet the super affluent who began the movement wanted the lowest possible rate, since even a $10 million exemption would leave the bulk of their estates subject to tax. They backed a call by Mark Bloomfield of the American Council for Capital Formation to tax all estate transfers as capital gains, at 15%, with little or no exemption.

"The very wealthy, in their quest to reduce their exposure, made proposals that threw the small-business community overboard," said one prominent small-business lobbyist, referring to a move to have estates taxed as capital gains upon their disposition, without regard to the amount shielded from taxation.

Ms. Soldano said "the small-business people were being shortsighted in thinking, 'Let's just fix it now for me.'"

Former Sen. Don Nickles, an Oklahoma Republican who fought the tax his entire political career, said he and Arizona Republican Sen. Jon Kyl must have given 10 speeches to the movement, exhorting them to come together and accept the best that could pass Congress while the GOP had control.

Now, the movement is likely to confront an estate tax that is far bigger than what it may have gotten with more compromise.

"People mistook political reality," Mr. Bloomfield said. "The end result is we'll have a worse tax policy than if Sen. Kyl had succeeded."

Senate Finance Committee Chairman Max Baucus said in a recent interview that he will move "in the next few weeks" on legislation to deal with urgent tax matters not related to any economic stimulus. Estate-tax preservation will be front and center, an aide to the Montana Democrat said.

But movement veterans are already conceding defeat is likely. "I am disappointed," Ms. Soldano said, "because I really thought we could achieve so much more."

Write to Jonathan Weisman at jonathan.weisman@wsj.com

©2009 Angel Reyes
www.ReyesLaw.com

©2009 Angel Reyes
www.ReyesLaw.com

Get a Life, Plus Cash, for Insurance Policy
By Jane Bryant Quinn
Commentary by Jane Bryant Quinn

June 18 (Bloomberg) -- Need money? Got a cash-value life insurance policy? Not feeling too well these days? You may be approached to sell your policy to an investor for cash up front. Maybe that's a good idea, but maybe not. You might part with a valuable policy unnecessarily and incur taxes you didn't expect.

I'm talking about the life-settlement industry, which appeals to older people seeking cash.

If you have a policy you don't need anymore, you have two ways of monetizing it: Surrender it to the life insurance company for its cash value or do a life settlement. (There will soon be an interesting third way, for people who want to keep their policies. More on that below.)

With a life settlement, you're selling your policy to an outside investor who will pay the premiums while you live and collect the proceeds when you die. Investors offer you more -- usually, substantially more -- than the policy's surrender value. You generally qualify if you're 65 or 70 and up and have some sort of health problem. A little bit of doddering helps.

A life settlement makes sense if you truly have no need for any more insurance -- no beneficiary who could use the money, no charity you want to give the policy to, no business purpose, no estate taxes to fund.

It's also useful if you have a policy that's poorly priced -- say, an older universal life policy with large surrender charges. Sometimes you can sell it for enough to buy a new and better policy for the same face amount, says fee-only life insurance adviser Peter Katt of Mattawan, Michigan.

Profit From Death
That is, as long as you don't care that a stranger is going to profit from your death. Your policy could wind up in Tony Soprano's Individual Retirement Account. Settlement brokers promise not to reveal your name and address to the investor but it sometimes happens anyway, Katt says.

Policy sales are taxable, but there has been no clear ruling from the Internal Revenue Service. You owe ordinary income tax on the amount by which the policy's cash value exceeds the premiums you paid. Any settlement money you receive in excess of the cash value may or may not be a capital gain. Your accountant decides.

The Life Insurance Settlement Association puts the size of the settlement market at $12 billion to $15 billion a year. That's a rich source of commissions for middlemen. They can receive as much as 35 percent of the policy's purchase price or perhaps 5 percent of the policy's face amount. That's why they're so eager to solicit you.

What Investors Want
Most investors want cash whole-life and universal-life policies with face amounts of at least $250,000 to $500,000. A few accept amounts as small as $50,000. You can sell a term policy if it's guaranteed renewable or can be converted into universal life. Brokers earn less from variable-life policies and don't like to work with them.

The amount you're offered will depend on your life expectancy as well as such things as the premium amount and how old the policy is. Investors like policies bought some time ago, when you were in better health.

Alas, because of the rich commissions, agents are persuading some people to sell when they shouldn't. As an example, take an older person who knows his or her heirs still need insurance coverage but can't afford to pay the premiums anymore. Selling sounds like the best option.

It's not, Katt says. Instead, start paying the premiums from your cash values. If you die, your beneficiaries will get the net policy proceeds. If you live, you can sell the policy a few years later when the cash values have run down. In the future, you will have a shorter life expectancy -- meaning that you will be able to sell at a higher price than you'd get today (grim arithmetic, but that's how it works).

New Alternative
Starting in July, you will have an alternative to life settlements. A new company, Legacy Funding Group in Malvern, Pennsylvania, will lend you money against your policy. In most cases, you will be offered at least as much as you would get by selling it and possibly more, says Larry Fondren, founder and president.

These so-called legacy loans will be funded by lenders and investors who will pay all the premiums. You owe no tax. At your death, a portion of the policy proceeds are used to repay the loan plus 9 percent interest. Your heirs get anything that's left, with a minimum guarantee of 10 percent of the money. That's clearly a better deal than a life settlement. Legacy also structures deals with potentially rising death benefits.

New York Life Insurance Co. offers a similar loan arrangement called Access Plus to its own policyholders in 22 states and the District of Columbia. In general, it's for people whose life expectancy is between one and 10 years, spokesman William Werfelman says.

Who is investing in life settlement policies? Mostly institutions, says David Kleinhandler, a New York insurance agent who specializes in this business. They buy pools of policies that he expects to yield an average of 11 or 12 percent, pretax.

He advises against this game for individuals. If the insured person lives longer than expected -- maybe because he or she is healthier than was advertised or new medications are developed -- your gains on that policy might shrink to zero. You might even have to put up more money to pay the premiums. And there's usually no way out. That's a risk the little guy shouldn't take.

(Jane Bryant Quinn, a leading personal finance writer and author of "Smart and Simple Financial Strategies for Busy People," is a Bloomberg News columnist. She is a director of Bloomberg LP, parent of Bloomberg News. The opinions expressed are her own.)
-- With reporting by Alexis Leondis in New York. Editor: James Greiff, David Henry
To contact the writer of this column: Jane Bryant Quinn in New York at jbquinn@bloomberg.net


Covered for Life -- by a Stranger
By Kimberly Lankford
Kiplinger's Personal Finance
Sunday, June 22, 2008; F03

Many seniors sell their life-insurance policies to raise cash. When you (or a family member who may own the policy on your life) sell the insurance, the buyer becomes the owner and beneficiary. On your death, this stranger stops paying premiums and collects the death benefit.

Investors and middlemen make such big profits buying seniors' life-insurance policies that they are enticing people to take out unneeded insurance expressly for quick resale. But their greed may be catching up with them.

Stranger Owned Life Insurance (STOLI) resembles playing the lottery when you know the winning numbers in advance. A broker or investor persuades an affluent person in his or her 60s or 70s to apply for a large life-insurance policy with the agreement to sell it soon, usually within two years. The investor lends the money to pay the premiums. So anything you clear would seem to be free and out of nowhere.

STOLI got attention a few months ago after word spread that talk-show host Larry King <http://www.washingtonpost.com/ac2/related/topic/Larry+King?tid=informline>  had bought two policies totaling $15 million in death benefits and flipped them for $550,000 and $850,000. The investors clearly expect that King, who is 74 and has had serious heart problems, won't meet many more presidents before he dies. Yet King wasn't thrilled with his $1.4 million payoff; he sued for breach of fiduciary duty, claiming that he didn't realize the broker would get almost as much out of the transaction as he did, that he didn't know how the sale would be taxed, and that he didn't know creating and transferring the policies would make it difficult to buy additional life coverage (life insurers set limits based on income and assets).

But commissions aren't the only problem. Deals with strangers are just one more type of policy clamoring for investors, and they lower the amount people can get for legitimate life settlements. It's also against the point of insurance: to protect those who would suffer financially if you die. Several states are changing their laws to put an end to STOLI.

Insurance companies are trying to stem STOLI sales by asking applicants whether they plan to sell the policy. Saying no and then doing so is fraud and could invalidate the insurance. Some companies are refusing to sell large life policies to anyone over a certain age.

Feeling Misled on Home Price, Buyers Sue Agent
Published: January 22, 2008

CARLSBAD, Calif. — Marty Ummel feels she paid too much for her house. So do millions of other people who bought at the peak of the housing boom.

Ms. Ummel claims that the agent hid the information that similar homes in the neighborhood were selling for less because he feared she would back out and he would lose his $30,000 commission.
Real estate lawyers and brokers say the case, which goes to trial in North County Superior Court on Monday, is likely to be the first of many in which regretful or resentful buyers seek redress from the agents who found them a home and arranged its purchase.

“When your house appreciates $100,000 in the first six months, you’re not quite as concerned that maybe the valuation was $25,000 or $50,000 off,” said Clifford Horner of the law firm Horner & Singer. “But when your house goes down, you ask: ‘Who might have led me astray here?’ ”

Agents representing buyers rarely had the opportunity to make mistakes during the last real estate boom, in the late 1980s, because the job hardly existed then. For decades, residential transactions almost always involved brokers who, whatever assistance they gave the buyer, legally represented only the seller.
The long boom that began in the late 1990s put an end to that one-sided world. As prices spiked, buyer’s agents and brokers became popular as sounding boards, advisers and negotiators. The National Association of Realtors estimates they are now involved in two-thirds of all residential purchases.

That makes this the first housing collapse in which large numbers of buyers had a real estate professional explicitly looking after their interests. The Ummel case poses the question: In a relationship built on trust, where promises are rarely written down and where — as in this case — there is no signed contract, what are the exact obligations of these representatives in guiding their clients through a sizzling market?

“Agents have a lot of fiduciary duties, but they don’t make money unless they close the sale,” said Joel Ruben, a real estate lawyer in Manhattan Beach, Calif. “In an inflated market, there are built-in temptations to cut corners.”

The defendant in the Ummel case is Mike Little, a veteran agent with ReMax Associates. He will argue that Marty Ummel, who brought the case with her husband, Vernon, is trying to shift the blame for the couple’s own failures of research and due diligence.

“They simply didn’t do what is expected of a knowledgeable, sophisticated buyer, and are now looking for someone other than themselves to take responsibility,” Roger Holtsclaw, an agent who was hired by Mr. Little as an expert witness, said in a court deposition.

Ms. Ummel is 60; Mr. Ummel, 71. With retirement on the horizon, they decided in late 2004 to move from the San Francisco Bay area to San Diego, where they would be near their grown children.

Since they were not making the move for job reasons, they decided to take their time and focus on finding a house that was a good value. In a boom, that is no simple task for buyer or agent.

It is clear the Ummels did not rush into a decision: They dismissed one agent and canceled deals on two houses before Mr. Little found them a prospect on a cul-de-sac in a five-year-old luxury development. A deal was struck with the owner, herself a real estate agent, for $1.2 million.

Mr. Little also worked as a mortgage broker. The Ummels say he encouraged them to get their loan through him. Mr. Little ordered an appraisal of the house but did not respond to the couple’s requests to see it, the suit charges.

A few days after the couple moved in, in August 2005, they got a flier on their door from another realty agent. It showed a house up the street had just sold for $105,000 less than theirs, even though it was the same size.

Then they finally got their appraisal, which told them the house up the street was not only cheaper but had a pool. Another flier in early October mentioned a house down the street that was the same size and closed the same day as the Ummels’ but went for $175,000 less.

The Ummels accuse Mr. Little not only of withholding information but of exaggerating the virtues of their house to push them into a deal.

Ms. Ummel said in her deposition that Mr. Little had told them “many times that it was a very good buy.”
“And you believed that?” asked David Bright, the lawyer who represents both Mr. Little and ReMax Associates, which was also named in the suit.

“Yes, we trusted Mike Little,” Ms. Ummel replied.

Mr. Horner, the lawyer, said valuation is a tricky area for brokers.

“Brokers aren’t appraisers,” said Mr. Horner, one of the writers of a guide to suing brokers. “They have no obligation to opine about value. But once they do, it becomes a gray area whether it’s puffery or a misstatement of a known fact.”

Most people who made a bad real estate deal might wince and move on, but people who know Ms. Ummel describe her as unusually determined. She spent a year picketing ReMax offices on weekends.

Mr. Ummel, an administrator at Dominican University, gave her his permission to pursue the case, on one condition: “Don’t tell me how much the legal fees are.” So far, the bills come to $75,000, more than Ms. Ummel’s annual salary as a fund-raiser at California State University in San Marcos.

“I do not think I’m obsessive-compulsive, but I am 114 pounds of absolute perseverance,” Ms. Ummel said.
That persistence has put the Ummels at the forefront of a developing legal question. When buyers have sued their agents in the past, the cases focused on problems with the property itself, often alleging failure by the broker to disclose a known hazard or maintenance issue. After reviewing litigation records for the last five years, the National Association of Realtors could find no cases that revolved solely around the question of valuation.

Ms. Ummel’s original suit included the appraiser, who was accused of skewing his report to make the Ummel’s house seem worth the purchase price, and the mortgage broker. Modest settlements have been reached with both.

In a brief phone interview, Mr. Little called the case “ridiculous,” adding: “The lady’s a nut job. I didn’t do anything wrong.”

Mr. Little said that contrary to Ms. Ummel’s claims, the suit was motivated mainly by the declining market. “When people see their home values and assets declining, they always feel there’s someone to blame,” he said. “This is a dangerous time for all of us in the industry.”

The agent declined several requests to expand on his remarks. His lawyer declined to be interviewed. So did Geoff Mountain, a co-owner of ReMax Associates, which owns the office that the Ummels were dealing with.

Both sides have hired appraisers who have combed the surrounding development. Mr. Little’s appraiser concluded the four-bedroom, 3.5-bath house was worth $1,150,000 to $1.2 million in the summer of 2005. The Ummels’ appraiser said it was worth $1,050,000.

The outlines of Mr. Little’s defense can be seen in his lawyer’s lengthy deposition of the Ummels. Even in a relatively new development, Mr. Bright said, no two houses and no two deals can be seen as identical. For instance, a pool does not necessarily add value because “some buyers like it, some don’t.”

Mr. Little never showed the Ummels the house down the street because the backyard could be viewed from other houses, the lawyer said, and the couple had said they valued their privacy. Ms. Ummel disputes saying this.

The agent who left the flier that led to the case, Margaret Hokkanen, is sympathetic to Mr. Little.
“People are responsible for their own decisions,” said Ms. Hokkanen, who has been subpoenaed as a defense witness.

Her husband and partner, John Hokkanen, is more ambivalent.

“We have seen so much misrepresentation over the last five years,” he said. “So I appreciate where these buyers might be coming from: ‘I’m a lowly consumer, you’re certified by the state of California, you didn’t do X, you didn’t do Y, and I got hurt.’ ”

The Ummels may be on the leading edge of the law, but they are unlikely to be alone for long. With the market falling, many homeowners owe more on their mortgages than their houses are worth. And many of those deals involved brokers who are required to carry professional liability insurance, presenting a tempting target for angry buyers.

“If you put someone into a property at the top of the market, you look really bad if it goes down,” said K. P. Dean Harper, a real estate lawyer in Walnut Creek, Calif. “There are a lot of letters going out from lawyers to real estate agents saying, ‘My client would never have purchased if you had properly evaluated the market conditions and the value of the property.’ ”

Speaker: Florida House Set to Deliver Property-Owner Protection
Orlando Sentinel
May 11, 2007
Marco Rubio | Special to the Sentinel

When Tallahassee turned its attention to property taxes earlier this year, the focus of the debate for many participants was centered on how much revenue government could afford to lose. Today, as we head toward a special session that promises to deliver historic tax relief, the debate is solely focused on how much taxpayers can afford to pay.

As House Republicans, we consider that newfound taxpayer focus a significant accomplishment.

Over the past three months, the Florida House of Representatives has promoted a bold idea on how to confront our state's biggest problem: unaffordable and unfair property taxes. Our goals were simple: reduce local government taxing and spending, provide significant and immediate relief to taxpayers, and give Floridians statewide the opportunity to vote for meaningful and comprehensive property-tax reform.

We were consistent throughout the debate. Whether our idea or not, we would support any plan that met those three goals and was more focused on the taxpayer than the tax collector.

During the past few weeks, Rep. David Simmons, a Republican from Maitland, suggested an idea that met the House's policy goals, and offered an opportunity for opponents of the House plan to reconsider their objections. The House is now considering a variation of his idea of dramatically increased homestead exemptions based on a percentage of the value of the home. We think this approach is fair and simple, and eliminates many of the inequities that have developed under our current property-tax structure.

Here is an example of how this approach might work:

• On the home's first $300,000 in just value, 80 percent would be exempt from property taxes.
• On the next $700,000 in just value, 70 percent would be exempt.
• On just value above $1,000,000, 30 percent would be exempt.

Under the numbers used in the example above, the new homestead exemption for a $300,000 home would be $240,000. Using the example above, 90 percent of all homestead property owners would benefit more from this proposal than under the current Save Our Homes structure. The average beneficiary of this approach would see his or her tax bill cut in half.

Non-homestead-property owners would also benefit from this approach. Both non-homestead residential properties and commercial/industrial properties would also be exempt on a percentage of their just value and would see property-tax savings.This approach works well because it delivers targeted cuts to those who need it most. Floridians who have been hurt the most by outrageous property-tax increases will see the greatest relief.

Further, by fixing the size of the homestead exemption to the value of property, we will eliminate the problem of many Floridians who are trapped in their current homes by the threat of skyrocketing tax bills if they move to a new home. This would be a great step for our seniors, growing families and first-time home buyers.There are those who believe that taxes should be set by government determining how much government needs and then asking taxpayers to figure out how to pay for it. That kind of antiquated thinking is what got us into this crisis to begin with.

A new consensus is emerging in this debate: First, let's have taxpayers decide what they can afford to pay in property taxes, and then government must do the best it can with what taxpayers can afford to send them. Family budgets are tight, and government needs to start setting realistic priorities with the money it is given, just like our families do every month.

Heading into a special legislative session in June, our goal today is clearer than ever: The next time taxpayers get a property-tax bill, it must be one they can afford to pay. If we can achieve that measure, then I believe Floridians will judge our work a success.

Marco Rubio, a Republican from West Miami, is the speaker of the Florida House of Representatives. He wrote this commentary for the Orlando Sentinel.

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