SC Supreme Court Expands Attorney Liability

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Erika Fabian, the niece of a wealthy South Carolina doctor brought suit against her uncle’s estate planning attorneys for professional negligence and breach of contract in Fabian v. Lindsay, 410 S.C. 475, 765 S.E.2d 132, an October 2014 case decided by the South Carolina Supreme Court. The case had been dismissed in the circuit court for failure to state a cause of action on the grounds that there was no attorney-client relationship and no privity.

The facts were viewed in the light most favorable to willand testamentMs. Fabian. She alleged that her uncle, Denis Fabian, had signed a trust agreement drafted by his attorneys when he was around 80 years old, leaving his wife, who was about 20 years younger, a life interest. Remainder beneficiaries included his wife’s two daughters from a prior marriage, Dr. Fabian’s one living brother, Eli Fabian, who was in his 70’s and not in good health, and two nieces, Miriam Fabian, Eli’s daughter, and Erika Fabian, the daughter of a predeceased brother.

Erika had been told by her uncle and his wife that when his wife passed away, one half of the estate would be distributed to Mrs. Fabian’s daughters, and the other half would be distributed to Dr. Fabian’s nieces.

Dr. Fabian died in early 2000, and his brother died a few weeks later. The trust was valued at approximately $13 million.

After Dr. Fabian’s death, his estate planners mailed a letter and two pages of the trust agreement to Ms. Fabian informing her that she would not be receiving anything from the estate. Instead, her cousin Miriam would inherit as Eli’s only heir. Erika alleged that a drafting error resulted in an unexpected windfall to her cousin.

gavel cashThe Court took a huge leap, joined the vast majority of states, and recognized causes of action, both in tort and contract, by a third-party beneficiary of an existing will or estate planning document against a lawyer whose drafting error defeats or diminishes the client’s intent. Recovery under either cause of action was limited to individuals named in the estate planning document or otherwise identified in the instrument by their status.

Interestingly, the Court stated that its decision did not place an undue burden on estate planning attorneys because it merely puts them in the same position as most other attorneys by making them responsible for their professional negligence.

Ms. Fabian had argued that an estate planning lawyer’s negligence impacts three potential classes of plaintiffs: (1) the client, who is deceased; (2) the client’s estate, which lacks a cause of action or damages or both; and (3) the intended beneficiaries, the only possible plaintiffs who might suffer harm. If no cause of action is available for the beneficiaries, the negligent drafting lawyer is effectively immune from liability.

Also interesting was the Court’s application of the new rule to cases on appeal as of the date of the opinion. In a separate opinion, Justice Pleicones stated that the new rule should only apply prospectively because this case creates new liability where formerly none existed.

While not technically a dirt case, real estate practitioners should take note of the court’s inclination to favor third-party beneficiaries and reflect whether the Justices’ thought process could affect our world.

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Lenders’ Closing Plans Solidify As August 1 Approaches

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news news newsCitibank recently notified settlement agents (closing attorneys in South Carolina) that they will be requested to register with the FPSDirect Vendor Website at the time they agree to handle a Citibank closing. This website was created to provide the bank’s settlement agents with an easy and efficient method of loan document delivery, closing date confirmation and funding approval, among other matters. The memo stated the bank’s goal is to save the time of faxing and the insecurity of email.

Wells Fargo issued a Settlement Agent Communication on March 16 indicating that, like Bank of America, it plans to integrate with Closing Insight™ with a goal of improving the way instructions, fees and other information is shared. The memo stated: “Unlike today where we typically use email to pass these important details back and forth, Closing Insight™ will support an interactive, online collaboration that includes a full view of information from both parties, and provides an audit trail and quality checks to reduce errors.”

We have learned and the Wells Fargo communication states that many closing attorneys will be able to access Closing Insight™ through connections with their existing software packages. Wells’ communication also states that attorneys without closing software packages will not be left out because a secure web portal will be available. Wells reiterated its goal of continuing to do business with local service providers, but emphasized that it expects closing attorneys to be ready, willing and able to comply with requirements and closing instructions.

Wells Fargo also answered four recent FAQs:

“If co-borrowers plan to sign the loan documents on different dates, which date applies for compliance with the three business day receipt requirement of the CD? The borrower’s CD must have been received not less than three business days before the earliest signing date. This question highlights the importance of communicating specifics about signing plans to your Wells Fargo closing contact, including cases when a mobile signing agent or mail away signing is being requested.

Will Wells Fargo be providing loan closing documents to the settlement agent at the same time the borrower’s CD is delivered? Our goal is to provide the closing documents to the settlement agent shortly after the borrower’s CD has been finalized and provided to the borrower. In most cases, you should receive the closing documents earlier than in the past.

Will Wells Fargo permit any other party to deliver the borrower’s CD to meet the three business day closing requirement for a rush closing situation? No. We have determined that we must be responsible for delivering the borrower’s CD to meet and track the three business day receipt requirement for all transactions We will continue to encourage all parties involved to stay in close communication and work together proactively to minimize the need for expedited CD delivery.

Is my company required to be ALTA Best Practices Certified by August 1 to continue to close Wells Fargo loans?  No. Completing your certification by August 1 will not be a Wells Fargo requirement. However, we hope that if your company is not yet certified you will – at minimum – have already completed a self-assessment and addressed any identified gaps. As communicated in our March 6, 2014, newsletter, Wells Fargo supports the ALTA Best Practices as sound business practices that should ideally already be in place for businesses providing title and closing services to our customers.”

Wells Fargo also stated that it has entered into a business arrangement with ClosingCorp, a leading provider of fee management solutions, to obtain actual fee information from selected settlement agents who closing a high number of Wells Fargo loans.

Lenders Announce They Will Control More of the Residential Closing Process

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Regional bank will require third-party BP certifications on a short time frame!

work in progressLet’s take the big bank first. Bank of America recently shared more details about changes in its closing processes after August 1, 2015.  In addition to delivering Closing Disclosures, BofA will take the responsibility for complying with the three-business day waiting period. It will not require closing attorneys to monitor the timing of the delivery of the initial CD or any required re-disclosures.

BofA stated that close collaboration will be needed with closing attorneys for requests of information and notices of all loan and fee changes through its selected platform, RealEC® Technologies Closing Insight™. Closing attorneys will be notified of re-disclosure requirements and new closing dates through Closing Insight™.

BofA said it expects to engage closing attorneys to begin fee collaboration a minimum of ten calendar days prior to closing, and it intends to generate and send the CD six business days prior to closing.*

Now let’s look at an interesting announcement from a small bank, and please pay attention to the short time frame.

Mississippi based regional BancorpSouth announced in early March that its approved closing must comply with ALTA’s Best Practices through a certification from an independent third party vendor acceptable to the bank. Self-certifications will not be accepted.certified - blue (small)

The announcement stated that Memphis Consumer Credit Association and many of the large accounting firms have agreed to provide the certification. The bank asked closing attorneys to advise by March 23 whether they intend to obtain the certification. And the deadline for obtaining the certification was stated to be July 31.

*In almost all South Carolina transactions, we expect the “consummation date” to be the same as the closing date and the same as the date BofA refers to in this memorandum as the signing date.

Three Lenders Make CFPB Announcements

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Two additional lenders will deliver the borrower’s Closing Disclosure

extra extra kid- citi chaseCiti and Chase have joined Well Fargo and Bank of America by announcing that they will deliver borrowers’ Closing Disclosures after the CFPB rules take effect on August 1, 2015.

Citi’s announcement was made on January 28, 2015, followed by Chase’s announcement on February 26. Both lenders stated that closing attorneys will continue to be responsible for sellers’ Closing Disclosures in purchase transactions. Closing attorneys will be required to deliver copies of sellers’ Closing Disclosures to the respective lender.

Citi’s announcement shared some information with its settlement agents that has previously been made clear by the rule itself. That is, there will be several weeks or months after August 1 when the old forms will be used because it is the application date as of August 1 that triggers the use of the new forms, and early use of the Closing Disclosure is not allowed. Citi also pointed out that the new rules do not apply to home equity loans.

Closing attorneys should note that their software systems will have to accommodate old and new versions of the forms because of the transition and because all loans will not be subject to the new rules.bandwagon - one way (smaller)

Union Bank announced on February 26 that it will use the web-based tool Closing Insight™ to simplify the multi-party closing process and support efforts to ensure regulatory compliance. The announcement stated that no other means of communication or document delivery will be accepted.

We will continue to read and keep you informed!