Month: September 2016

New Settlement Agent Communication from Wells Fargo

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Seller CD must be provided to Wells prior to disbursement

Wells Fargo communicated with its settlement agents (closing attorneys in South Carolina) by memo dated September 22. In case you missed it, you can read it in its entirety here.

The biggest news is that Wells will now require a copy of the seller Closing Disclosure along with the other documents required prior to disbursement. Apparently, receipt of the seller CD has been a challenge, necessitating the procedural modification.

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Another challenge has been the process for handling changes to the borrower’s CD. The memo stated that any changes known prior to closing, including changes to the closing numbers, the closing date and the disbursement date, must be communicated to the Wells Fargo closer.  Wells Fargo’s closer will provide an updated borrower CD and any other updated documents for closing.

Any changes detected at or post-closing should be communicated to:  SAPostClosingCommunications@wellsfargo.com.

The memo also discussed the phased rollout in progress for delivering training materials and other support for the use of Closing Insight™.  We encourage closing attorneys to read and comply with this information to avoid being left out when this process is fully implemented.

Ransomware: A Scary Prospect for Dirt Lawyers

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The Cyberdivision of the FBI is serious about ransomware!  An FBI speaker last Friday at the SC Bar’s excellent tech seminar, an annual seminar I highly recommend for solo and small firm lawyers, emphasized awareness and employee training are critical to prevent data losses in your operation.

Ransomware is a form of malware that is most often delivered through spear phishing e-mails. Spear phishing is a type of e-mail fraud that seeks unauthorized access to confidential data. Ransomware is what it sounds like. Once the fraudster gains access, your system is locked down, and money is demanded to provide access. You have to pay for your own data!

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“H4ck3rz R Us, how can I help you?”

The FBI recommends prevention, business continuity and remediation, but suggests that there is no guarantee of prevention even with the most robust controls in place. Methods of prevention include:

  • Provide extensive awareness and training for your staff.
  • Use strong anti-virus and anti-malware solutions that are set up to update automatically.
  • Regular scans should be conducted of the anti-virus and anti-malware solutions.
  • No user should be assigned administrative access unless that access is absolutely needed.
  • Those with administrative accounts should only use them when necessary.
  • Keep access to a minimum. If a user only needs specific files, he or she should not have access to other files.
  • Ask your IT professionals to implement controls to avoid common ransomware techniques.

But since prevention is not guaranteed, the most attention should be paid to business continuity and remediation. In short, back up your data regularly and regularly verify the integrity of the backups.  Secure backups. Ensure backups are not connected to the computers and networks they are backing up.

The FBI does not endorse paying a ransom to the fraudsters and teaches that paying the ransom does not always ensure regaining access to data.

The FBI encourages victims to contact a local FBI office immediately to report a ransomware attempt and to request assistance. Victims are also encouraged to report cyber events to the FBI’s Internet Crime Complaint Center (www.ic3.gov.)

Could Efforts to Modernize Mortgage Practice Lead to Changes in SC Law?

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Reuters reports on a “patchwork of state laws” that hinder efforts.

In an article dated September 9, Reuters reports that the practice of notarizing documents, which dates back “at least to Ancient Rome” is becoming “passé” in the era of FaceTime, Skype and live-streamed social media. South Carolina real estate lawyers might want to take deep breaths and read the article, which is linked here. 

South Carolina practitioners are banking on State v. Buyers Service, our seminal case from 1987 holding that closings are the practice of law, to keep us in the closing business. Buyers Service is still good law in South Carolina and has been cited favorably many times and as late as this year.

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There have been some hints, however, in our long line of “UPL” cases that some of our current Supreme Court Justices may not be as committed to our strong rule as some of the prior Justices have been. (I hope that comment was vague enough to keep me out of trouble if I encounter any of the current or former Justices at a cocktail party. Please notice citations are purposefully missing.)

The South Carolina Supreme Court has repeated in almost every case on point that the purpose of requiring lawyers to be involved in closings is to protect consumers. The Reuters article suggests that the effort to modernize mortgages would also protect consumers. One borrower in the story, a civilian paramedic at a military base in Kuwait, was forced to fly 6,500 miles to buy a house in Virginia. Webcam notaries would cut expenses for lenders, notaries and borrowers, the article suggests.

Are the two efforts to protect consumers diametrically opposed? No doubt, South Carolina lawyers could be on one end of the webcams. I encourage all of us to read the news and to pay attention to how closings happen in other parts of the country and to continually think of ways to modernize our practices.  Keeping up with technology can only contribute toward keeping a real estate practitioner in the closing game.

Don’t Amend Your Master Deed As A Litigation Strategy

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The South Carolina Court of Appeals was not impressed!

The owners of The Gates at Williams-Brice (a great place to tailgate!) were surprised in 2012 when a maintenance company refused to bid on an exterior caulking/sealant job because of perceived construction defects.  Almost immediately, the owners’ association and an individual owner filed a complaint alleging negligence, gross negligence, breach of warranty and strict liability claims. The defendants were numerous developer and contractor entities.

The plaintiffs demanded a jury trial and sought to establish a class action for the condominium owners. The developer filed a motion for a nonjury trial and to strike the class action allegations. The Circuit Court ruled for the plaintiffs, and the defendants appealed. The Court of Appeals, in an Opinion dated August 31*, reversed.

The case contains several practice pointers for dirt lawyers, especially those who draft master deeds and amendments to master deeds and those who represent owners’ associations.

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The Master Deed establishing The Gates at Williams-Brice contained provisions requiring arbitration, waiving the right to a jury trial, waiving the right to a class action, and eliminating the right to secondary, incidental or consequential damages.

The original complaint was filed in December of 2012. An answer, opposing the certification of a class, was filed in May of 2013. Later that month, the complaint was amended to add defendants. And on May 23, the homeowners amended the Master Deed to remove the provisions that thwarted their litigation efforts.

The Circuit Court found that the provisions at issue were no longer within the Master Deed and that the defendants were precluded from enforcing unconscionable arbitration and alternative dispute resolutions that contained oppressive, one-sided terms.

On appeal, the defendants argued that the Master Deed could not be amended retroactively to remove the provisions at issue. Neither party contested that the homeowners’ actions were taken in anticipation of litigation. The Court of Appeals held that the homeowners knowingly, voluntarily and intelligently waived their rights to a jury trial and to a class action when they signed their deeds.

Citing a North Carolina case**, the Court of Appeals said that to remove the agreed-upon waivers retroactively would effectively substitute a new obligation for the original bargain of the parties. The Court pointed to the cites in the North Carolina case that indicate several jurisdictions apply a reasonableness standard when reviewing amendments to covenants and holding a provision authorizing an owners’ association to amend covenants does not permit amendments of unlimited scope; rather, every amendment must be reasonable in light of the contracting parties’ original intent.

The Court of Appeals discounted several cases involving amendments in condominium projects by the Circuit Court as not controlling. One such case found the developer’s amendment to increase maintenance assessments was enforceable against new purchasers. Another case approved an amendment regarding leasing restrictions. A third case found that an owners’ association properly amended covenants to prohibit the developer from advertising on the property. The final case held that an amendment authorizing the association to suspend utilities for unpaid judgments was properly applied against a unit owner because any alleged retroactivity was proper based on the contractual relationship between the association and the unit owner.

Other cases cited by the Circuit Court were dismissed as neither dealing with amendments to condominium declarations nor to master deeds.

The Court stated that it was unaware of any authority in South Carolina that would permit contracting parties to unilaterally alter agreed upon provisions once litigation has started.

The developer also argued that the amendments were ineffective because they failed to obtain the required permission of lenders and other “bound parties” such as the developer. The Court declined to address that issue because of its other conclusions.

What will the Supreme Court say if it gets the opportunity to rule on this issue?

 

*The Gates at Williams-Brice Condominium Association v. DDC Construction, Inc., S.C. Court of Appeals Opinion 5438 (August 31, 2016)

**Armstrong v. Ledges Homeowners Ass’n, Inc., 633 S.E.2d 78 (N.C. 2006)