What should dirt lawyers do about the Equifax data breach?

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Protect yourself! Advise your clients!

Everyone should have heard about the Equifax data breach at this point, but have you taken any action to protect yourselves and your clients in the face of it?

Equifax has created a website that allows individuals to determine whether their information has been compromised and allows them to sign up for a free year of credit monitoring. Originally, the fine print on this site indicated taking advantage of the free-year credit monitoring service would result in a waiver of legal rights against the company, but I understand the company folded under extreme pressure and removed this language. In any event, please read the fine print since it is apparently changing as this story unfolds.

This website indicated my information had been stolen as well as my husband’s and several colleagues at work. I recommend that you check here to find out whether you need to take further action.

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What action should you take?  I am already a member of a credit monitoring service, so I did not sign up for the free year with Equifax. Regardless, I prefer to keep my legal rights intact. I may need those rights! You may decide to take advantage of the service. You may decide to bite the bullet and sign up for an independent credit monitoring service, and you may decide to remain with that service for more than a year.

What else can be done? I have read many news articles and opinion pieces on this matter and decided to have my credit reports frozen with TransUnion, Experian and Equifax.  You may want to take that action, too, so I have linked those websites for you.

Consider this. If your name, address and social security numbers were compromised, this information is not going to change and the potential financial devastation is not going to resolve itself in the span of one year. Everyone who was compromised will need to be vigilant about checking and credit card accounts indefinitely.

As a real estate lawyer, you may want to advise your clients, as a service to them, about this conundrum and the actions they may be able to take to protect themselves. You may also want to reach out to your real estate agents and lender contacts to ask them to spread the word. Assuming a leadership role in this situation will serve those who rely on you well and will set you apart as a professional who works diligently to protect those who need protection.

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News from Wells Fargo

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Lender issues settlement communication on June 1

Wells Fargo continues to update its settlement agents on a quarterly basis. South Carolina closing attorneys should pay close attention to these newsletters, which may highlight changes in closing processes and documentation. You can read the latest version here.

Significantly, the latest newsletter provides the following updated information:

  • Closing Insight™ training has been completed within Wells Fargo internally, and use of this portal method for communicating about closing files will continue to expand in all geographic areas. Closing attorneys should expect to receive requests to use Closing Insight™.
  • The numbers of “findings” are being reduced by RealEC, meaning some technicalities that were previously reported as closing file irregularities will now be eliminated. This change is good news for closing agents and applies not only to Wells Fargo, but to other lenders as well. An example is that file numbers will no longer trigger a “data mismatch” for dashes (-) if the rest of the file number matches. Another example is that differences in capitalization, formatting, common abbreviations and punctuation will no longer trigger findings.
  • The Service Provider Verification of Identity (SPVI) form has been updated and will now allow all document signers to use one form. Also, the revised form no longer requires details on the method of identification, such as drivers’ license numbers of borrowers.
  • The SPVI form for FHA loans must be send to the lender prior to disbursement. For all other loans, this form may be provided to the lender with the other executed loan documents.
  • Settlement agents are not authorized to sign any documents on Wells Fargo’s behalf. Any documents requiring the lender’s signature should be sent to the loan processor or closer.
  • Wells Fargo Tax Services will no longer provide services as an affiliate. Instead, the tax services will be provided by Wells Fargo Bank, N.A. The tax service fees previously disclosed in Section B or C of the Closing Disclosure will now be disclosed in Section A.

This blog will continue to attempt to keep closing attorneys updated on lender communications as they are distributed.

Multi-state mortgage modification practice may be hazardous to your law license!

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Last week, this blog discussed two April 19 South Carolina Supreme Court cases* in the context of the social media issues they raised. This week, I want to point out the mortgage modification issues, which were, no doubt, the impetus for the discipline in both cases.

Let’s look at the facts in the first case, In the Matter of Bacon. In November of 2012, attorney Brunty hired INMN, Inc., a marketing company, to solicit out-of-state clients interested in modifying their home mortgages. Brunty hired Integrity Partners, LLC to process the loan modifications. Brunty was suspended and later disbarred.

Brunty introduced Bacon to a principal in Integrity, who assured Bacon that Integrity and INMN were complying with federal laws and regulations and had a network of attorneys licensed to practice in every state where clients were accepted. Bacon accepted those assurances and hired INMN and Integrity. (Two people who’ve read this blog asked me about the relationship between Bacon and Brunty. I don’t know. The Court did not specify.)

Handling the former Brunty cases did not go smoothly, to say the least. Integrity continued to work on those cases without attorney involvement. Integrity employees incorrectly advised many of Brunty’s clients that their files had been assigned to Bacon. Some of Brunty’s clients became Bacon’s clients, but some did not. Some of Brunty’s clients’ credit cards were charged fees that were paid to Bacon.

Bacon admitted that he violated federal rules against unfair or deceptive acts or practices in respect to the mortgage modification matters.

The FTC’s “Regulation O” places a number of restrictions on mortgage modification services. For example, a provider may accept a fee only after the client has executed a written agreement with the lender or servicer. Attorneys are exempt from this rule if they are licensed to practice in the state where the home is located as long as they hold advance fees in trust accounts and comply with trust accounting rules.

Bacon was not licensed to practice in all jurisdictions, so he was not authorized to accept any up-front fees. He also failed to deposit the fees into a trust account, failed to maintain separate ledgers for these clients, and failed to properly supervise the individuals who had access to the accounts.

The Court stated Bacon was involved in the unauthorized practice of law in several states. He was suspended from the practice for six months and ordered to pay restitution to clients.

In the second case, In the Matter of Emery, the attorney received a public reprimand. In 2013 Emery signed a contract with Friedman Law, a New York law firm, to accept referrals for mortgage modification cases. Emery received client referrals from an internet marketing company and paid for the service based on the potential number of clients referred to her. Regardless of the residence of potential clients, cases would be assigned to Emery as a part of the Friedman Law network.

Non-lawyers employed by Friedman Law or two paralegal services worked the cases. The non-lawyers included Emery Law in their signature blocks and used Emery Law letterhead. Other than the fact that some of the non-lawyers employed by one of the paralegal services worked in Emery’s office, she did not directly supervise the work.

For the most part, the non-lawyers worked diligently, but six clients filed disciplinary cases because of some issue or complication resulting in client dissatisfaction.

The Court stated that the written fee agreements in these cases were confusing and self-congratulatory and often contradicted the verbal communications of the non-lawyers.

The non-lawyers sometimes wrongly held themselves out as employees of Emery Law. Clients never knew whether they were dealing with employees of Emery Law, Friedman Law, a firm in the Friedman Law network or one of the paralegal services.

Interestingly, in 2013, the South Carolina Supreme Court held that lenders do not engage in the practice of law when they handle mortgage modification transactions.** In the present case, however, the Court stated that assisting clients in mortgage modification matters is the practice of law in South Carolina when performed by a lawyer.

Friedman Law represented to Emery that assisting clients in mortgage modifications is not the practice of law and that its network of lawyers in other states satisfied the requirements of multijurisdictional practice.

The Court stated that regardless of whether a particular state had adopted a rule permitting multijurisdictional practice and regardless of whether the particular state had determined that loan modification assistance was the practice of law, the fee agreements repeatedly referred to the services as “legal services”. In other words, the clients believed they were being represented by an attorney.

The Court said that Emery was involved in the systematic and continuous presence in other states, which constituted the unauthorized practice of law.

Accepting mortgage modification cases across state lines may be possible in certain circumstances, but these cases are obviously fraught with hazards. DO NOT accept these cases without carefully examining the federal and state laws involved in each situation and without carefully supervising each person who touches the cases. The best advice may be to never accept these cases when they involve properties located outside of South Carolina.

 

*In the Matter of Bacon, S.C. Supreme Court Opinion 27710, April 19, 2017; In the Matter of Emery, S.C. Supreme Court Opinion 27712, April 19, 2017.

**Crawford v. Central Mortgage Co. and Warrington v. Bank of America, 404 S.C. 39, 744 S.E.2d 538 (2013)

Wells Fargo distributes new settlement agent communication

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Note: Settlement agents are scheduled to be re-evaluated

Wells Fargo delivered a memo entitled “News for Wells Fargo Settlement Agents” on March 23. The first paragraph cryptically announced that future communications will detail the Uniform Closing Dataset (UCD) that will become effective for lenders in 2018.

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For insight into the UCD, review Fannie Mae’s or Freddie Mac’s websites. Briefly, the UCD is going to be a common industry dataset to allow information on the Closing Disclosure to be communicated electronically. Fannie Mae and Freddie Mac have developed the UCD at the direction of the Federal Housing Finance Agency in an effort to enhance loan quality and consistency through uniform loan date standards. Stay tuned for more information on this topic and lenders gear up to comply.

The Wells Fargo memo also touted continued expansion of settlement agents who are using Closing Insight™.  Settlement agents who are just getting started were asked to take advantage of the support available at RealEC’s Closing Insight Resource Center at http://www.closinginsightresourcecenter.com or to contact the company at CISupport@realec.com or 800.893.3241. I encourage all South Carolina closing attorneys to get up to speed on this system as soon as possible.

The serious news from Wells Fargo, however, relates to a new effort to evaluate settlement agents.

The memo warned that Wells Fargo will evaluate the population of settlement agents who have closed loans within the past twelve months for problems such as missing documents, execution errors and other frequent problems that require curative work. As a result, settlement agents may receive letters indicating they are being removed from Wells’ list of approved settlement agents.

Processes are in place, however, to accommodate the customer’s choice for a settlement agent who is not on the approved list. Apparently, a new approval process will be instituted, but no detail on this process is provided.

house made of cashThe memo further indicates that attorneys’ ability to act as counsel for customers will not be impacted.  I don’t read this last directive to mean that attorneys who are not on the approved list will be in a position to close loans. They will only be in a position to dispense legal advice, if I am interpreting this correctly.

Settlement agents with questions are encouraged to communicate with Wells at WellsFargoSEttlementAgentCommunicatons@wellsfargo.com. I urge anyone who is interested in continuing to close Wells Fargo loans to hang onto this information.

Finally, the memo is requesting acknowledgement of Master Closing Instructions from all active and approved settlement agencies. Requests for this acknowledgement are coming from Wells Fargo in the form of e-mails to settlement agents. Please respond!

All lenders are beginning to hold settlement agents to higher standards. South Carolina closing attorneys are encouraged to stay abreast of changes and train, train, train staff members.

And, as always, contact your title insurance companies for insight into these matters.

The housing industry is crying Bah! Humbug!

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Congress may eliminate mortgage interest deduction

Mike Goodwin, the “Bow Tie Comedian” based here in Columbia, mike-goodwin-bowtie-comedianentertained us during lunch at our recent Chicago Title seminar. A joke that bubbled up through his very funny presentation was a line his mother used to keep him on the straight and narrow during his childhood, “what you NOT gonna do is…..”

For example, she would say, what you NOT gonna do is to stand there and hold that refrigerator door open while you try to decide what you want to eat. During one lull in the laughter, Mike said to us, “what you NOT gonna do is sit there and not laugh at my jokes.” (So we laughed.)

While some of us believe America is about to be made great again, some of us might like to borrow Mike’s line to deliver a Bah! Humbug! message to Congress:  What you NOT gonna do is to eliminate, or effectively reduce the effectiveness of, the mortgage interest deduction. Many homebuilders, lenders and real estate agents (and South Carolina dirt lawyers) believe that’s one thing we don’t need 2017.

The mortgage interest deduction is a major driver of the housing market. One reason American dreamers strive for home ownership is to take advantage of this tax break. That, along with the property tax deduction, the points deduction, the PMI deduction and the home office deduction, make owning a home a wise move from a tax standpoint. Eliminating or reducing the effectiveness of the home interest deduction, which many consider as American as apple pie, might put a damper on the improved economy we have been experiencing in 2016.

But that approach is definitely going to be under consideration by Congress, and players in the housing industry are preparing to defend the deduction. The plan under consideration involves not a direct elimination of the deduction, but an indirect attack via an increase of the standardized deductions, now at $6,300 for a single taxpayer and $12,600 for married taxpayers filing jointly. By doubling these standard deductions, many taxpayers would have no need to take the mortgage interest deduction.

The mortgage interest deduction is the largest deduction currently available to homeowners, allowing a write-off of interest from up to a $500,000 loan for a single taxpayer and up to a $1 million loan for joint filers. The deduction is especially important during the early years of a mortgage when the majority of payments are applied to interest rather than principal.

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“Congress … what you NOT gonna do is … “

If a single taxpayer pays mortgage interest of $8,000 in the first of home ownership, for example, that amount exceeds the current standard deduction of $6,300, and that taxpayer would itemize to claim a better tax break. If the standardized deduction is doubled, itemization is much less likely.

President-Elect Trump’s nominee for Secretary of the Treasury, Steven Mnuchin, has stated that the administration is planning to create the largest tax change since Reagan. Simplifying the tax code is one of the stated objectives, and a larger standard deduction is one method of simplification. In addition to the mortgage interest deduction, the charitable deduction would be affected in a similar manner.  Some say that as the standard deduction goes up, the incentive to give is reduced.

Any step that would reduce incentives for homeownership would likely encourage renting rather than buying. Home values might suffer, and the housing industry might suffer as well.

All Americans are interested in the changes that are about to happen, and those of us in the housing industry may be more interested than most! I have already seen prognosticators reducing their optimism about 2017, but I just got off the phone with a local wise man. He said that I should relax. 2017 is going to be a banner year, he said, because America is going to be great again. I hope he’s right!

Wells Fargo distributes new settlement agent memo

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Wells Fargo circulated a new Settlement Agent Communication on December 15, addressing several points that may be of interest to South Carolina closing attorneys. 

  • The Seller Closing Disclosure must be delivered to Wells Fargo prior to closing, and Wells’ performance reports of settlement agents will soon include proper receipt of the Seller CD.
  • Wells Fargo is adamant that the Borrower Closing Disclosure must be the form provided to the closing attorney by the lender. Wells will not tolerate substitutions or additions to the Borrower CD.
  • Closing attorneys are encouraged to communicate with the lender before, during and after closing to insure the accuracy of signing and disbursement dates on the borrower CD.
  • Closing attorneys are instructed to refrain from adding per diem interest charges in the payoff calculations of a Wells Fargo first mortgage when that mortgage is being refinanced with Wells. These payoffs will be net funded and will be the responsibility of the lender.
  • When a title insurance policy is delivered to the lender electronically, there is no need to also provide a paper copy.

The memo also contained a brief RESPA update indicating that despite the July 11 ruling against the CFPB by the D.C. Circuit Court of Appeals in the PHH Corp. v. CFPB case, Wells will continue to adhere to the 2015 bulletin distributed by the CFPB indicating Marketing Service Agreements are in disfavor.

Into the mystic: Fannie and Freddie predict what is in store for housing in 2017.

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In a sign that the average cost of houses is increasing across the country, the conforming loan limit for loans to be purchased by Fannie Mae and Freddie Mac will increase in 2017 for the first time in ten years.

The Federal Housing Finance Agency has announced the maximum conforming loan in most parts of the country (including South Carolina) will increase from $417,000 to $424,100. Stated another way, a borrower will not have to qualify for a “jumbo loan” unless the amount to be borrowed exceeds $424,100.

This change should help qualified buyers, particularly in our coastal areas where home prices are higher, obtain mortgages backed by Fannie Mae and Freddie Mac, even though credit remains tight and interest rates are likely to increase.

This is the time of the year when all of us involved in the housing industry are charged with looking into the proverbial crystal ball and projecting how we think the real estate market for the new year will compare with the current year.  For what it’s worth (and this and $5 will buy you a cup of coffee at Starbucks), I’m projecting around a 3 percent increase for next year in South Carolina. Let me know what your crystal ball is disclosing!