Secret Service Thwarts $21 million scam

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The United States Secret Service announced in a press release dated September 1 that on August 23, it was successful in thwarting a real estate related business email compromise (BEC) scheme that sought to defraud a purchaser of more than $21 million.

The scheme attempted to divert closing funds to a fraudulent bank account. After quick action by the Secret Service and its private sector partners, the funds were returned to the victim.

Please refer to this Underwriting Memorandum issued by Chicago Title’s South Carolina State Office on September 20 warning that fraudulent wiring instruction schemes are on the rise.

These schemes typically employ altered or fictitious payoff statements. The fraudster often impersonates a mortgage broker, lender, borrower, or an agent of the borrower to request a copy of the payoff statement. Alternatively, the fraudster may intercept the payoff statement by a hacking or phishing ploy.

Armed with the payoff statement, the fraudster will create and transmit a bogus “updated” payoff statement with wiring instructions intending to divert the funds to the fraudster. The statement may also alter contact information so that telephone calls to verify payoff information will be answered by the fraudsters.

Chicago Title’s memorandum advises closing attorneys to take the following proactive measures to minimize the risk that payoff funds will be diverted:

  • Obtain payoff statements early so they can be properly reviewed and verified.
  • Verify banking information and payoff amounts directly with the payee using known, trusted numbers rather than information from the payoff statement.
  • Refer to prior payoff statements from the same payee to confirm the banking information matches.
  • Maintain repetitive wire information within systems or databases to use for future wires. Lock this information to restrict alterations.
  • If it is impossible to make a verbal confirmation by a known trusted telephone number, consider sending overnighting a check.

Be careful out there, closing attorneys!

United States Supreme Court terminates eviction moratorium

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Last Thursday, the United States Supreme Court blocked the CDC’s Covid-related eviction moratorium. The eight-page unsigned 6-3 opinion stated Congress was on notice that a further extension would require new legislation but failed to act in the weeks leading up to the moratorium’s expiration.

Congress has approved nearly $50 billion to assist renters. But estimates indicate many states have disbursed less than 5% if the available funds. More than 7 million renters are in default and subject to eviction. Bureaucratic delays at state and local levels have prevented payments that would assist landlords as well as tenants.

At the beginning of the pandemic, Congress adopted a limited, temporary moratorium on evictions. After the moratorium lapsed last July, the CDC issued a new eviction ban. The ban was extended twice more.

The three liberal justices dissented. The dissenting opinion, written by Justice Breyer said that the public interest is not supported by the court’s second-guessing of the CDC’s judgment in the fact of the spread of COVID-19.

Landlords, real estate companies and trade associations, led by the Alabama Association of Realtors, who challenged the moratorium in this case, argued that the moratorium was not authorized by the law the CDC relied on, the Public Health Service Act of 1944.

That law, the challengers said, authorized quarantines and inspections to stop the spread of disease but did not give the CDC the “the unqualified power to take any measure imaginable to stop the spread of communicable disease – whether eviction moratoria, worship limits, nationwide lockdowns, school closures or vaccine mandates.”

The CDC argued that the moratorium was authorized by the Public Health Service Act of 1944, and that evictions would accelerate the spread of the virus by forcing people to move into closer quarters in shared housing settings with friends or family or congregate in homeless shelters.

Some states and municipalities have issued their own moratoriums, and some judges have indicated they will slow-walk cases as the pandemic intensifies. We will have to watch and see how the termination of the moratorium interacts with the current backlog of cases in South Carolina. Real estate lawyers should be prepared to advise their landlord and tenant clients.

Eviction ban extended…again

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The federal block on evictions expired on July 31, but on August 3, it was extended for an additional sixty days. The new order indicates it is designed to “target specific areas of the country where cases are rapidly increasing, which likely would be exacerbated by mass evictions.” The new deadline is October 3. The money received through this program is nontaxable.

I’ve read that the targeting language only limits the extent of the moratorium to 80 percent of the country geographically and 90% of the population, so that’s not much of a restriction.  The Department of Housing and Urban Development (HUD) has indicated that 14.3% of the 44.1 million renter households are behind of rent.

There are many problems with the system. I’ve read the major concern is that the bulk of the available funds for rental assistance haven’t been distributed. Landlords seem to be faced with helping their tenants apply for the funds in order to receive the funds. And for all of us who have dealt with government, we understand that few governmental processes are efficient. This one is apparently not an exception to that general rule.  For tenants who are living on the outer edge of their ability to work and take care of their children, time and patience to deal with the inefficient process may be in short supply.

Under the new order, protected renters include:

  • Renters who have tried to obtain governmental assistance for rent or housing.
  • Renters who earned no more than $99,000 or $198,000 filing jointly in 2020 or do not expect to earn at those levels in 2021.
  • Renters who are unable to pay the full rent because of loss of household income or out-of-pocket medical expenses.
  • Renters for whom eviction would result in homelessness or force them to reside in close quarters in a shared living setting (thus increasing the risk of COVID).
  • Renters who living in a county experiencing a high rate of infection.

Because the bulk of the funds have not been claimed, the CFPB has introduced an on-line tool to help landlords and tenants locate the funds in state and local governmental agencies. The tool can be found here.

I have concerns that this program is going to take a great deal of sorting out at some point. Is it constitutional?  What will a holding of unconstitutionality mean? Will COVID require further extensions? Will funds have to be repaid by states and local governments if the funds are not properly applied? Will landlords or tenants be forced to repay such funds? Dirt lawyers will undoubtedly have to deal with of these issues in the future in representing their landlord and tenant clients.

All of us are tired of COVID. We seemed at one point to being so close to having it under control, but now we are seeing a frightening trend of rising cases and deaths, particularly among a younger population. All of us with children and grandchildren who cannot be vaccinated are concerned about what this school year will bring. At the risk of being perceived as preaching and apologizing up front who have medical reasons to resist, I strongly encourage vaccines!

HUD to enforce sexual orientation and gender identity anti-discrimination rule

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This blog has referred to the Dirt Listserv* previously, and I point in that direction again today for those among us who may represent clients in the business of renting or selling housing. On July 12, Professor Dale Whitman published a post entitled “Fair Housing Act will be applied to prohibit LGBTQ discrimination.”

The post mentions a Supreme Court case and a Department of Housing and Urban Development Press Release.

The case** held that Title VII of the Civil Rights Act of 1964 protects employees against discrimination because they are gay or transgender. The plaintiff, Gerald Bostock, worked as a child-welfare advocate for Clayton County, Georgia and was fired for conduct “unbecoming” a county employee when he started playing in a gay softball league. (Two cases from other circuits were consolidated with this case. One involved a person who was fired from his job as a skydiving instructor within days of mentioning to his employer that he is gay. The other involved a funeral home employee who was fired after disclosing to her employer her transgender status and intent to live and work as a woman.)

The press release was issued by HUD and can be read here. HUD announced that it will administer and enforce the Fair Housing Act to prohibit discrimination on the basis of sexual orientation and gender identity.  

The release said that a number of studies indicate same-sex couples and transgender persons experience demonstrably less favorable treatment than their counterparts when seeking housing. But HUD was previously constrained in its efforts to address this housing discrimination because of a legal uncertainty about whether this discrimination is within HUD’s reach. HUD has now reached a legal conclusion based partially on the Bostock case. HUD indicates that it is simply saying that discrimination the Supreme Court held to be illegal in the workplace is also illegal in the housing market.

Complaints may be filed by contacting HUD’s Fair Housing and Equal Opportunity Office at (800) 669-9777 or hud.gov/fairhousing.

Clients involved in housing should be advised of this development.

* Real Estate Lawyers Listserv: Dirt@LISTSERV.UMKC.EDU

** Bostock v. Clayton County, 590 U.S. ___ (2020)

Expect a new look to uniform notes, security instruments and riders

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Fannie Mae and Freddie Mac have introduced new uniform notes, security instruments and riders for use immediately, with a deadline for use of January 1, 2023.

Read the press release here and review the new documents here.

The press release touts the benefits of the updated instruments as:

  • Easier to use: Employ more headings and subheadings, shorter paragraphs and sentences, and more clearly defined lists.
  • Provide more clarity: Use plainer language and clarify the explanation of borrower and lender obligations.
  • Reflect industry changes: Account for the changes that the industry has experienced over time and better reflect current industry practices and systems.

Fannie and Freddie are providing an 18-month transition period to allow lenders and their vendors to prepare.

Dirt lawyers should review the new documents to determine whether changes are needed in how closing documents are explained to clients.

What do you think of the new documents?

A few news items affecting housing…

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Last week, the CDC extended the residential eviction moratorium to July 31. The constitutionality and validity of the moratorium has been litigated many times. The issues are: (1) the existence of constitutional power for the government to hand down such a moratorium under the Commerce Clause; and (2) whether the delegation of authority to the CDC by Congress is broad enough to encompass an eviction moratorium.

The latest decision was issued June 2 by the D.C. Circuit in Alabama Association of Realtors v. United States Department of Health and Human Services*. There, the Court upheld the stay of the lower court’s decision striking down the moratorium and made it clear that the panel believes the CDC would win on the merits. 

On Tuesday, the Supreme Court left the moratorium extension in place.

The Treasury Department issued new guidance encouraging states and local governments to streamline the distribution of the nearly $47 million in available emergency rental assistance funding.  Associate Attorney General Vanita Gupta released a letter to state courts encouraging them to pursue alternatives to protect tenants and landlords.

South Carolina Housing authority is working with landlords and tenants to administer the federal pandemic relief funding. The application must come from the tenant, but the landlord may refer the tenant to the agency for action.

In other news, President Biden fired Mark Calabria, the head of the Federal Housing Finance Agency (FHFA) last week, just hours after the Supreme Court held the structure of FHFA was unconstitutional under the separation of powers doctrine. The offending provision states the president can only remove the director for cause, not at will. FHFA regulates Fannie Mae and Freddie Mac, both of which have been the subject of extensive restructuring debate dating back to the housing crisis of 2008. The case is Collins v. Yellen**

Real estate practitioners will recall that the Court issued a similar decision last year concerning the structure of the Consumer Financial Protection Bureau (CFPB) in Seila Law v. CFPB***.

* 2021 WL 2221646 (D.C. Circuit, June 2, 2021).

** U.S. Supreme Court case 19-422, WL2557067, June 23, 2021.

*** 140 S. Ct. 2183 (2020).

D.C. Federal Court vacates CDC’s eviction moratorium

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…. then temporarily stays its ruling

This blog reported in early April that the Centers for Disease Control and Prevention (CDC) had extended the national moratorium on residential evictions through June 30. The U.S. District Court for the District of Columbia issued an order on May 5 vacating the moratorium, but later in the day temporarily stayed its own ruling to give the Court time to consider the merits of the arguments on both sides. The result of the stay is that the eviction moratorium remains in place for the time being.

The suit* resulting in these remarkable rulings was brought on November 30 by two trade associations, the Alabama and Georgia Associations of Realtors, and by individuals who manage rental properties. The complaint raised several statutory and constitutional challenges to the CDC order. Both parties filed motions for summary judgment. The plaintiffs’ motion was granted on the grounds that the CDC had exceeded its authority by issuing the broad moratorium. The Department of Justice filed an emergency appeal within hours.

The Court asked for a defense response this week and a reply from the government by May 16, so it is likely that a new order will be issued soon. But with the moratorium’s expiration date of June 30, a new ruling will have little, if any, effect. 

In addition to the national moratorium, some state and local laws restricting evictions remain in place.

The Court’s order vacating the moratorium pointed to the unprecedented challenges for public health officials and the nation caused by the COVID-19 pandemic. The difficult policy decisions, like the decision to impose the moratorium, have real-world consequences, according to the Court. The Court stated that it is the role of the political branches, not the courts, to assess the merits of such policy decisions. The Court perceived the question before it to be very narrow:  does the Public Health Service Act grant the CDC the legal authority to impost a nationwide eviction moratorium? The Court held that it does not.

*Alabama Association of Realtors v. United States Department of Health and Human Services, United States District Court for the District of Columbia, No. 20-cv-3377 (DLF).

CFPB issues proposed rule to ban foreclosures until 2022

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The Consumer Financial Protection Bureau (CFPB) issued a notice on April 5 proposing an Amendment to Regulation X that would require a temporary COVID-19 emergency pre-foreclosure review period until December 31, 2021, for principal residences. This amendment would, in effect, stall foreclosures on principal residences until January of 2022. The press release, which can be read here, requests public comments on the proposal through May 10, 2021.

The press release states nearly three million borrowers are delinquent in mortgage payments and nearly 1.7 million will exit forbearance programs in September and the following months. The rule proposes to give these borrowers a chance to explore ways to resume making payments and to permit servicers to offer streamlined loan modification options to borrowers with COVID-related hardships.

Under current rules, borrowers must be 120 days delinquent before the foreclosure process can begin. Anticipating a wave of new foreclosures, the CFPB seeks to provide borrowers more time for the opportunity to be evaluated for loss mitigation.

Many provisions of the CARES Act apply only to federally backed mortgages, but the CFPB seeks, by this proposed rules change, to set a blanket standard across the mortgage industry.

Eviction moratorium extended by Feds just two days before expiration

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Job losses during the pandemic have caused many Americans to be behind in their rent, and the Centers for Disease Control and Prevention announced on Monday, March 29, that the federal moratorium on evictions has been extended through June 30. The announcement was made just two days before the moratorium was set to expire.

The theory behind the moratorium is that the pandemic severely threatens individuals in crowded settings like homeless shelters. Keeping those individuals in their homes is a step toward stopping the spread of COVID, according to the theory. The moratorium was initially issued in September of 2020 and has been extended twice previously.

Renters must invoke the protection by completing a form available from the CDC website, by signing the form under penalty of perjury, and by delivering the form to the landlord. The form requires the renters to state that they have been financially affected by COVID-19 and can no longer pay rent. Legal aid attorneys have argued that this process is too difficult and that landlords are able to exploit loopholes. For example, if a lease has expired, a landlord might argue that eviction is not a result of non-payment of rent. Legal aid attorneys prefer that the moratorium be automatic.

Landlord trade groups have been opposed to the moratorium, stating that landlords should have control of their properties.

The CFPB and Federal Trade Commission issued a statement announcing that they will be monitoring and investigating eviction practices considering the extended moratorium. The agencies’ indicated they will not tolerate illegal practices that displace families and expose them and others to grave health risks.

More than $45 billion in rental assistance has also been set aside by Congress. This money will benefit landlords as well as tenants. Renters are now able to apply for federal rental assistance through application portals opened in March.

COVID forbearance extended

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The U.S. Department of Housing and Urban Development has extended COVID-19 foreclosure and forbearance moratoriums through June 30, 2021. It also extended the deadline for the first legal action and the reasonable diligence time frame to 180 days.

COVID-19 forbearance was also extended to allow up to two forbearance extensions of up to three months each for homeowners who requested a forbearance on or before June 30, 2020. These extensions are intended to provide relief to homeowners who will be nearing the end of their maximum 12-month forbearance period and have not yet stabilized their financial situation.

FHA’s streamlined COVID-19 loss mitigation home retention and home disposition options were extended to all homeowners who are behind on their mortgage payments by at least 90 days.

Diana Hoffman, Corporate Escrow Administrator with Fidelity recently wrote an excellent article about mortgage forbearance that I previously shared on this blog and am now sharing again with South Carolina closing attorneys in its entirety:

“Forbearance does not erase what the borrower owes. The borrower will have to repay any missed or reduced payments in the future. Borrowers able to keep up with their payments should continue to make payments. The types of forbearance available varies by loan type.

At the end of the forbearance, the borrower’s options can include paying their missed payments:

  • At one time
  • Spread out over a period of months
  • Added as additional payments, or
  • Added as a lump sum at the end of their mortgage

The CARES Act requires servicers to grant forbearance up to 180 days, with a one–time extension of 180 days for borrowers experiencing a hardship due to COVID–19 issues, such as, loss of income, unemployment, illness or caring for a sick relative.*

The CARES Act also provides protection against derogatory marks against the borrower’s credit. However, the servicer can report notes to the credit bureau that can be seen by any future creditor that could prevent the borrower from obtaining any type of new financing for a 12–month period.

When the Federal Housing Finance Agency reports servicers who collect payments on mortgages backed by Fannie Mae and Freddie Mac, they will only be required to cover four months of missed payments on loans in forbearance.

The big question is what happens when that four–month period is over? As it turns out, the Government Sponsored Entities (GSEs) themselves are preparing to cover any remaining advances for as long as those loans remain in forbearance.

What does this mean to the title industry? To prevent payoff losses due to deferred payments, settlement agents should:

  • Ask borrowers if they have entered into a forbearance or loan modification agreement with their lender at the opening of the transaction
  • Review the preliminary report or commitment for title insurance for junior liens, securing the deferred payments
  • Ensure the payoff request includes the following language:
    • Please furnish to us a statement of the amount necessary to pay in full including any amounts deferred due to a forbearance or modification agreement.
      If the borrower entered into a forbearance agreement and you are not the entity servicing any deferred amounts, please provide the contact information for the entity who is.
  • Review the payoff statement for deferred principal balance amounts

The last item is important. If the deferred amounts are not contained in the payoff statements, it is likely the amounts are being serviced by another loan servicer and a separate payoff statement will need to be requested”

*See above in the main article. Two extensions are now allowed.