When I was a title insurance underwriter, I helped many South Carolina lawyers close and insure their clients’ conservation easements, so I know many of these easements are recorded in the public records in South Carolina. I wanted to make sure all dirt lawyers who represent clients with conservation easements are aware of a development in this area of the law.
The Secure 2.0 Act of 2022 authorized the IRS to issue “safe harbor” language for conservation easements to cover situations where the easement is later extinguished because of unexpected circumstances or where a boundary line adjustment is needed. Using the correct “safe harbor” language will avoid the loss of the grantor’s charitable deduction.
Here is the important news: if your client has previously granted a conservation easement, the document can now be amended to add the “safe harbor” language. But the amendment must be recorded by July 24, 2023.
Dirt lawyers: call your friendly, intelligent title insurance underwriter!
Unfortunately, failed banks are back in the news and again affecting the stock market and our 401(k) accounts. It is doubtful that the California and New York banks that have failed have significant assets or loans in South Carolina, but Chicago Title’s underwriters have heard of at least one recent local transaction that involved one of the failed banks.
How should real estate lawyers protect their clients and themselves?
Next, remember that assets are not automatically transferred by state law to an acquiring bank when the FDIC is appointed receiver and simultaneously announces the acquisition of the failed bank’s assets. Also, remember that the acquiring bank is not necessarily a “successor” to the failed bank.
Such an acquisition does generally mean that we can treat the acquiring bank as the owner of certain loans of the failed bank. We can generally rely on payoff statements, releases, satisfactions, and foreclosure actions by the acquiring bank if the acquiring bank asserts that it is the assignee by purchase. Documents should recite that the acquiring bank is the assignee of the loan. And we should be able to rely on that recitation.
In foreclosure situations, the acquiring bank may be required to prove its ownership of the debt and its record interest in the mortgage.
Payoff statements from the failed bank may be relied upon and the payoff statement may be made at the failed bank’s direction. But any release or satisfaction executed in response to that payoff must come from the receiver or its attorney in fact. Closing attorneys should confirm that the appropriate signature will be obtained before making the payoff.
The FDIC should sign recordable affidavits, as receiver, to the effect that it sold the particular loan asset to the acquiring bank to support assignments and modifications.
If your client purchases an REO asset that was owned by a failed bank, the proper grantor in the deed will be the FDIC, as receiver for the named failed bank. The FDIC will likely grant powers of attorney to individuals at the failed bank, at the acquiring bank, or internally, to facilitate signing these deeds. The power of attorney should comply with South Carolina law.
FDIC Statement of Policy on Foreclosure Consent and Redemption Rights provides that where the FDIC holds a junior mortgage, it “hereby grants its consent” to any foreclosure by a holder of a bona fide senior mortgage. Your title insurance company may require notice to the FDIC and the acquiring bank.
My best advice in all these cases is to call the person who either knows the answer to your many questions or will find out the answers to each of these questions for you: your favorite friendly and intelligent title insurance company underwriter!
Fannie Mae’s updated Selling Guide now allows attorney opinion letters in lieu of title insurance in some circumstances. This change aligns Fannie Mae with Freddie Mac’s similar announcement. Will the marketplace change dramatically because of these policy announcements. I hope not and I doubt it.
Fannie Mae touts its change as a method to reduce costs for borrowers. I don’t believe South Carolina lawyers will issue title opinions for residential loans that will be less expensive than title insurance. I know I wouldn’t.
The guidance indicates opinion letters will not be accepted where the loan is secured by a condominium, a leasehold estate, or a manufactured home.
According to the guidance, the attorney’s title opinion letter must:
be addressed to the lender and all successors in interest of the lender
be commonly accepted in the area where the subject property is located
provide gap coverage for the duration between the loan closing and recordation of the mortgage
list all other liens and state they are subordinate
state the title condition of the property is acceptable and the mortgage constitutes a lien of the required priority on a fee simple estate in the property
Do you see any problems with this list? I’ve never issued an opinion letter that provided gap coverage and I don’t recommend that you accept that risk in your transactions. What happens if you update title and discover a mechanic’s lien recorded in the gap? That lien would become your problem as the attorney who agreed to cover the gap as of the date of the opinion letter or the closing date.
Before the general use of title insurance, attorney’s routinely issued opinion letters to lenders and buyers. But title insurance has historically been determined to be the better choice. Attorneys should not be responsible for title problems that cannot be discovered through a title examination. A forgery in the chain of title, for example, would be covered by title insurance but should not be covered by an attorney’s opinion. The same may be true for missing heirs, matters that may be apparent from a visit to the property and survey matters.
But it concerns me that lenders who accept attorney’s opinions may perceive those items (and others) to be covered. To ensure your opinion letters are not perceived to cover matters outside the title examination, proper “exceptions” should be added to your letters. To protect you, your law firm and your malpractice carrier, your letters should contain many paragraphs of exceptions!
My best advice is to resist this proposed change in the marketplace. I believe title insurance provides the best coverage for owners and lenders, and it indirectly provides protection for closing attorneys. We can be encouraged that Freddie Mac’s similar announcement two years ago has not greatly impacted our industry. Let’s hope Fannie Mae’s announcement will have a similar reaction.
In Lyons v. PNC Bank*, a consumer, William Lyons, Jr., filed suit against his home equity line of credit lender alleging violations of the Truth in Lending Act (TILA). The lender, PNC Bank, had set-off funds from two of Mr. Lyons’ deposit accounts to pay the outstanding balance on his HELOC.
PNC moved to compel arbitration of the dispute based on an arbitration provision in the parties’ agreements relating to the deposit accounts. The case contains some discussion about jurisdiction, and one judges dissented on that basis. But the important holding in the case relates to pre-dispute arbitration provisions in consumer mortgages and related documents.
The Court found the relevant legislation to be 15 U.S.C. §1639c(e)(1) and §1639c(e)(3) from the Dodd-Frank Act, which had amended TILA. The first provision states:
“No residential mortgage loan and no extension of credit under and open end consumer credit plan secured by the principal dwelling of the consumer may include terms which require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.”
The second provision states:
“No provision of any residential mortgage loan or any extension of credit under an open end consumer credit plan secured by the principal dwelling of the consumer, and no other agreement between the consumer and the creditor relating to the residential mortgage loan…shall be applied or interpreted so as to bar a consumer from bringing an action in an appropriate district court of the United States…”
The Court held that the plain language of the legislation is clear and unambiguous that a consumer cannot be prevented from bringing a TILA action in federal district court by a provision in any agreement related to a residential mortgage loan. The Court’s holding indicates its opinion that Congress clearly intended consumers to have the right to litigate mortgage disputes.
* United States Court of Appeals for the Fourth Circuit Opinion No. 21-1058 (February 15, 2022)
The official who records our deeds should not be selected via popularity contest!
I’m all about the democratic process. But when it comes to the Register of Deeds, I believe that person should be appointed locally based on a very specific skill set. Popularity and politics should have nothing to do with choosing the appropriate person to handle the very meticulous administrative process that deals with recording public documents.
Apparently, the Executive Committee of the Charleston County Bar Association wants to take action to make sure the ROD for Charleston County is qualified. Take a look at this letter that body wrote to County Council on January 19.
If you follow this blog, you know that the Finkel Firm has brought suit against the Charleston County ROD asking for a writ of mandamus based on the horrific lag involved with recording documents in that county. This letter provides additional evidence that something is terribly wrong in the Charleston County ROD office, and action needs to be taken sooner rather than later.
As this letter points out, South Carolina is a race notice state. If our deeds, mortgages and other documents are not recorded in a timely manner and in the proper order, then the proper priorities among parties is thrown to the wind. The rights of parties relating to real property are based on when the documents establishing those rights are properly recorded.
The letter lists eighteen counties where the RODs are currently appointed. The letter also states that no constitutional provision or statutory edict requires an election in this case.
What do you think? Should the Register of Deeds be appointed by County Council?
Real estate practitioners don’t often get excited about litigation, but this lawsuit should bring cheers from dirt lawyers in every part of the Palmetto State! The Finkel Law Firm, LLC, as plaintiff, filed suit on November 24 against Michael Miller, individually and in his official capacity as the Charleston County Register of Deeds. You can read the complaint in its entirety here.
The complaint points to Miller’s chronic and willful failure to timely record real estate documents within one month of delivery. The allegations state that Miller has allowed substantial delays since late 2019, and that these delays have increased significantly in 2021, sometimes amounting to as long as four months.
Further, the complaint states the Charleston ROD routinely files documents that are hand delivered immediately while allowing hundreds or even thousands of documents delivered to his office by mail or parcel delivery to be stored for later filing.
We all know that South Carolina is a race notice state. Delay in filing real estate documents will, of course, create liability for parties and their lawyers. The complaint makes this point clearly.
The law firm alleges that these failures have substantially interfered with its ability to meet its professional obligations to protect the interests of its clients and has exposed the firm to potential liability for correcting title problems resulting from the ROD’s dereliction of duty.
The complaint seeks a writ of mandamus ordering the ROD:
To immediately file all real estate documents that have been delivered and have not been filed within one month of delivery;
To mark the recorded real estate documents as being recorded on the same date that they were delivered; and
To record all real estate documents in the order of the times at which they were brought to the ROD, regardless of whether they are personally delivered or are delivered by U.S. mail or parcel post.
The complaint asks the court to maintain jurisdiction for a reasonable time to monitor the continued operations of the ROD.
Every real estate practitioner in South Carolina should thank their friends at the Finkel Firm for taking this action. And every ROD in the State should take notice!
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.
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.
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.
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!
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.