Government / Federal

Secret Service issues new Advisory

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Real estate impersonation scams have “evolved”, it says

In September, the United States Secret Service issued an update to its “Real Estate Scam – Vacant Properties” Advisory (v. 1.1) The original Advisory was issued in Spring of 2022.

The current Advisory warns that the Secret Service has become aware of an increase of instances where criminals are impersonating title companies to steal real estate funds. Remember that “title companies” actually close transactions in many states. In South Carolina, the bad actors would impersonate law firms and banks.

Now more than ever, it is important for everyone involved in a real estate transaction to validate wires before they are sent. The last thing you need is for your law firm to have to provide funds to replace lost closing proceeds!

Often, the perpetrator impersonates the title holder and negotiates to sell unoccupied property to an unsuspecting buyer. Once the contract is signed, the criminal directs the buyer or realtor to the criminal’s account, impersonating a title company or law firm. The perpetrator impersonates the closing office by purchasing fake domains, similar to the closing office’s domain. (Such as me@lawfiirm.com vs. me@lawfirm.com.)

Red flags are identified by the Advisory:

  • Communications are primarily by email and communications contain poor grammar.  (This is from me, not the advisory. If you ever seen the word “kindly”, such as “kindly wire the funds to….” Remember we don’t typically talk that way! Any twisted language or bad grammar may indicate the communication is coming from someone and some place with a first language other than English. Always use common sense!)
  • Wiring instructions are sent over standard email instead of a secure email platform.
  • The listing is below market value and the “seller” is looking for a cash buyer or quick closing.
  • The “seller” wants to use its preferred closing office.
  • The closing office is outside of the area where the real estate is located.

The Advisory suggests the following avenues of prevention:

  • Conduct an online independent search of the entity to which the funds are to be wires.
  • With a known phone number (from a trusted website or previous contact) CALL and verify the wiring instructions and names on accounts.
  • If possible, visit a local branch of the entity to which the funds are to be wired.
  • Obtain a government issued ID from each party, and evaluate IDs for abnormalities.
  • Consider a form of multi-factor authentication with your clients. For example, send an overnight letter to the mailing address on the tax bill asking the property owner to call you with a one-time code embedded within the letter.

To read more, visit http://www.secretservice.gov. And be careful out there!

Department of Justice can reopen investigation of National Association of Realtors

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I was in Washington D.C. last week with one husband and four grandchildren under 12. To see as much as we could, we walked about ten miles per day. One day, we passed the Department of Justice and the National Association of Realtors. Coincidentally, on that same day, I received word from the Chicago Title office in Columbia that the D.C. Circuit Court had ruled that the DOJ’s Antitrust Division can reopen its investigation against the NAR.

This investigation dates back to a 2005 lawsuit challenging the NAR’s operation of its multiple-listing services (MLS). The suit claimed that internet competitors and their clients were blocked from having full access to listings. This practice, the lawsuit claimed, reduced competition and kept real estate agents’ commissions high.

The parties entered into a settlement in 2008, which expired in 2018. The DOJ began its investigation again and issued two subpoenas to the NAR. One subpoena sought information about the NAR’s “participation rule” which requires listing brokers to offer the same commission to all buyer brokers using the MLS. The other subpoena sought information about the NAR’s “clear cooperation policy”, which requires listing brokers to post properties on the MLS within one day of the beginning of marketing. The DOJ claimed both policies limited competition.

In 2020, the parties agreed to a Consent Judgment. This document contained a reservation-of-rights provision that allowed the DOJ to continue to investigate and bring additional litigation. The settlement documents did not mention the participation rule or the clear cooperation policy. But the DOJ sent a letter to the NAR stating it had closed its investigation into those two rules and that the NAR was not obligated to respond to the subpoenas. The letter contained a no-inference clause providing that no inference could be drawn from the closing of the investigation.

In 2021, after unsuccessfully attempting to renegotiate the reservation-of-rights clause, the DOJ withdrew the Consent Judgment. The DOJ also dismissed the complaint and issued new subpoenas. The NAR petitioned the Circuit Court to set aside one of the subpoenas on the grounds that it breached the settlement agreement. The Court agreed. A two-judge panel of the Court reversed, relying on the “unmistakability” principle, which requires courts to refrain from interpreting a contract to cede a sovereign right of the United States unless the government waives that right unmistakably. The no-inference clause, according to the court, explicitly disclaims that intent.

The Court allowed the investigation to continue but expressed no opinion about whether any laws have been violated by the NAR. This case is different from recent actions claiming the NAR’s policies on commissions are anti-competitive.  We can expect much more litigation involving the NAR.

Update on NAR broker compensation litigation

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This blog has previously discussed the March 15 proposed settlement by The National Association of Realtors (NAR) of four large antitrust suits involving buyers’ broker commissions. The monetary settlement was set at $418 million. The settlement also involves a new rule prohibiting offers of compensation to buyers’ brokers on the MLS.

There is movement in a related matter between the NAR and the U.S. Department of Justice (DOJ). Last month, a District of Columbia Circuit Court of Appeals panel of judges reversed a lower court decision to set aside a 2021 investigative subpoena from the Antitrust Division of DOJ. That subpoena had been issued in a previously closed investigation into NAR commission policies.

This ruling effectively held that a case being previously closed does not prevent its being reopened, allowing the DOJ to continue its antitrust investigation.

Several news sources are reporting that in a status hearing in a Massachusetts case, the DOJ made its first public comment since the NAR settlement this week. An attorney for the DOJ apparently stated that the DOJ believes offers of compensation to buyers’ agents should not be made anywhere, and certainly not on the MLS.

This dirt lawyer does not have the legal ability to discuss the antitrust issues involved in this litigation. The speculation about how this settlement will ultimately affect the housing industry is widely varied among experts in several professions.

The impetus for the original complaints was to lower housing costs artificially inflated by commissions which seem to be set in stone at six percent. Some experts suggest that our housing market will be completely remodeled, with the end product being lower home prices.

Other experts suggest that buyers will be crippled by having to either forego the assistance of a real estate agent or by agreeing to pay commissions out of pocket. Some of these writers suggest that home prices will increase as a result of these machinations. I’ve even heard that only wealthy buyers will have broker representation.

I’ve seen several suggestions that home buying will remain virtually the same by use of several work arounds. But I’ve seen other experts suggest that the proposed work arounds may also violate antitrust laws.

Some suggest that buyers, sellers and real estate agents will simply negotiate commissions.

One thing that is not in question is that the settlement must be approved in court. The settlement suggests that the new rules will become effective in July, but settlements in these large cases often take months to approve, so I wouldn’t be surprised to see delays beyond this summer.

The industry may be in transition as all the experts digest the settlement and as we await court approval. There is no shortage of articles on the topic. I encourage dirt lawyers to keep their fingers on the pulse of these issues as the litigation dust settles. Any activity from the DOJ will be particularly noteworthy.

National Association of Realtors announces $418 million settlement

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The National Association of Realtors (NAR) announced a proposed settlement on March 15 of four large antitrust suits involving buyers’ brokers commissions. The monetary settlement is set at $418 million. The settlement also involves a new rule prohibiting offers of compensation to buyers’ brokers on the MLS.

This dirt lawyer does not have the legal ability to discuss the antitrust issues involved in these lawsuits. The speculation about how this settlement will ultimately affect the housing industry is widely varied among experts in several professions.

The impetus for the original complaints was to lower housing costs artificially inflated by commissions which seem to be set in stone at six percent. Some experts suggest that our housing market will be completely remodeled, with the end product being lower home prices.

Other experts suggest that buyers will be crippled by having to either forego the assistance of a real estate agent or by agreeing to pay commissions out of pocket. Some of these writers even suggest that home prices will increase as a result of these machinations.

I’ve seen several suggestions that home buying will remain virtually the same by use of several work arounds. But I’ve seen other experts suggest that the proposed work arounds may also violate antitrust laws.

Some suggest that buyers, sellers and real estate agents will simply negotiate commissions.

One thing that is not in question is that the settlement must be approved in court. The settlement suggests that the new rules will become effective in July, but settlements in these large cases often take months to approve, so I wouldn’t be surprised to see delays beyond this summer.

This blog earlier discussed the $1.8 billion verdict in federal court in Missouri against the NAR and two brokerage firms. Other lawsuits followed this verdict, and this settlement intends to bring all the suits to a conclusion.

The industry may be in transition as all the experts digest the settlement and as we await court approval. There is no shortage of articles on the topic. I encourage dirt lawyers to keep their fingers on the pulse of these issues as the litigation dust settles.

Biden administration announces plans to lower housing costs

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ALTA says the attack on title insurance offers a false promise of savings

This blog never intends to discuss politics, so don’t interpret this post to take a political position. The intent is to inform real estate lawyers of news affecting our industry.

Just ahead of the State of the Union Address, President Biden announced plans to lower housing costs, calling on federal agencies to take all available actions to lower costs of consumers at the closing table and to help more Americans access homeownership. You can read the President’s Fact Sheet here.

Congress is asked to pass a mortgage relief credit that would provide middle-class first-time homebuyers with an annual tax credit of $5,000 a year for two years. Congress is also asked to provide a one-year tax credit of up to $10,000 to middle-class families who sell their starter homes, defined as homes below the area median home price in the county, to another owner-occupant. The intent of this proposal is to offset the loss of a lower interest rate when a homeowner sells. Congress is also asked to provide up to $25,000 in down payment assistance to first-generation homebuyers.

The President also proposes an expansion of the Low-Income Housing Tax Credit to build or preserve 1.2 million more affordable rental units. He also proposes a new $20 billion competitive grant fund to support communities to build more housing and lower rents and homebuying costs. Each Federal Home Loan Bank will be asked to double its annual contribution to the Affordable Housing Program. The intent will be to support the financing, acquisition, construction, and rehabilitation of affordable rental units and homes for sale.

Honestly, a lot of this seems like government-speak. We will have to wait to see the language of the actual proposals to form opinions, but lowering housing costs and providing more housing for low-income consumers is a great theory.

The one proposal that should concern practitioners is a pilot program to reduce closing costs by waiving the requirement for lender’s title insurance. At this point, the proposal only covers refinances, and the Fact Sheet indicates closing costs would be reduced by an average of $750. American Land Title Association (ALTA) issued a press release on March 7 stating that this proposal is a false promise of savings.

When I was in private practice, the cost of title insurance was less than the cost of an attorney’s opinion letter, and I believe lawyers would have to raise their charges to cover the additional liability. I’ve spoken many times and written many articles about the advantages of title insurance over title opinions, and I won’t repeat these arguments here. I am confident ALTA and title insurance companies will make those arguments plainly in opposition to this plan.

Some IRS forms must be filed electronically as of January 1, 2024

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Chicago Title recently published an update on an IRS regulation, and I wanted to make sure readers of this blog have the most current information. Dirt lawyers know that cash payments greater than $10,000 must be reported to the IRS through form 8300.

For a primer on this requirement, review IRS Publication 1544 here. The government’s stated goal in imposing this requirement is to detect money laundering and to catch tax evaders, terrorists and those who profit from the drug trade.

Effective January 1, 2024, the IRS updated its regulations to require businesses that file 10 total information returns (such as 1099, W2 and, now 8300) to files these forms electronically unless the business requests and receives a waiver each tax year. You can view the revised regulations here.

FinCEN’s proposed reporting rule targets residential real estate cash closings

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On February 7, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking for the stated purpose of combatting money laundering in residential real estate transactions. You can review the proposed rule and a related fact sheet here.

The proposed rule would require certain professionals, including attorneys, involved in real estate closings to report information to FinCEN about cash transfers of residential real estate to legal entities and trusts. The agency’s press release indicates the proposal is tailored to target transfers that are high-risk for money laundering. No reporting would be required for transfers to individuals.

The information to be reported would include:

  • Beneficial ownership information for the legal entity or trust receiving the property;
  • Information about individuals representing the transferee legal entity or transferee trust;
  • Information about the business filing the report;
  • Information about the real property being sold or transferred;
  • Information about the seller; and
  • Information about any payments made.

A Geographic Targeting Order program has been in place for several years requiring this type of reporting in certain high-priced locations. The new rule would replace the Geographic Targeting Order with nationwide reporting.

FinCEN recognizes that the beneficial ownership information required under this proposed rule is also collected under the new Corporate Transparency Act, but states that the information will serve two different purposes.

The proposed rule would require reporting on single-family houses, townhouses, condominiums and buildings designed for occupancy by one to four families. It would also require reporting on transfers on unimproved land that is zoned or permitted for occupancy by one to four families.

Transfers would be reportable regardless of price. Gifts and other transactions where no consideration is exchanged are reportable. Exempted transactions include easements, transfers resulting from the death of the property owner, transfers resulting from divorce, and transfers made to a bankruptcy estate.

The agency encourages written comments in response to the proposed rule for 60 days. Closing lawyers, I encourage you to read the information at the links above and to make comments.    

Professor Whitman provides update on legislative restrictions on foreign ownership of real estate

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This blog has discussed legislation limiting the purchase of real estate by some foreigners twice. Remember the Chinese surveillance balloon the United States shot down off the coast of the Palmetto State last February?

That incident and other rising tensions between our government and China over several issues (the war in Ukraine, recognition of Taiwan, to name only two) have resulted in politicians proposing to broaden state law bans on foreign ownership of real estate.

Professor Whitman of the DIRT listserv has provided a New Year’s update on the legislation across the country. He said one of the most significant developments of 2023 in the real estate arena was the noticeable increase in restrictions on foreign acquisitions of US property.

Chicago Title published an Underwriting Memorandum on April 5 entitled “Foreign Ownership of Property in South Carolina” to advise agents of the pending legislation in our state.

For your information, here is a link to Professor Whitman’s email. He gives credit for some of the list to Womble Bond Dixon. And I, as always, recommend and give credit to the listserv. Professor Whitman and his colleagues attempt to keep all of us up to speed on real estate law and trends across the country.

If you encounter potential foreign purchasers in your transactions, consult your friendly and intelligent underwriting counsel.

Reminder: Corporate Transparency Act is effective January 1, 2024

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This blog has discussed the new Corporate Transparency Act three times recently. This is a reminder that the CTA goes into effect on January 1, 2024.

For reporting companies formed prior to the effective date, beneficial owner information will need to be reported to FinCEN prior to January 1, 2025.

For companies formed or registered after January 1 2024 and before January 1,2025, reporting is required within 90 days of the acceptance of the company’s formation or registration filing. FOR NEW COMPANIES, YOU HAVE ONLY 90 DAYS TO REPORT!

If you missed the discussion of the Small Entity Compliance Guide FinCEN issued in September, here is the link.

On September 28, FinCEN issued a Notice  to extend the deadline for filing beneficial ownership information reports. You can read the notice here.

Please refer to the excellent September 2023 article in SC Lawyer entitled, “The Basic Ins and Outs of the Corporate Transparency Act” by Matthew B. Edwards and D. Parker Baker III.

This article provides an analysis of the basics of the Act, which is intended to help prevent money laundering, terrorist financing, corruption, tax fraud and other illicit activities. Many entities will be required to report information concerning beneficial owners to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), identifying their beneficial owners and providing certain information about them.

The act may apply to virtually every commercial real estate transaction because of the use of multi-tier entity structures to achieve business objectives. Lawyers will need to review clients’ organizational structure charts to determine entity by entity whether an exemption is applicable. If not, organizational documents, stockholder agreements, operating agreements will have to be reviewed to determine beneficial ownership.

Reporting information will include the name, address, state of jurisdiction and taxpayer identification number of every beneficial owner. Other information may be required, such as passports and driver’s licenses. Penalties for failure to comply will include civil penalties of no more than $500 per day, fines of no more than $10,000 and imprisonment for no more than two years. A safe harbor is included for voluntarily and promptly correcting an inaccurate report within 90 days.

Everyone will get through this together, and it’s likely that experts will emerge to help. This blog will keep you posted on new developments.

Could you use some good news for the year end?

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I no longer must spend six weeks of my life working on budgets each year, but I sympathize with the dirt lawyers who are in the throes of budgeting this time of year. The real estate economy picture may have been somewhat bleak in 2023, but some news I saw today makes me think 2024 may be a little better.

The New York Times is reporting that the Federal Reserve left the current interest rate unchanged and projects three quarter-point rate cuts for 2024. Federal policy makers are projecting that interest rates will be lowered to 4.6 percent by the end of 2024. This projection is down from the 5.1 percent estimate that was released in September.

Your 401(K) probably showed happy increases today. My personal financial planner got lucky because his holiday party is scheduled for tomorrow, and his clients should be happy after a period of uncertainty in the market.

Inflation has decreased, which is also very good news for all of us heading into the new year. Everyone seems to be feeling much better about the economy, which should signal a Merry Christmas and Happy New Year for all of us involved in real estate transactions! Let’s collectively keep our fingers crossed!