Eighth Circuit Court ruling makes loans disappear

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The decision could make significant changes in the secondary market

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I refer you to this article from Bloomberg that led me to read the Eighth Circuit Court of Appeals case decided last month, CityMortgage, Inc. v. Equity Bank, N.A.*.

In South Carolina and most other states, the bank has the power to pursue the borrower personally if it can’t sell the property that is subject to a mortgage for the full amount of the loan after a foreclosure. There are a handful of “non-recourse” states where it is not possible to pursue the borrower personally. But this case was decided under Missouri law, and Missouri is not one of those unusual states.

The article makes a point that’s news to me: non-recourse mortgages are standard in most countries other than the United States.

The case involved a repurchase demand under an agreement between CityMortgage and Equity Bank. Twelve loans were involved, six that had been foreclosed and six that had not. The surprising ruling relates to the six mortgage foreclosures. The Eighth Circuit affirmed the lower court, which had held that the six loans that had been foreclosed no longer existed.

The dissent got it right, however, by stating that the loans were not “liquidated” or “extinguished” by the mortgage foreclosures. The dissent states the obvious: a mortgage is a security interest in real property that serves as collateral for the borrower’s loan. When the mortgage is foreclosed, the underlying promissory note survives and the borrower continues to be liable for the resulting deficiency (absent further action such as a new agreement or a discharge in bankruptcy.)

The article correctly states that the Eighth Circuit transformed recourse loans into non-recourse loans by its ruling. The article also states that non-recourse loans may lead to higher interest rates and larger swings in housing prices.  Purchasers on the secondary market won’t pay as much for non-recourse loans, and, for that reason, this case could have a significant impact on the secondary market if other circuits follow the lead of the Eighth Circuit.

* No. 18-1312 (8th Cir. 2019)

Motley Fool: “Zillow Plans to Do to Real Estate What Amazon Did to Retailing”

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Zillow Offers is not available in South Carolina yet, but it may be a matter of time

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This blog has promised to keep South Carolina dirt lawyers informed about the growing phenomenon of home “iBuying”. Please take a look at two recent articles from Motley Fool linked here.

One of the articles, entitled “Zillow Plans to Do to Real Estate What Amazon Did to Retailing”, indicates Zillow is aggressively taking on the neighborhood real estate broker. The other article, entitled “Why Zillow Wants to Pay More for Homes” indicates iBuying is a scale game, meaning the number of homeowners who accept Zillow’s offer increases dramatically with relatively small increases in price.

Zillow has been planning for this game for years. It already has a massive amount of traffic on its site and has accumulated an enormous amount of data. Go take a quick look at the data Zillow is showing about your own home!

To date, according to Motley Fool, Zillow faces intense competition from Opendoor, which leads the iBuying industry, already serving more than 40,000 customers. But Zillow is working hard to catch up. Opendoor operates in 21 markets. Zillow is in 17 of those markets, four additional markets, and plans to open in five more by the middle of 2020.

In early 2017, Zillow dipped its toe into the process of selling homes by launching a product it called “Instant Offers”. The product was initially tested in Las Vegas and Orlando and was described as a method for homeowners to sell their homes for a discounted price without the traditional complications of repairing, listing, staging and allowing for open houses.

The process started with a homeowner providing basic information via Internet about the home (square footage, number of bedrooms and bathrooms, and remodeling information) and uploading photos. The Zillow product then connected the homeowner with investors who buy homes in the area, and, typically, an all-cash offer was made by one or more of the investors. The homeowner paid no fee for the service and was not obligated to accept any offers. Zillow touted the product as a method to alleviate the seller’s stress and to allow the seller to close in a shorter time frame.

Other companies, Opendoor and Offerpad were already operating in this space at the time of the Zillow launch. The launch was called another example of technology disrupting the process of closing real estate transactions.

Real estate agents, of course, met the news with alarm. They said sellers would be suckered into making mistakes that might cost them the education of their kids, vacations or just the ability to sleep better at night because they have more money in their bank accounts. An online petition was initiated, asking the National Association of Realtors to threaten Zillow with being removed from access to listings. The NAR responded that it could not sponsor or encourage such a boycott.

Zillow has always stated publicly that it is not in the business of getting rid of real estate agents. Its executives called Zillow a media company, not a real estate company, and said it sold ads, not real estate. Even the Instant Offers program encouraged sellers to use a realtor even while avoiding the traditional listing and sales process. The question then became the amount of commission the real estate agent would earn for reduced services. When real estate agents initially complained about Instant Offers, Zillow responded that 70% of its revenue came from working with real estate agents.

In early 2018, however, Zillow announced that it would begin buying homes directly from sellers and then turning around and selling them. With this announcement, Zillow began selling ads and houses. Two test markets were announced, Las Vegas and Phoenix. Zillow said that when it buys homes, it will make the necessary repairs and updates and list the homes as quickly as possible. Zillow said local real estate agents would represent Zillow in the transactions. Zillow also announced in a press release that the vast majority of sellers who requested an Instant Offer ended up selling their homes with agents.

So far, nothing is in the works for South Carolina as far as we know, but since it is just next door in Atlanta and Charlotte, how long can it be?

Stay tuned for more news on this topic. Real estate lawyers will need to figure out how to remain in the game whether properties are sold through the Internet or not!

This scam hits home!

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Two fugitives arrested in Murrells Inlet

One smart agent avoided involvement by placing a temporary block on her trust account

Warren and Frances Berkle

WBTW TV News 13 in Myrtle Beach reported on November 22 that two fugitives were arrested in Murrells Inlet. Warren Berkle and Frances Berkle were reported to have been wanted in several states at the time of their arrest.

According to the report, the Berkles had been living under false names and living in a house in Murrells Inlet in connection with a lease to purchase arrangement. Police said they received a call from the homeowner who said she had gone through an eviction process because the two were behind in their payments. She said she was concerned that they were not who they said they were, and were possibly squatting in her house.

WBTW reported that Warren Berkle was stopped by police when he was leaving the neighborhood. He had an expired Florida license plate, no insurance, and a driver’s license that was not in his name. A background check indicated Berkle had a valid license in Maryland and was wanted for extradition. A check on Frances Berkle indicated she was wanted in Florida and Pennsylvania.

Horry County police charged Warren Berkle with forgery and obtaining a signature or property under false pretenses, among other offenses. Frances Berkle was being held without bail as a fugitive.

Warren Berkle had pleaded guilty in 1992 to conspiracy to sell worthless insurance policies and mail fraud, a multimillion-dollar scam. According to an article in the Baltimore Sun, prosecutors said around 800 insurance policies were sold and premiums were collected using false records and without licenses.

Our very astute agent had been contacted by Warren Berkle numerous times, seeking to wire funds into her trust account to accommodate a real estate transaction. Our agent had “such a bad feeling” about Mr. Berkle that she put a block on her trust account just a short time before he tried to wire funds into her account. This occurred after she told him she was not going to be able to work with him.  She said he seemed so insistent and so evasive when she asked questions that she could not trust him to do business with him.

We are so glad her fraud radar was working so well! She paid attention to clues that saved her from a disaster in her trust account!

A sign of the times?

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Zillow begins to market title and escrow services

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A November 12 article in the “Title Report” states that Zillow has begun testing its own title and escrow services in a handful of markets.

After making significant strides in revenues in the third quarter, Zillow is testing the waters in our arena. But, thankfully, we aren’t yet seeing these activities in South Carolina. Zillow had previously used third party title and escrow agents for its transactions. It continues to use third parties in most markets.

A Zillow spokesman told the “Title Report”, “We are also building title and escrow services in-house as a part of our long-term goal of delivering a true, seamless, end-to-end transaction experience for consumers.”

Zillow told the Title Report that more than 80,000 homeowners requested offers in the third quarter. It purchased nearly 2,300 homes and sold more than 1,200 homes in the same time frame. The spokesman said the company believes these results demonstrate that the business model to mechanize real estate transactions is gaining traction as consumer demand reveals people want an easier way to buy, sell, rent and finance homes.

stay tuned

This blog has previously suggested that the role of the local real estate agent may change to assisting sellers in analyzing the various offers they receive from iBuyers plus managing inspections and other steps in the real estate closing channel. As long as closings remain the practice of law in this state, our local dirt lawyers will remain involved in the closing process.

We promise to keep you informed of developments! Watch this space.

What’s first: flying cars or instant home ownership?

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flying car

This headline is blatantly stolen from this article that I recommend for your reading pleasure. This blog, written weekly since late 2014, has two goals: (1) to keep South Carolina real estate lawyers out of trouble; and (2) to keep South Carolina real estate lawyers in business. This article, about the future of home ownership, is recommended to advance the second goal.

Julian Hebron, the author of this article, is the founder of The Basis Point, a sales and strategy consulting business for consumer finance and real estate companies. He has extensive experience in real estate, lending and financial services. Investopedia touts itself as the world’s leading source of financial content on the web. Investopedia commissioned Julian Hebron to explore what home buying, improving and selling will look like in the next twenty year, and he said he jumped at the chance.

The article describes a vision of home buying for consumers in the future:

  • Pull out your phone and search for homes.
  • View homes using full 3-D modeling and video so you can truly “tour” the home right on your phone.
  • See every specification about the home, neighborhood, schools, restaurants, crime, taxes, etc.
  • Tag the homes you like to stay organized.
  • Get notified over time on sales and price changes of homes.
  • Make an offer on a home by pushing a button.
  • Avoid long appraisal process because the home’s value is verified by date and 3-D modeling/video, and this automated valuation method is accepted by all lenders.
  • Close on the home instantly because your loan is always approved via your secure blockchain wallet with realtime income, asset, debt, and credit score data. All you do is schedule licensed and reviewed local movers and contractors to facilitate your move.
  • Schedule moving day food delivery from recommended restaurants in your neighborhood.

And here is the description of home selling in the future:

  • Fill out a short form on your phone saying you’d like to sell your home.
  • Receive a home purchase offer in 1-2 days, and close in as little as seven days.
  • Or shop and hire a licensed and reviewed local realtor to list your home if you don’t like the instant offer.
  • Get asked if you’re purchasing a new home, and, if so, get prompted to follow the home buying steps above.

How close are we to this vision? The author isn’t sure but plans to write future installments to dig deeper into each player in the vision.

Can we stay in the market if this vision comes true? 

I believe we can. I believe our closing law firms should establish strong systems to document processes and keep them current in an effort to be able to nimbly adjust to the changing market. I believe we should stay on top of changes in technology because technology will certainly be a huge driver in these changes. I believe we should continue to establish strong relationships with the players in the real estate industry, particularly the real estate agents. We will all be fighting for business as the market changes, and keeping current on the available information and the current players will be vital to remaining in the game.

This blog will continue to provide South Carolina real estate lawyers with current information to support these efforts. Watch this space!

SC DOR announces implementation of tax lien registry as of Nov. 1

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SC tax liens will no longer be filed in individual Counties

This blog previously discussed tax lien legislation effective March 28, 2019 that will change the way titles are examined in South Carolina. The South Carolina Department of Revenue has announced that the change will be effective November 1.

The announcement indicates the statewide tax lien registry will have a similar look and feel to the Mississippi Department of Revenue Lien Registry, which can be accessed here.

The legislation, an amendment to South Carolina Code §12-54-122, is intended to allow the Department of Revenue (DOR) to implement a statewide system of filing and indexing tax liens centrally, that is, “accessible to the public over the internet or through other means”. Once the new system in in place, the clerks of court and registers of deeds will be relieved of their statutory obligation to maintain newly filed tax liens.

The new law states that it is not to be construed as extending the effectiveness of a tax lien beyond ten years from the filing date, as set out in South Carolina Code §12-54-120.

When the new system is implemented, the law requires a notice to be posted in each county where liens are generally filed providing instructions on how to access the DOR’s tax lien database.

We will keep you posted as more details become available. Title insurance company underwriters will certainly weigh in on this issue.

Rock Hill residential real estate lawyer arrested

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Thankfully, it has been ten years or more since we’ve heard word “defalcation” used in connection with a South Carolina real estate lawyer. Sadly, we have to use that word in 2019 because a Rock Hill lawyer was arrested on September 13 after funds allegedly went missing from a residential closing. That lawyer, Thomas Givens, was suspended by the South Carolina Supreme Court on September 25.

The closing took place on July 15, but the $166,000 mortgage payoff was never made. Two months later, Givens was arrested and charged with breach of trust over $10,000. The arrest warrant reads that Givens failed to make the mortgage payoff and does not have the funds.

We usually do not experience defalcations when the economy is good. With the economic downturn that began in 2007, we learned the difficult lesson that attorneys who are prone to dip into their trust accounts often manage to keep the balls in the air as long as closings continue to occur. They typically steal from one closing to fund another. They rob Peter to pay Paul.

Like a game of musical chairs, when the music (and closings) stop, bad actor attorneys no longer have closings to provide funds for prior transgressions, and the thefts come to light.

It is a very sad commentary, and one I hoped not to see again.

A glimpse into the future of residential real estate sales

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Here’s what may happen when iBuyer companies enter our market place

iBuyers

I read an interesting article from Forbes recently by John Wake entitled “The Surprising Way Real Estate Agents are Adapting to ‘iBuyers’ Buying Houses Directly From Sellers.” I invite you to read the article in its entirety here.

The article focuses on residential real estate sales in the Phoenix market which the author calls “ground zero for the iBuyer explosion.” What does he mean by that? Apparently, the largest iBuyer companies, Opendoor, OfferPad and Zillow Offers, either started their operations in Phoenix or concentrate their efforts there. He estimated five to six percent of houses that change hands in that market are sold to iBuyers.

The article focuses, as its title suggests, on how real estate agents are adapting to this disruption in their market. But I find the article instructive to South Carolinians on the topic of how these internet sales are orchestrated and how they might affect sellers in our market when this disruption migrates east to us.

The author says that a homeowner who seeks to sell a house via an internet company must first complete an online form. An offer is typically made within two or three days. If the homeowner accepts the offer, inspectors will be sent to the house and will come back with a list of repairs and estimated costs for the repairs that the buyer requests before the closing.

As in our current process, the seller can agree to make the repairs, to reduce the price of the house to cover the cost of the repairs, or to terminate the contract.

The author suggests that real estate agents commonly complain that iBuyers tend to offer less and to ask for more repairs than traditional buyers. In other words, the seller makes more money in traditional sales involving local real estate agents.

The flip side of that coin is, of course, that closing with one of the iBuyer companies is more convenient than the process in our marketplace. A seller doesn’t have to get the house ready to sell, stage it, keep it clean for showings, or leave home for showings and open houses. The closing date may be more flexible, and there probably will not be contingencies for appraisals and financing.

How are real estate agents in Phoenix adapting? According to Mr. Wake’s article, real estate agents are assisting sellers by obtaining multiple iBuyer offers, analyzing and explaining the offers, discussing the options of accepting one of the iBuyer offers or beginning to market the home in the traditional manner, and coordinating everything with the iBuyer or traditional buyer, including repairs.

In short, real estate agents are attempting to become iBuyer experts in addition to traditional home sale experts.

Real estate lawyers, we need to be ready for this disruption when it hits us. We will want to be able to explain the changes in the market to our clients as well as to educate our real estate agents on how to stay in the game. Let’s keep our eyes and ears open! I’ll help!

Amazon-Realogy partnership is making news in the housing market

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New home buying program not yet available in South Carolina

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According to several news sources, Amazon announced in late July that it will partner with residential real estate services company Realogy Holdings Corp. to launch a new home-buying program called TurnKey.

A TurnKey portal will be available through Amazon’s gigantic retail platform, Amazon.com. Potential home buyers who use that portal will be matched with real estate agents from one of Realogy’s brands like Coldwell Banker, Century 21 and Sotheby’s. Realogy is purportedly the largest residential real estate brokerage company in the country.

Potential buyers will go to Amazon.com/TurnKey and answer four questions about who they are and where they live. They will next get a phone call from a Realogy representative who will attempt to determine what sort of home they are seeking and how serious they are about buying. Information about the best prospects will be sent to Realogy real estate agents.

Home buyers who close with Realogy agents will receive up to $5,000 in products and services. Coupons for $450 – $1,500 in Amazon Home Services like unpacking, cleaning and furniture assembly will be available in addition to between $500 and $3,500 in smart-home products. Purchase of a $700,000 house will be required to receive the top credit.

The two giant companies are interested in finding out whether home buyers will look for new homes in the same place where they already shop for everything else. The credits for products and services will give Amazon a new way to market things it already sells, such as handyman services and smart-home gadgets like Alexa-powered speakers, doorbells and security cameras. The new lead-generating program will seek to help Realogy recruit and retain agents and increase market share.

The new program is starting in 15 markets, including Atlanta, Chicago, Seattle and San Francisco. We’ll have to wait to see how quickly it moves to South Carolina.

ProPublica publishes interesting heirs’ property story

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Check out the July 15, 2019 story by Lizzie Presser

NC oceanfront property

Image courtesy of ProPublica.org

Several of our staff members stay well informed about current events, and Cris Hudson, our IT professional, is no exception. Cris pointed me to this story published by ProPublica on July 15 entitled “Their Family Bought Land One Generation After Slavery”. The subtitle is “The Reels Brothers Spent Eight Years in Jail for Refusing to Leave it.” Cris told me I should blog about this story, so here goes.

ProPublica calls itself a “nonprofit newsroom that investigates abuses of power”. The story is about brothers, Melvin Davis and Licurtis Reels, who lived in Carteret County, on the central coast of North Carolina, on land they considered to be owned by dozens of their family members. The property consists of 65 marshy acres. Melvin Reels ran a club on the property and lived in an apartment above the club. He also had established a career shrimping in the river that bordered the land. Licurtis had spent years building a house near the river’s edge, just steps from his mother’s house.

Mr. Davis’ and Mr. Reels’ great grandfather, Mitchell Reels, bought the land just one generation removed from slavery. The land was said to contain the only beach in the county that welcomed black families. Mitchell didn’t trust the courts and didn’t leave a will, so, when he died in 1970, the property became heirs’ property.

In 2011, the brothers appeared before a judge to argue that they owned the waterfront portion of their property, which had purportedly been sold, without their knowledge or consent, to a developer. They were not allowed to argue their case that day. Instead, the judge sent them to jail for civil contempt. They were never charged with a crime nor given a jury trial, but they spent the next eight years fighting their case from jail.

As any practitioner who has handled quiet title suits for heirs’ property can attest, the suits can be expensive and complex. Nonprofit organizations, like The Center for Heirs’ Property Preservation, in South Carolina, assist in litigating these matters.

The story quotes Josh Walden of the Center who said that organization has worked to clear more than 200 titles in South Carolina the past decade, protecting land valued at nearly $14 million. Mr. Walden told the reporter that the center has mapped out a hundred thousand acres of heirs’ property in South Carolina and is careful to protect the maps from potential developers.

Back to the North Carolina story, a great uncle of Mitchell and Licurtis apparently obtained the waterfront property through an adverse possession action and began sending trespass notices to the brothers in 1982. The brothers could not believe the adverse possession action could have been “legal” since they had lived on the land their entire lives. Soon afterward, the great uncle sold the waterfront portion of the land to developers.

The family members knew that if the waterfront was developed, the tax values of their adjacent properties would skyrocket, and they would have difficulty paying the taxes and maintaining their properties. Tax sales have historically been the cause of the loss of many heirs’ properties.

(I got confused in one part of the story when the author talked about “nearby” Hilton Head. We drove from Hilton Head to Outer Banks once, and I promise you, the two locations are not “nearby”. We could have driven to Disney World in the same time frame.)

Like tax sales, partition actions have been a tool used to separate heirs from their properties. A developer can buy the share of one heir and then force a partition of the entire property. While South Carolina has passed partition legislation to protect against this danger, North Carolina has held out against this reform, according to the story.

The brothers continued to rot in jail after the judge indicated there was no time limit on civil conspiracy, and that the brothers had to move their houses from the properties to be released. The brothers refused and were locked in a hopeless clash with the law, according to the story.

Eight years later, the brothers appeared before a judge who agreed to release them but warned them that if they returned to their homes, they would return to jail. They have still not been able to return to the waterfront property.

I invite you to read the entire story for a history of heirs’ property in the South. It is indeed a sad tale of greed and legal wrangling to remove properties from heirs. The Reels’ story is just one example.