Real Estate

IRS issues for tax season…for your reading pleasure

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Just in time for tax season, the IRS announced on April 4 that it will begin using private debt collectors pursuant to federal law enacted late in 2015.

The IRS said that it will begin this month sending around 100 letters per week to taxpayers who have accumulated years-overdue tax debt. If the process goes smoothly, the number of letters will be increased to 1,000 per week.

Outsourcing debt collection will likely provide scammers with new opportunities, so the IRS has provided some advice for the safety of taxpayers.

The taxpayer will hear from the IRS first by letter. The letter will provide the name and contact information for the debt collection firm. After that initial contact, the debt collection firm will send its first letter confirming that it will handle the case. Neither initial contacts will be by telephone.

At this point, only four firms have been identified:  CBE Group of Cedar Falls, Iowa; Conserve of Fairport, New York; Performant of Livermore, California; and Pioneer of Horseheads, New York. Each taxpayer’s account will be assigned to only one of these firms.

None of the firms will ever ask for payments to be made to anyone other than the United States Treasury. If a taxpayer is asked to make payment to anyone else, this is a scam.

In the case of mistreatment under this new program, taxpayers are urged to file complaints with the Treasury Inspector General for Tax Administration and the Consumer Financial Protection Bureau.  The IRS and Congress have indicated they will be monitoring this situation carefully.

On a related topic, real estate lawyers should be reminded that the IRS may issue a levy, which is a legal seizure, of a taxpayer’s property to satisfy a tax debt. When a levy is issued, it applies to real property, money, credits and bank deposits. A levy can also reach property held by third parties, such as retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivable, the cash loan value of life insurance policies and commissions.

The IRS issues a levy only after it has exhausted other means to collect a tax debt.

From time to time, a settlement agent will receive a levy for a party involved in a closing. The taxpayer should be sent a notice in writing of the receipt of the levy and should be directed to consult with his or her tax advisor. Remember that a real estate lawyer who is not also competent as a tax lawyer should never offer tax advice. Typically, after the taxpayer has time to seek tax advice, the settlement agent should comply with the levy.

(If I received a levy, however, I would also seek my own tax advice prior to disbursing any funds!)

The Carolinas are basketball states!

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(And states dealing with a “clarified” boundary)

Congratulations to the University of North Carolina on last night’s win in the Men’s College Basketball National Championship!  North Carolina has always been a basketball state, and our hats are off to you!  Our Gamecocks made it to the Final Four for the first time ever, so both states are proud of their men’s basketball teams!  And congratulations to our Gamecock women who won their National Championship on Sunday!  We love seeing that flag fly over our statehouse! Both Carolinas are apparently now basketball states!

We are also states with a newly defined boundary line between us. The long awaited and much debated legislation “clarifying the original location the boundary” became effective on January 1, 2017, and both states are dealing with the ramifications of the legislation.

Some parcels previously believed to be in South Carolina are now confirmed to be in North Carolina and vice versa. Both legislatures insist that the boundary has not changed, but that since markers have been lost or destroyed by the elements, it was necessary to have the boundary researched and resurveyed. (If they had taken the position that the boundary line was being moved, they would have had to involve Congress.)

South Carolina real estate lawyers have been advised to consult with their title insurance companies for guidance as they deal with affected properties. In North Carolina, however, the Real Property Section of the Bar and the Land Title Association have issued a lengthy memorandum, dated March 20, 2017, to provide guidance to North Carolina lawyers. I thought this memorandum might be useful to point out the various issues to South Carolina lawyers and link it here.

The best advice I can give all of us dealing with issues surrounding this change is to proceed slowly and with due diligence, consulting your title insurance company underwriters every step of the way!

Wells Fargo distributes new settlement agent communication

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Note: Settlement agents are scheduled to be re-evaluated

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

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

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

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

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

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

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

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

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

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

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

Hot off the presses UPL case!

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(But it only affects real estate peripherally)

The South Carolina Supreme Court handed down a UPL decision in a declaratory judgment action in its original jurisdiction on February 22.*

The Court accepted the action to determine whether Community Management Group, LLC and its employees engaged in the unauthorized practice of law while managing homeowners’ associations. The Court found that the respondents did, in fact, engage in UPL. At the outset of the case, the Court had issued a temporary injunction halting the offending activities.

Community Management Group, without the involvement of an attorney, prepared and recorded notices of liens and related documents; brought actions in magistrates’ courts to collect debts; and filed the resulting judgments in circuit courts. The entity also advertised that it would perform these services “in house”.

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In a 1992 administrative order entitled In re Unauthorized Practice of Law Rules Proposed by South Carolina Bar**,  the Court had modified prior case law to allow a business to be represented by a non-lawyer officer, agent or employee. The Court had also promulgated South Carolina Magistrate Court Rule 21, which provides, “A business…may be represented in a civil magistrates’ court by a non-lawyer officer, agent or employee…”

The central question in the action at hand was whether the word “agent” in these authorities includes third party entities and individuals like Community Management Group and its employees. The Court held it does not and was never intended to.

The Court had earlier held that filing claims in probate courts does not amount to UPL, but stated in the present case that it is the character of the services rendered that determines whether the services constitute the practice of law. Filing claims in Probate Court, according to the Court, does not require the professional judgment, specialized knowledge or ability of an attorney. The Court found that the services required to represent a business in magistrates’ courts are not comparable to filing claims in probate courts.

Community Management Group conceded that it prepared a lien document for the purpose of putting a cloud on title so property could not be sold unless the homeowner paid overdue assessments. This stated purpose demonstrated to the Court that the lien documents were “instruments”, that is, written legal documents that define rights, duties, entitlements or liabilities.

Citing a 1987 case near and dear to the hearts of all South Carolina dirt lawyers, State v. Buyers Service***, the Court reminded us that preparing and recording legal documents is the practice of law.

This current case is a Per Curiam decision, but acting Justice Pleicones did not participate. We are holding our collective breath to learn the results of a Quicken Loan case pending in the original jurisdiction of the Court, and the present case may give us at least a small hint.

stay tunedWe have already received an underwriting question about this case in our office. We were asked whether our attorney agents can ignore the liens filed in contravention of this case. The answer is that we can discuss the specifics on a case-by-case basis, but it appears that although the liens may be invalidated by a court, dirt lawyers and title companies should not generally take this risk without the involvement of a court. If you run into this issue in connection with your closings, call your title insurance underwriter to discuss your options!

*Rogers Townsend & Thomas, PC v. Peck, South Carolina Supreme Court Opinion 27707 (February 22, 2017)

**309 S.C. 304, 422 S.E.2d 123 (1992)

***292 S.C. 286, 468 S.E.2d 290 (1987)

A useful SCDOT website for South Carolina dirt lawyers

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opposite-road-signs-sc-dot My colleague Tom Dunlop recently shared a South Carolina Department of Transportation website with me that is a nifty tool for determining whether the DOT maintains a road.  Check out the site here.

I entered my own street, Chimney Hill Road, and found out that the DOT does not maintain my street but that I could get more information from the Resident Engineer’s office at 803-786-0128. (I know Chimney Hill Road is marginally maintained by the City of Columbia from watching the repair of the pothole in front of my house at least annually.)  Here’s what the website shows:

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Then, I tried Garners Ferry Road (U.S. 76) and learned that the DOT does maintain this road.  Here’s the map:

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Trying another County, I entered one of my favorite roads (the road to the beach!), Highway 17 (Ocean Highway S) in Georgetown County. This road is maintained by the DOT, and the phone number for the local office, for more information, is 843-546-2405.

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Turning to the upstate, I tried Woodruff Road (SC 146) in Greenville County and learned that this road is maintained by the DOT, and the phone number for the local office, for more information, is 864-241-1224.

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I hope this website will provide real estate closing attorneys with some quick information when road maintenance becomes an issue.

Can you be sure your real estate agent is not a serial killer?

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Maybe not! A recent South Carolina arrest brings this terrifying issue to light. Consumers visit houses accompanied only by real estate agents in South Carolina every day. Is this practice safe?

In November, Todd Kohlhepp was arrested in connection with the deaths of three individuals whose bodies were found on his property in Woodruff. Investigators were on his property near Wofford Road when they heard banging. They found a kidnap victim alive inside a large metal container “chained like a dog”. The victim had been missing for two months.

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Todd Kohlhepp – photo by myfox8.com

Kohlhepp was charged with three counts of murder, three counts of possession of a weapon during the commission of a violent crime, and one count of kidnapping. Kohlhepp is also alleged to be connected with four slayings in 2003 at Superbike Motorsports in Spartanburg.

Kohlhepp was a South Carolina licensed real estate agent. Real estate agents in South Carolina are licensed by the Department of Labor, Licensing and Regulation (LLR). A November 7 “Housing Wire” article asks how Kohlhepp got his license. The article quotes a prior article in “FOX Carolina” to the effect that LLR had stated Kohlhepp applied for a real estate license in 2006.

A background check was not required for the application. LLR’s website indicates an applicant who has been convicted or a crime must reveal that fact on the application and that the Real Estate Commission may review the application and conduct an investigation which may result in a delay in processing.

Kohlhepp had, in fact, been convicted of a 1986 kidnapping and rape in Arizona and had served 15 years in prison. But on his LLR application, according to FOX Carolina, he explained:

“I entered into a verbal agreement with my girlfriend who was also 15 at the time. I was charged with felony kidnapping due to the fact that I did have a firearm on me.”

He obtained the license and eventually established a firm of twelve agents and a reputation for being successful, professional, out-going and hard working. He was called a great salesman. He looked the part! He dressed well. He drove expensive cars.

What’s the lesson here? Consumers should eunderstand that a real estate agent’s license is no indication that the person who shows a home is honest and trustworthy.  Paying proper respect to the many, many wonderful real estate agents I know, however, it should be noted that we have seen cases in other parts of the country where real estate agents were harmed by their clients.

Unfortunately, for both sides of this equation, caution should be exercised in these situations of one-on-one contact with strangers in confined locations. Ask your friends for referrals. Do some on-line digging about the person you are about to meet. Take a business associate. Take a friend. Take your scary-looking cousin. Shoot, take your whole family. Schedule meetings during daylight hours. Let your business associates, friends and family know where you are, who you are with and how long you should be there. Keep your cell phone in your hand.

The good news is that this particular former real estate agent, who has confessed to the crimes, is likely to be off the streets permanently.

One of President Trump’s first official actions affects housing

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The Federal Housing Administration (FHA) announced on January 9 that it planned to reduce mortgage insurance premiums effective January 27. Mortgage insurance protects lenders from borrower defaults and is common where the down payment is less than 20%.

The Democratic view of this issue is that sufficient reserves and four years of economic growth allowed the FHA to pass along some modest savings to consumers. Additionally, the move was viewed as an attempt to help first-time and lower income home buyers to access the market at a time when mortgage rates were rising.

The Republican view is that such reductions put taxpayers at risk by decreasing the funds the FHA has to deal with mortgage defaults. In other words, taxpayers might be at a greater risk for footing the bill for another bailout if FHA’s reserves were reduced.

President Trump’s advisors criticized the Obama administration for adopting new policies as it prepared to leave office. During Dr. Ben Carson’s confirmation hearing for Secretary of the Department of Housing and Urban Development (HUD), FHA’s parent agency, he expressed disappointment that the cut was announced so late in President Obama’s term.

On January 20, shortly after he was sworn in, as one of his first substantive actions, President Trump undid this new policy before it took effect by signing an executive order.

HUD then issued a letter stating that more analysis is needed before changes are made, and the rates will remain the same for the time being.

It appears industry groups may have differing opinions on whether President Trump’s executive order will affect home buying. Will this action reduce opportunities for first-time buyers? Or will it eventually allow FHA’s reserves to be increased to a point where it can offer more services to borrowers? Industry groups will continue to weigh in, and this blog will continue to keep South Carolina dirt lawyers posted on developments.

A little mundane, but useful, information for your New Year

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York County’s Register of Deeds office recently informed local dirt lawyers that it will begin using a new system on January 23. The new system will require labels containing recording information to be attached to recorded documents.

This County will require a three-inch margin at the top or bottom of the front page of each recorded document. Documents that do not meet the margin requirement may be rejected because the label may conceal a portion of the document.

I am confident York County lawyers are informed of this development but wanted to get the word out to the remainder of the state to benefit lawyers who may handle a transaction in that County from time to time.

Goodbye old friend

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And hello 2017!

I bought a car on the first business day of 2017.

For most folks, buying a car is not a big deal, but I am definitely not a car person!  I drove my mother’s last car for almost eleven years after her death in 2006 and was embarrassed to shed a few tears at the dealership when I sentimentally traded it in on January 2. That car has 200,000 miles on its odometer! It’s still in great running condition, and I hope it finds a good home with someone, maybe a teenager, who needs safe and inexpensive transportation. Before my mother’s car, I drove a car I bought from a deceased friend’s estate. Are you detecting a pattern in my vehicular history?  Until this week, no car dealership had made a dime on me in the past 15 years!

My colleague and friend, Tom Dunlop, on the other hand, is definitely a car person. He currently drives a bright red late model Mercedes which he will upgrade this spring for the mere reason that two years have passed. His dealership loves him! In addition to trading every two years, Tom takes donuts to the staff when his car is serviced. What a nice guy! We’ve enjoyed that shiny red Mercedes as our lunch vehicle and can’t wait to see what Tom decides will be our new fancy ride in the spring.

new-year-new-startWhy is this car talk relevant to dirt law in 2017? It’s relevant because our success in the housing industry this year may depend on whether Americans and specifically South Carolinians are really home ownership people.

There are some reasons for concern. Interest rates are climbing. The mortgage interest rate deduction is under attack in Congress. The future of the CFPB may be precarious under the new administration and because of pending litigation challenging its constitutionality.  Some financial advisers are recommending renting as a better economic alternative for many Americans. Some retirees are being advised to sell the large homes where they raised their families in exchange for nifty, low-maintenance town homes, condominiums and even rental apartments.

But unlike my personal lack of thirst for new cars, I believe many Americans and many South Carolinians have an enduring thirst for new and upgraded residences. And I believe their thirst is most often quenched only by purchasing those residences. We have been taught that home ownership is an excellent investment vehicle coupled with a tax advantage. This advice goes back several generations. This wisdom is so ingrained that the counsel to retirees to rent shocked me! I had to read it from several sources to believe it was serious and sound advice for some folks.

And, thankfully, the economy is continuing to improve. Zillow is reporting that the U.S. housing market has regained all the value it lost during the housing crisis. South Carolina is particularly poised for success. Charleston is one of the fastest growing markets in the country. Hilton Head is digging out and rebuilding from Hurricane Matthew. The Rock Hill/Fort Mill area is growing toward Charlotte rapidly. It is impossible to ride around Myrtle Beach, Greenville and even Columbia without dodging construction activity. My own office’s numbers have improved during 2016, and I budgeted up for 2017. I suspect most South Carolina dirt lawyers are looking for a better year in 2017 than in 2016 assuming they can maintain their momentum and sustain the excellent staffing that momentum requires.

I am optimistic!  Here’s hoping Americans and South Carolinians continue to be home ownership people. And here’s hoping 2017 is a healthy, happy and prosperous year for you!

The housing industry is crying Bah! Humbug!

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Congress may eliminate mortgage interest deduction

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

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

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

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

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

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

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“Congress … what you NOT gonna do is … “

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

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

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

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