Commercial lawyers: you’re not immune from fraud!

Standard

This high-dollar scam was reported to our company

hacker mask

Our company publishes an excellent newsletter entitled “Fraud Insights”. The Editor, Lisa Tyler, National Escrow Administrator, deals mostly with residential transactions. It’s unusual for her to report on a scam involving a commercial transaction, but the edition that hit my in-box today outlines the story of a chilling scam involving a commercial transaction in New York. Fortunately, the scammers were not successful despite their best efforts.

Here are the facts. On April 10, 2019, an attorney at a large, prestigious New York City law firm sent a settlement services office in Lake Success, New York, a payoff letter for a private mortgage. The payoff letter said $1.7 million should be wired to a bank account in New Jersey.

The afternoon before the closing, the settlement office received an email purportedly from the payoff attorney’s office with revised payoff instructions for a bank in the Netherlands.

The closing was postponed for reasons not involving the loan payoff. When the closing was rescheduled, the settlement office emailed the lawyer and his assistant inquiring about the change in the wiring instructions. The responding email confirmed that the change was legitimate.

Reviewing the emails carefully, the closer noticed the domain name for the lawyer’s office contained an extra “s” beginning with emails dated April 16. The attorney’s email signature was also partially cutoff beginning April 16.

Two hours before the closing, the attorney’s assistant purportedly sent the closer an email asking if the wire had been sent. The closer did not want to alarm her that her email had been compromised, so he responded that the closing was happening shortly, and he would be in touch. The closer then searched the law firm by Internet and called the main telephone number, asking for the assistant directly. She answered the phone and said the original payoff letter was the only payoff letter, and she had not sent the recent email. She was, of course, alarmed.

She said her attorney was in court and she would relay the distressing information to him immediately. She was asked to refrain from using email for that notification because the emails were clearly being watched. Regardless, she emailed the attorney. At that point, the scammers were tipped off that their scheme had been uncovered.

While the legal assistant and the closer were discussing the situation by phone, the closer received another email purportedly from the assistant demanding that he call the lender to confirm the payoff information. Immediately following that exchange, a man called the closer office to confirm the altered wiring instructions.

At this point, everyone involved with the closing knew for sure that they were dealing with attempted fraud. The closing took place, but the payoff was accomplished via bank check.

The closer said his office tries to remain on the cutting edge of technology and industry news. His sharp eye in pinpointing the email discrepancies kept the closing from being another cybercrime news story. Commercial lawyers may feel somewhat insulated from the rampant cyber fraud that plagues residential practices, but this cautionary tale is an example of penetration into a sophisticated law firm. Be careful out there!

Advertisements

Here’s a gift, SC dirt lawyers: Your official recording fee list!

Standard

calculator house

This blog reported on May 29 that South Carolina Governor McMaster signed House Bill 3243 into law on May 16. This legislation, called the Predictable Recording Fee Act (S.C. Code §8-21-310), will streamline document filing in ROD offices by creating predictable fees for many commonly recorded documents such as deeds and mortgages. The new law will take effect on August 1, 2019. You and your staff will no longer have to count pages for documents to be recorded!

You can read the short but effective statute here.

My friend and colleague, Jennifer Rubin, was instrumental in the creation and passage of this legislation. Jennifer drafted the legislation and spearheaded Palmetto Land Title Association’s efforts to get the bill passed. Since the legislation was enacted, Jennifer has worked with members of South Carolina Court Administration, as well as leaders in ROD offices throughout the state, to draft a uniform recording fee schedule.  Attached is the newly created official recording fee list.

This law should simplify and streamline your practice and result in significant time and money savings for you and your clients.

Flat recording legislation passes!

Standard

August 1, 2019 is the effective date for this time-saving law

businessman thought bubble scales

On May 16, 2019, Governor Henry McMaster signed House Bill 3243 into law. You can read the short but effective statute here. House Bill 3243, better known as the Predictable Recording Fee Act (S.C. Code §8-21-310), will streamline the filing of documents in the register of deeds offices across the state by creating predictable fees for many commonly recorded documents such as deeds and mortgages. The new law will take effect on August 1, 2019. You and your staff will no longer have to count pages for documents to be recorded!

My friend and colleague, Jennifer Rubin, began work on this predictable recording Bill in the fall of 2016 when she was the President of the Palmetto Land Title Association. Our Agent and friend, Cynthia Blair, who is currently the American Land Title Association President, asked for Jennifer’s help in crafting, drafting and helping to turn the idea of predictable filing fees into law. Accepting that challenge and with the help and support of Chicago Title and PLTA, Jennifer began work on the Bill and began coordinating with the various stakeholders who were: The American Land Title Association, The South Carolina Association of Clerks of Court and Register of Deeds, The Association of Counties, The South Carolina Association of Realtors, The South Carolina Bankers Association, The Mortgage Bankers of the Carolinas, The South Carolina Bar Association, and the American Resort Developers Association on various versions of the Bill.

Jennifer said she was particularly thankful for the efforts of PLTA’s Legislative Committee led by attorney John Langford and the major contributions of her friend Julie Stutts, the deputy RMC for Aiken County.  She also appreciated the advocacy, guidance and support of lobbyists James Knox, Sharon Wilkerson, Neil Rashley, and Kali Turner and their respective groups.  Without everyone pushing this bill forward along and along, the creation of this law would not have been possible.

This new law will finally allow South Carolina real estate attorneys to fully comply with TRID regulations, provide clients and other parties with accurate final closing costs, and keep our bank accounts orderly. Please note that while the new law does not go into effect until August 1st, there is no grace period. So if you have closings on or near the first of August, please be sure to review the new statute to ensure that you’ve collected the correct amount for recording fees.

Let’s collectively start a trend in South Carolina: Shifting home closings away from the end of the month

Standard

I’m going on the record with a strong second to my friend, Gary Pickren’s blog!

end of month calenda NOPE.

Gary Pickren, an excellent residential real estate attorney with an outstanding law firm, Blair|Cato|Pickren|Casterline, here in Columbia posted a blog on May 12 entitled “Save Yourself a Huge Headache!!!!” You can read Gary’s blog in its entirety here.

Gary was apparently reacting to a crazy month-end for his office in April. He reported 25 closings on Tuesday, April 30 as opposed to 3 or 4 on Wednesday, May 1. And the closings that occurred on May 1 were a result of late loan packages from lenders. He was asking his real estate agents to save themselves headaches by scheduling closings throughout the month.

Closings at the end of the month are not a new phenomenon. As far back as I can remember (and that’s a long way back), real estate agents have scheduled closings at the end of the month. Why? Because interim interest has to be paid for only one day, reducing the funds the buyer has to bring to the closing.

Does closing at the end of the month save the buyer money? No! Interest will be paid from the date of the closing regardless. The only difference is the amount of the interim interest, the funds brought to the closing table. If interest is not brought to the closing, it is paid with the first payment.

I sent Gary’s blog around to my office members and got some unexpected strong reactions!

TAnderson

Troyce Anderson, who was formerly a closing paralegal in Greenville, said scheduling closings throughout the month would probably reduce claims because law firms would be able to close with less stress and avoid common mistakes.

 

MTucker

Melissa Christensen, who was formerly a closing paralegal in the Myrtle Beach area, said her daughter, Savannah, was born on May 30, and the family always has to schedule birthday parties in early June.

 

SSigwart 2018

Speaking of birth issues, Sara Sigwart, who was formerly a closing paralegal in Hilton Head and Charleston, said that one of her fellow closing paralegals successfully searched for a doctor who would schedule a delivery of her child on the 20th of the month so she could celebrate birthdays with her child on the actual birth date.  Sara’s other reply to Gary’s blog was “PREACH!”

 

DSeay

 

Denise Seay, who was formerly a real estate paralegal in Hilton Head said, “Oh good grief-we used to say Realtors only knew one day in the month!”

 

If our office staff reacted this strongly, imagine how strongly your paralegals, who are currently in the closing trenches, would react. Think about how much easier it would be to manage your office and everyone’s schedules! Your holidays and vacations would even be more manageable.

Gary’s blog calls the end of the month in a residential closing office “organized chaos”.  It might also be termed a huge “traffic jam” for lenders, real estate agents, closing attorneys, paralegals, abstractors, and even buyers and sellers. Let’s follow Gary’s advice and spread closings throughout the month!

You don’t have to be the “bad guy” by using your own words to pass this thought on to real estate agents. Send them this blog!

Did you hear the one about Katy Perry and the convent?

Standard

It’s not a joke! It’s a true, real estate story!

Dirt lawyers, you know how your friendly title insurance underwriters are always harping about authority issues?  You have to carefully determine that the individuals with authority to sell or mortgage real estate are the individuals who actually sign the deeds and mortgages involved in your transactions.

katy perry nun

How do you solve a problem like Katy Perry?  (image from dailystar.co.uk)

And you know how the same friendly title insurance lawyers really harp about authority issues involving churches? Hardly a seminar goes by without the mention of a problematic closing or claim involving church property. I always say you should be particularly suspect if anyone, like a preacher, says he or she can act alone to sell or mortgage church property. Church transactions almost always involve multiple signatories.

Lawyers involved in transactions concerning church properties must ascertain whether the church is congregational, meaning it can act alone, or hierarchical, meaning a larger body at a conference, state or even national level must be involved in real estate transactions. In South Carolina, we have seen recent protracted litigation involving the Episcopal Church, making real estate transactions involving some of the loveliest and oldest church properties in our state problematic at best.

Lawyers must also determine, typically by reviewing church formation and authority documents, which individuals have authority to actually sign in behalf of the church. It is not at all unusual to find a church property titles in the names of long-deceased trustees.  It is always advisable to work with local underwriting counsel to resolve these thorny issues.

With that background, let’s dive into this Katy Perry story. The superstar decided to purchase an abandoned convent sitting on 8.5 acres in the beautiful Los Feliz neighborhood of Los Angeles for $14.5 million in 2015. Only five nuns were left in the order, The Sisters of the Most Holy and Immaculate Heart of the Blessed Virgin Mary. This order had previously occupied the convent for around forty years. Two of the nuns searched the web to find Katy Perry’s provocative videos and music and became uncomfortable with the sale. Instead, those two nuns, without proper authority, sold the property to a local businesswoman, Dana Hollister, for only $44,000 plus the promise to pay an additional $9.9 million in three years.

Proper authority for the sale should have involved Archdiocese Jose Gomez and the Vatican. Both were required to approve any sale of property valued at over $7.5 million. The Archdiocese believed Ms. Hollister took advantage of the nuns and brought suit. After a jury trial that lasted almost a month, the church and Ms. Perry were awarded $10 million on December 4. The jury found that that Ms. Hollister acted with malice to interfere with Perry’s purchase. Two thirds of the verdict are designated for the church and one third for Ms. Perry’s entity.

Assuming lawyers were involved in the Hollister closing, you would not want to be in their shoes! Always pay careful attention to authority issues in your real estate transactions. In South Carolina, real estate lawyers are in the best position to avoid problems like the ones in this story.

SC dirt lawyers sued for email funds diversion by a third-party criminal

Standard

This is the first suit of this type I’ve seen. I’m confident it won’t be the last!

A dirt lawyer friend sent a copy to me of a hot-off-presses lawsuit filed in a circuit court in South Carolina against a closing law firm because the purchaser’s $50,000 in closing funds were diverted by a third-party criminal posing in an email exchange as the transaction’s real estate agent. My friend said he sent the case for my information. I think he sent it so I wouldn’t sleep!

Here are the facts as recited in the complaint. The names are being changed to protect all parties.

Paul and Penny Purchaser signed an Attorney Preference Form on March 28, 2017, selecting Ready and Able, LLC as their legal counsel for the purchase of a residential home and the closing of a purchase money mortgage with Remedy Mortgage, LLC.

On April 10, Paul and Penny Purchaser received Ready and Able, LLC’s “Purchaser’s Information Sheet” which required Paul and Penny to pay all closing funds over $500 to Ready and Able, LLC by wire transfer. The complaint states that these were silent as to the security of wire transfers, the security of private information to be conveyed between the purchasers and the law firm, and the security or lack of security of the use of email for closing information.

Also on April 10, Penny Purchaser telephoned the law firm and spoke with paralegal, Candy Competent, providing her with the purchasers’ Social Security numbers. The complaint states that Ms. Competent accepted the information and provided no wiring information or warnings.

hacker

The complaint states that on April 14, Paul Purchaser received what purported and reasonably appeared to be an email from Regina Realtor, their real estate agent for the transaction, asking Mr. and Mrs. Purchaser to wire closing funds in the amount of $48,490.31 that day so that the closing scheduled for April 21 would not be delayed. Penny Purchaser replied to the email requesting wiring instructions. An attachment purporting to be wiring instructions for Ready and Able, LLC. was sent via reply email.  The complaint states that the wiring instructions reasonably appeared to be the correct wiring instructions for the law firm and appeared to be printed on law firm letterhead. This email exchange was actually with a third-party criminal.

Later on April 14, Penny Purchaser telephoned Candy Competent and requested the amount needed to close. Ms. Competent discussed the amount needed to close despite the fact, according to the complaint, that she knew or should have known that the law firm had not sent wiring instructions to the purchasers or the real estate agent.

On April 17, Ms. Competent sent an email to Mrs. Purchaser advising her to add $550 to the funds due to close to cover a survey bill that came in on April 14. No mention was made of wiring instructions in that email. The email also did not discuss the fact that the law firm had not yet provided an amount to close to the purchasers or to the real estate agent. Mrs. Purchaser wired $49,015.31 using the wiring instructions provided by the third-party criminal.

On April 21, Paul and Penny Purchaser learned for the first time that the wiring instructions were the work of a criminal third party, who received the funds and has failed to return the funds.

The complaint states two causes of action, negligence and legal malpractice, and lists the following breaches of duty committed by the law firm:

  • Requiring the plaintiffs to use wire closing funds to defendant, without counseling the plaintiffs about the methods by which the secure delivery of such funds could be compromised;
  • Failing to counsel the plaintiffs about the risks and insecurity of email communications, particularly of private, sensitive, or financial closing information; and
  • Failing to be alerted by the circumstances of Mrs. Purchaser’s telephone call on April 14, and therefore to warn her that no communication had been sent by the law firm.

Is this, in fact, negligence or legal malpractice?  We will have to wait to see.  Would the processes established by your law firm for the protection of your clients’ funds prevent this type of crime? That is the question of the day. Please discuss among yourselves!

DOR issues new Revenue Ruling on Deed Recording Fees

Standard

The South Carolina Department of Revenue issued Revenue Ruling #17-5 concerning Deed Recording Fees on August 28, 2017. This advisory ruling supersedes Revenue Ruling #15-3.

The new ruling is 39 pages long and covers the topic comprehensively in a question and answer format. This document is an excellent tool for lawyers with unusual transactions and for lawyers and paralegals who are new to the topic. The statutory scheme is set out in full, and the remainder of the document is stated to “summarize longstanding Department opinion concerning the taxability of these transactions.”

One question addressed how the deed recording fee should be paid when the real estate is located in more than one county. The answer cited Code §12-24-50 which requires an affidavit addressing the proportionate value in each county. The answer contained an example:

“For example, ABC Corporation sells realty, approximately 10 acres, to XYZ Corporation for $1,000,000. The realty is located in two counties, with 3 acres in County A and 7 acres in County B, However, because of the location of the 3 acres in County A (e.g., located at a major intersection, of the waterfront, etc.), the value of the 3 acres in County A is $700,000 while the value of the 7 acres in County B is $300,000.

Based on these values, 70% of the value is assigned to County A and both the state and county portions of the deed recording fee are paid in County A based on $700,000 consideration paid. (Total Fee Paid in County A: $2,590 ($1,820 State Fee and $770 County A Fee)). The remaining 30% of the value is assigned to County B and both the state and county portions of the deed recording fee are paid in County B based on $300,000 consideration paid (Total Fee Paid in County B: $1,110 ($780 State Fee and $330 County B Fee)).”

Another interesting* question addressed the method for correcting the mistake of recording a deed in the wrong county. (No one I know personally has ever had that problem.) Here’s the answer:

“Since the deed recording fee is actually a single fee composed of a state portion and a county portion, the entire fee must be paid when any deed is recorded with the county clerk of court or register of deeds.

Therefore, if a deed is recorded in the wrong county (e.g., a deed for realty in Lexington County is incorrectly recorded in Richland County), then the deed should be recorded in the correct county. The entire fee of “one dollar eighty-five cents for each five hundred dollars, or fractional part of five hundred dollars, of the realty’s value as determined by Section §12-24-30” should be paid in the correct county.

After recording the deed in the correct county, the person legally liable for the deed recording fee should then file a claim for the fee paid in the wrong county in accordance with the refund procedures for the deed recording fee established in SC Revenue Procedure #15-1. In addition to the information and documentation required in SC Revenue Procedure #15-1, the person filing the claim for refund should also provide the Department documentation that the deed has been recorded in the correct county. The Department will refund the state portion and order the county to refund the county portion.”**

Transfers to a spouse are exempt regardless of whether consideration is paid. Transfers to a former spouse are not exempt unless the transfers are made pursuant to the terms of a divorce decree or settlement. Query, why would anyone transfer real estate to a former spouse unless required to do so by a divorce decree or settlement?

This detail is provided to make the point of how comprehensive this document is and how helpful it might be in your practice. Take advantage of this guidance, particularly for lawyers and paralegals you need to train.

*You can measure how much of a dirt law nerd you are by how interesting you find this.

**They didn’t promise to make it easy.