Real Estate Law

Same Sex Marriage Law May Require Tweaks in Title Search Practices

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Males as well as females may change their names.

same sex marriage

On January 1, this blog discussed a South Carolina Department of Revenue Ruling (14-9) that impacts some areas of the real estate practitioner’s world. This Revenue Ruling was issued following the United State Supreme Court 2014 decision, Obergefell v. Hodges, which made same-sex marriage legal in all fifty states.

The most significant changes to our practices from the Revenue Ruling include:

  1. A same-sex legally married couple may be able to qualify their home for the 4% assessment ratio.
  2. If each member of a same-sex legally married couple owns a residence, only one of those residences may qualify for the 4% assessment ratio since as a married couple they may have only one legal residence.
  3. Transfers of property between spouses of a same-sex couple may now be exempted from the assessable transfer of interest rules.
  4. Transfers of real property from one same-sex spouse to the other will now be exempted from the deed recording fee.

Now that dirt lawyers have had a chance to think about how same-sex marriage may otherwise impact our practices, some of us have come to the conclusion that title examiners should now take into consideration name changes for men as well as women. This change in practice may affect every title examination for individuals holding title since 2014.

hello my name isWe have always cautioned that a woman who holds title with two surnames, should be searched under both names. For example, Hillary Rodham Clinton should be searched as Hillary Rodham and Hillary Clinton.

Now consider the name Neil Patrick Harris. Not knowing whether Patrick is a middle name bestowed by parents at birth or a former surname, consider whether he should be checked by both Neil Patrick and Neil Harris.

Undoubtedly, this extra step will lead to many “false positives” with judgments, tax liens and other public record items. As always, the hits that are uncovered should be addressed by paying them at closing or eliminating them with the use of identifying information such as full names, addresses social security numbers, etc. And, when in doubt, get your title insurance underwriter to take the appropriate leap of faith with you.

Remember that buyers should be checked for judgments and tax liens because those matters will attach immediately when property is purchased. And also remember that purchase money mortgages will take priority over tax liens and judgments against buyers.

Unfortunately, it appears that searching titles isn’t getting any easier over time, despite the use of new and improved technology.  It’s public knowledge and common sense that Caitlyn Jenner should be searched as Bruce Jenner. But I have no advice about similar name changes in title examinations. It’s a brave new abstracting world!

Dirt Lawyers Will Like This Mortgage Satisfaction Case

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S.C. Supreme Court holds equity lines are subject to the timely satisfaction statute.

In an opinion written by Justice Beatty, our Supreme Court held on August 5 that open-ended mortgages are satisfied in the same manner as conventional mortgages and under the same statutory requirement for timely satisfaction by lenders.

Regions Bank v. Strawn involved a mortgage foreclosure against Robert and Nancy Borchers. The Borchers counterclaimed seeking to recover from Regions Bank under §§29-3-310 and 29-3-320 of the South Carolina Code based on the bank’s failure to satisfy the mortgage within the three-month time period required.

mortgage jengaThe home had been purchased from Cammie Strawn, who had taken title from her then-husband, Richard Strawn. Mr. Strawn had previously obtained the home equity line of credit. At the time of the Borchers’ closing, the balance of the mortgage was $32,240.42. Immediately after the closing, the Borchers’ attorney, James Belk, had an employee deliver a payoff check and a mortgage satisfaction transmittal letter to Regions Bank. The check had the words “Payoff of first mortgage” typed on it.

Instead of satisfying the mortgage, the bank applied the check to the balance, bringing it to zero, and provided Richard Strawn with new checks even though he had not owned the home for more than two years. Mr. Strawn spent more than $72,000 on the equity line.

When Regions Bank attempted to collect on Mr. Strawn’s debt by foreclosing on the Borchers’ home, the Borchers answered, counterclaimed and moved for summary judgment. The bank argued that a revolving line of credit should be handled differently than conventional mortgages, and this particular mortgage could not be satisfied without instructions from Mr. Strawn.

The trial court and Court of Appeals ruled in favor of the Borchers. On appeal to the Supreme Court, Regions Bank made two basic arguments: (1) open ended mortgages are an exception to the statutory satisfaction requirement because only the original borrower is authorized to request a satisfaction; and (2) the Borchers could not assert a violation of the mortgage satisfaction statutes because their attorney had the authority to satisfy the mortgage pursuant to the attorney satisfaction statute (§29-3-330).

The Court affirmed and held that the first argument failed because the mortgage itself contemplated that the property may be sold and specifically stated that it would be binding on the mortgagor’s successors and assigns. Also, the court stated that anyone with an interest in mortgaged property is allowed to request a satisfaction upon payment, and there is no exception for equity lines of credit.

Sale of a house. Object over whiteAs to the argument that the Borchers’ attorney could have satisfied the mortgage, the Court stated simply that this argument is without merit because the statutory framework does not exempt a mortgage holder of an equity line from the penalty provisions for failing to satisfy a mortgage within the required time frame.

This is a good opinion for South Carolina closing lawyers!

Malpractice Case Questions Delegation of Responsibility for Title Work

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SC Supreme Court decides client’s informed consent is required.

The South Carolina Supreme Court has ruled that a closing attorney cannot delegate the ultimate responsibility for delivering clear title to a purchaser without the purchaser’s informed consent. Johnson v. Alexander is an attorney malpractice case decided on July 29. This case involved Amber Johnson’s 2006 closing of a home in North Charleston.  Ms. Johnson alleged that her closing attorney, Stanley Alexander, breached his duty of care by failing to discover the house had been sold at a tax sale in 2005.

shutterstock_113463292The title examination had been performed by another attorney, Charles Feeley at the request of Ms. Johnson’s previous attorney, Mario Inglese.  Mr. Alexander purchased the title work from Mr. Inglese and relied on the title examination, which concluded that no back taxes were owed on the property. Ms. Johnson stopped making mortgage payments when she learned she didn’t have title to the property, and the property went to foreclosure.

At trial, Ms. Johnson moved for partial summary judgment as to Mr. Alexander’s liability. At the summary judgment hearing, an affidavit of the Delinquent Tax Collector for Charleston County was proffered to prove the availability of the delinquent tax records during the time when the title would have been examined.  Mr. Feeley’s affidavit indicated he could  not remember the specific title work, but that he always searched titles the same way, and he always checked delinquent taxes for a ten-year period. His notes showed that he found no outstanding taxes. Further, Mr. Feeley attested that the tax sale would not have appeared in the chain of title because the tax sale deed was actually recorded after the closing.

As a side note to abstractors: recent tax sales often do not appear in chains of title because the deeds are not yet recorded. Title examiners should check for payment of taxes for a ten-year period to uncover ad valorem tax delinquencies.

The trial court granted Ms. Johnson’s motion on Mr. Alexander’s liability.  On appeal, the Court of Appeals reversed and remanded, holding the lower court incorrectly focused its inquiry on whether an attorney conducting a title examination should have discovered delinquent taxes from 2003 and 2004 and the tax sale from 2005. Instead, the appellate court held the proper question was whether Mr. Alexander acted reasonably in relying on the title work and reversed and remanded the case for trial.

The Supreme Court reversed and remanded for a determination of damages. Ms. Johnson argued that the Court of Appeals erred in holding the correct inquiry is whether an attorney reasonably relied on another attorney’s work where that work is outsourced. She contended that an attorney should be liable for negligence arising from tasks he delegates unless he has expressly limited the scope of the representation. The Supreme Court agreed.

The Supreme Court said the Court of Appeals erroneously equated delegation of a task with delegation of liability. The opinion, written by Justice Hearn, stated that while Feeley’s negligence was the issue, that does not displace Alexander’s ultimate liability.

The opinion states, “while an attorney may delegate certain tasks to other attorneys or staff, it does not follow that the attorney’s professional decision to do so can change his liability to his client absent that client’s clear, counseled consent.”

The Court cited Rule 1.8(h) of the Rules of Professional Responsibility which indicates a lawyer shall not make an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement.

Notice that the Court makes no distinction between delegating a task to staff and delegating it to another attorney. Mr. Alexander had argued that because Ms. Johnson knew he did not personally examine the title, its accuracy was not within the scope of his representation to her. The Court clearly held that the scope of representation can only be limited through the clear, counseled consent of the client.

Many residential closings are handled in South Carolina by attorneys who have nothing to do with the title examination. This case clearly states that those attorneys should limit the scope of their representation and obtain their clients’ clear, counseled consent. Otherwise, the title work is the ultimate responsibility of the closing attorney regardless of who performs it.

shutterstock_233295964And on a related topic, it is my opinion that any title examination that covers less than a full-search period or is based on a prior title insurance policy should be used only after consultation with the client and obtaining the client’s informed consent.  Many residential and commercial closing attorneys rely heavily on prior title policies for back title, and they may want to tweak their practices after they read this opinion.

Closing attorneys’ files should be papered with those informed consents confirmed in writing!

FHA Settlement Certification Will Require Tweaking After October 3

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FHA answers a FAQ; it doesn’t officially change the certification

The Federal Housing Administration (FHA) released a new settlement certification this summer in anticipation of the implementation of the TRID rules on October 3. The new certification is intended to replace FHA’s current addendum to the HUD-1 Settlement Statement and will be used for the new Closing Disclosures once the TRID rules become effective.

The new certification reads:

“To the best of my knowledge, the Closing Disclosure which I have prepared is a true and accurate account of the funds which were (i) received, or (ii) paid outside closing, and the funds received have been or will be disbursed by the undersigned as part of the settlement of this transaction. I further certify that I have obtained the above certifications which were executed by the borrower(s) and seller(s) as indicated.”

Please note that the new certification contains the language “which I have prepared”.  As we have all heard by now, many of the large lenders have indicated that settlement agents will not prepare the Closing Disclosures to be delivered to borrowers. Because of the perceived liability, several of the larger lenders have announced that they will prepare the deliver borrowers’ Closing Disclosures.

frustrated man paperworkSettlement agents (closing attorneys in South Carolina) will prepare and deliver sellers’ Closing Disclosures in all cases and will prepare the borrowers’ forms for the smaller lenders who are not taking the responsibility internally.

American Land Title Association reached out to FHA, the Mortgage Bankers Association and individual lenders to inform them that the new certification would be inaccurate in the cases where the lender prepares the Closing Disclosure.  FHA did not revise its certification, but, in connection with issuing an additional 120 new FAQs to its Single-Family Handbook Frequently Asked Questions, it answered the following question this month:

FAQ 347:

Q: “The Model Settlement Certification requires the Settlement Agent certifying that he or she has prepared the Closing Disclosure but the CFPB’s requirements for issuing the new TRID Closing Disclosure will make this unlikely to be the case. Should the Settlement Agent sign the form anyway?”

A: “FHA does not wish for anyone to make a false certification. Because this is a model component, FHA will accept the tailoring of this phrase to the actual circumstances. This if the Settlement Agent does not prepare the closing disclosure, he or she should remove or strike through the statement ‘which I have prepared’ before executing the Settlement Certification.

FHA is only providing this guidance through the FAQ. It is neither revising the certification nor clarifying the instructions on the certification itself.  As a result, closing attorneys will be required to educate their staff members about the necessity to revise the certification for FHA closings after the new rules take effect.

Waters Of The United States Redefined

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South Carolina is among the states suing the Feds

The Environmental Protection Agency and the Army Corps of Engineers published a Final Clean Water Act Rule defining “waters of the United States” on June 29. The effective date of the rule, which greatly expands the scope of jurisdictional waters, is August 28. The full text of the rule can be read here.

shutterstock_180127517The Clean Water Act’s jurisdiction relates to “navigable waters” which was previously defined simply as “waters of the United States or the territorial seas”.  This vague definition led to numerous lawsuits and much regulatory interpretation, but confusion persisted. For this reason, the EPA and the Army Corps of Engineers decided to resolve the uncertainty by promulgating a new definition by federal rule. Supporters say the true motivation for the rule is to protect the safety of drinking water and stream health.

The new rule will affect several industries, two of which are of particular importance to real estate practitioners:  construction and housing. The rule will undoubtedly lead to considerable additional costly federal permitting and is likely to slow development.

The rule deems all tributaries to traditional navigable waters with beds, banks and ordinary high water marks, as jurisdictional, regardless of size. The definition of “wetlands” has been expanded to include “neighboring” wetlands which incorporates all waters within the floodplain or within specified distances from the ordinary high water mark of traditional navigable waters, their tributaries and impoundments.

Of local significance, the rule extends protections to “Carolina Bays”, on a case-by-case basis, depending on the significance of their nexus to navigable waters. Carolina bays are defined as ponded depressional wetlands that occur along the Atlantic coastal plains.

shutterstock_147620981Two lawsuits were filed by 22 states on the day after the rule was published. South Carolina is a plaintiff in Georgia v. McCarthy, which claims the rule infringes on state sovereignty by eliminating the states’ primary authority to regulate and protect water under state standards. The lawsuit also alleges that the rule imposes significant new federal burdens on the states, homeowners, business owners and farmers by forcing them to obtain costly federal permits to continue to conduct activities on their property that have no significant impact on navigable, interstate waters.

The second lawsuit, North Dakota v. McCarthy, alleges that the rule harms states in their capacity as owners and regulators of waters and lands within their respective jurisdictions.

It is likely that other challenges to the new rule will follow.  In addition to the challenges by the states, the housing, construction, farming and oil industries are opposed to the implementation of this far reaching rule.

Hilton Head Timeshare Project Entangled In Consumer Litigation

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Lawsuits involve tales of fraudulent sales tactics

Hilton Head’s Island Packet newspaper continues to report on approximately sixty state and federal lawsuits pitting disgruntled consumer purchaser plaintiffs against The Coral Sands Resort timeshare project on Pope Avenue in Hilton Head. The cases have been weaving their way through the court systems for three years.

shutterstock_47620291The lawsuits involve tales of fraudulent tactics by timeshare salesmen, such as promises of extra weeks in related projects that never materialize, promises of waived maintenance fees that never materialize, a pattern of baiting-and-switching units, promises that the developer will purchase timeshare units owned by the consumers in other projects as a sort of trade in, and sales of weeks that are available only every other year or every third year as if they were available every year. In short, the purchasers claim they were misled by sales pitches, and the documents they received did not reflect what had been told.

Most recently, Dan Burley reported on July 1 that two out-of-state couples received full refunds through arbitration. These two decisions are the first rulings in the various cases.

According to the July 1 article, separate arbitrators voided the couples’ contracts and ordered refunds because the contracts were determined to have violated aspects of the South Carolina Timeshare Act.

But the relief the consumers had requested went far beyond the refund of several thousand dollars. One of the cases was arbitrated by Hilton Head lawyer Curtis Coltrane. His twelve-page Award was attached to the news report and discussed allegations of common law fraud, negligent misrepresentation, civil conspiracy and Unfair Trade Practices, among others. All of those claims were dismissed for lack of evidence.  The arbitrator stated that the plaintiffs were intelligent individuals who should have been able to ascertain the contents of the documents by reading them.shutterstock_55553422

The second suit was arbitrated by Florence lawyer Richard L. Hinson with a similar result. As in the first case, all claims were dismissed except for the causes of action for Violation of the South Carolina Timeshare Act, in Mr. Hinson’s two-page award.

Representatives of the project are quoted as saying that thousands of customers are pleased with their Coral Resorts experience, and that owners who suffer from buyers’ remorse can ask for a refund within five days of signing the contract.

Mr. Burley’s previous articles in The Island Packet provide additional detail. I recommend the previous …and future articles on this litigation for interesting reading!

Five Things Dirt Lawyers Need to Know Before August 1

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Prepare now for a smooth transition to the new CFPB regulations and forms

Our company has put together some general information about the CFPB regulations that become effective on August 1. I’m sharing a few tips with the letstalkdirtsc.com audience in an effort to assist with a smooth transition.

1 HandWhat transaction types are affected and exempt? The new rules and forms apply to most closed-end consumer credit transactions secured by real property. The following types of loans are affected:

  • Purchase money mortgages;
  • Refinances;
  • Mortgages on 25 acres or less;
  • Mortgages on vacant land;
  • Mortgages for construction purposes only; and
  • Mortgages on timeshares.

Consumer loans exempted from the new rules and forms are:

  • Reverse mortgages;
  • Home equity lines of credit (HELOCs);
  • Loans on chattel-dwelling/mobile homes only; and
  • Loans by creditors who originate less than five loans in a calendar year.

Creditors will be required to use a TILA disclosure and Good Faith Estimate (GFE), and closing attorneys will be required to use a 2010 HUD-1 Settlement Statement on the exempt loans.

Loans in progress (applications submitted prior to August 1, 2015) are not subject to the new rules or the new forms.

2 HandWhat are the new rules and forms? On November 20, 2013, the CFPB announced the completion of the new integrated mortgage disclosure forms along with their regulations (RESPA Regulation X and TILA Regulation Z) for the proper completion and timely delivery to the consumer.

The Loan Estimate – Currently, borrowers receive two forms from their lender at the beginning of the transaction: the GFE and initial TILA disclosure. For loan applications taken on or after August 1, the creditor will instead use a combined Loan Estimate form.

The Closing Disclosure – The HUD-1 Settlement Statement and the final TILA disclosure form have been combined into a single Closing Disclosure form. This new five-page form contains many loan terms and provisions in addition to the closing figures. Several earlier letstalkdirtsc.com blogs discussed which lenders that have announced they will prepare and deliver the Closing Disclosure. It appears that in all cases, closing attorneys will prepare the seller’s Closing Disclosure and a separate closing or disbursement statement to facilitate disbursement.

forms in out

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How will the timing of a closing be impacted by Closing Disclosure delivery? The new rule requires borrowers to have three business days after receipt of the Closing Disclosure for review. The three-day review starts on the receipt of the form by the borrower. Absent some positive confirmation of receipt such as hand delivery, the form is “deemed received” three days after the delivery process is started (i.e., mailing). As a result, the combination of the delivery time period and the review time period results in six business days from mailing to closing.

After delivery of the initial Closing Disclosure, the following changes would require a re-disclosure and a new waiting period:

  • Increase of the APR by more than 1/8%;
  • Change in the loan program, for example, fixed rate to ARM; and
  • Addition of a pre-payment penalty.

Closing Disclosure Delivery Timeline Chart4 Hand

 

How will the communication of title and closing figures be handled? Lenders will continue to need accurate estimates of title and closing figures. Preparation of the Closing Disclosure will require a collaborative effort between lenders, closing attorneys and other vendors and may require fees to be submitted as early as two weeks prior to closing. Several lenders have announced that they will use electronic portals to send and receive information, eliminating the use of mail, e-mail and faxes between lenders and closing attorneys.

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How are title charges reflected on the new forms? The list of charges involving title insurance and closing activities must be grouped together and preceded by the word “Title”.

The CFPB requires that the full premium, not the discounted simultaneous issue premium, must be disclosed for the loan policy. The owner’s policy premium will be shown as “optional” and will be the total cost of the owner’s policy discounted by the cost of the loan policy and adding the simultaneous issue premium. Confusing?  Yes!

The line numbers have been removed from the HUD-1 form, and there are now seven fee areas:

  • Origination charges;
  • Services borrower did not shop for;
  • Services borrower did shop for;
  • Taxes and other government fees;
  • Pre-paids;
  • Initial escrow payment at closing; and
  • Other

Charges within each of these major groupings are listed alphabetically. Columns are provided to separate charges of the buyer, the seller, and others, as well as columns for payments both before and at closing.

Software and title insurance companies are doing extensive training in the form of seminars, webinars and written communications. If you intend to be a residential dirt lawyer after August 1, get yourself and your staff trained!

Three Lenders Make CFPB Announcements

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Two additional lenders will deliver the borrower’s Closing Disclosure

extra extra kid- citi chaseCiti and Chase have joined Well Fargo and Bank of America by announcing that they will deliver borrowers’ Closing Disclosures after the CFPB rules take effect on August 1, 2015.

Citi’s announcement was made on January 28, 2015, followed by Chase’s announcement on February 26. Both lenders stated that closing attorneys will continue to be responsible for sellers’ Closing Disclosures in purchase transactions. Closing attorneys will be required to deliver copies of sellers’ Closing Disclosures to the respective lender.

Citi’s announcement shared some information with its settlement agents that has previously been made clear by the rule itself. That is, there will be several weeks or months after August 1 when the old forms will be used because it is the application date as of August 1 that triggers the use of the new forms, and early use of the Closing Disclosure is not allowed. Citi also pointed out that the new rules do not apply to home equity loans.

Closing attorneys should note that their software systems will have to accommodate old and new versions of the forms because of the transition and because all loans will not be subject to the new rules.bandwagon - one way (smaller)

Union Bank announced on February 26 that it will use the web-based tool Closing Insight™ to simplify the multi-party closing process and support efforts to ensure regulatory compliance. The announcement stated that no other means of communication or document delivery will be accepted.

We will continue to read and keep you informed!

Closing Attorneys and Paralegals: Want to toss and turn at night?

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Read about this costly law firm mistake.

(This case makes my stomach hurt because a developer client of mine once declared bankruptcy. Everything I had done for that client for the prior three years was scrutinized, and I spent some sleepless nights!)

On January 21, 2015, the Second Circuit Court of Appeals Pepto in Manhattan decided a direct appeal from a U.S. Bankruptcy Court involving a mistaken UCC-3 termination statement.* This case involves the General Motors bankruptcy.

The facts concern a 2008 payoff by GM to JP Morgan Chase of a $300 million synthetic lease. GM contacted its outside counsel to prepare the necessary documents. A partner assigned the work to an associate and instructed him to prepare a closing checklist and drafts of the necessary documents. The associate asked a paralegal who was unfamiliar with the transaction to perform a UCC search that search identified three UCC-1s. Two of the UCC-1s related to the subject loan. The third, however, was related to a term loan between the same parties. The law firm prepared UCC-3 terminations for all three financing statements.

No one at GM, its law firm, JP Morgan or its law firm noticed the error. When the loan was paid, all three
UCC-3s were filed.

The mistake was not noticed until GM filed bankruptcy in 2009.

In litigation with the unsecured creditors, JP Morgan argued that the third UCC-3 was unauthorized and ineffective because it intended to terminate only the liens that related to the synthetic lease. The Bankruptcy Court agreed on the grounds that no one at JP Morgan or its law firm intended to terminate the third UCC-1.

The Second Circuit certified a question to the Delawarecourt money 4 Supreme Court, asking, basically, whether a termination is effective when a lender reviews and knowingly approves a termination statement for filing or whether the lender must intend to terminate the particular security interest. The Delaware Court replied that intent is not necessary, stating, “If parties could be relieved from the legal consequences of their mistaken filings, they would have little incentive to ensure the accuracy of the information contained in their UCC filings.”

The Second Circuit agreed, indicating JP Morgan authorized the termination even though it never intended to.

Lawyers and paralegals: be careful, be careful, be careful! And now try to get a good night’s sleep!

* Official Committee of Unsecured Creditors of Motors Liquidation Company v. JP Morgan Chase Bank, N.A.,U.S. Court of Appeals for the Second Circuit,  Docket No. 13-2187, January 21, 2015.

Need to Foreclose a Mortgage Securing an eNote?

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Indiana case may provide guidance

South Carolina has no reported opinions concerning mortgage foreclosures involving eNotes, and little authority exists elsewhere on what a holder must prove to successfully foreclose a mortgage secured by an electronic note in a judicial state. Until we see opinions closer to home, an Indiana case may provide the best guidance. Solid evidence of control of the note seems to be the key factor, according to this case.

In Good v. Wells Fargo Bank, 18 N.E.3d 618court money 4 (Ind. App. 2014), Wells Fargo acted as servicer for Fannie Mae, the owner of an eNote that was registered with MERS. The original lender had been Synergy Mortgage Group, Inc.  MERS, as nominee for Synergy, had assigned the mortgage to Wells Fargo.

An officer of Wells Fargo executed an affidavit in support of summary  judgment stating that Wells was the servicer, that it maintained a copy of the note, that its systems provided controls to assure that each note was maintained accurately and protected against alteration, and that the paper copy of the note attached to the affidavit was a true and correct copy.

The affidavit was bolstered by testimony at the bench trial that Wells Fargo controlled the note and was entitled to enforce it as the holder pursuant to 15 U.S.C §7021 (a section of the eSign legislation).  Wells’ underlying position appeared to be that the normal requirements of the UCC-3 governing negotiable instruments (delivery, possession and an endorsement), were not required in the case of an electronic note.

15 U.S.C. §7021 creates the concept of a note as a “transferable record”, a single authoritative copy, which is unique, identifiable, and unalterable. The legislation establishes that the holder must have control of the note in the sense that the system for tracking it must reliably establish that the person seeking to enforce it is the person to whom the record was transferred. Also, the authoritative copy of the record itself must indicate the identity of the most recent transferee.

The Indiana appellate court found Wells’ affidavit insufficient to support a grant of summary judgment on the issue of Wells’ holder status and its evidence on the matter at trial “conclusory”. 

The court said it was unclear from the affidavit whether Wells was claiming to have possession of an endorsed paper copy or the electronic note itself. The affidavit was also found lacking because it did not assert that Wells had control of the record (the eNote), either by maintaining the single authoritative copy in its own system, or by being identified as having control of the single authoritative copy in the MERS system.

The court indicated the eSign statutes require the party enforcing the note to provide reasonable proof of its control of the note through detailed evidence, not merely “conclusory statement”. The court specifically pointed to the lack of evidence in the Wells’ affidavit as it related to a transfer or assignment to Wells Fargo or Fannie Mae of the note from the original lender.

We are likely to see similar cases from other jurisdictions, including South Carolina, with the increasing use of eNotes. Stay tuned!stay tuned