Title Insurance

Texas Attorney General investigating Home Title Lock

Standard

Several years ago, a prominent Myrtle Beach real estate lawyer called me to suggest that our (title insurance) company should develop a product like Home Title Lock. That company advertises that it alerts homeowners if fraudulent or forged deeds are recorded in their chains of title. I contacted corporate leaders to explore this idea, and it was quickly decided that the product was virtually meaningless.

Last week, another prominent Myrtle Beach-area lawyer emailed me with news that the Attorney General for Texas is investigating the company. Here the South Carolina dirt lawyer’s direct quote, “After the number of older clients I have had who come into a transaction confused and scared by the talking heads on conservative media who have been schilling for this company, I am glad to see law enforcement taking an interest.”

Ken Paxton, the Attorney General, apparently agrees. He issued a press release on January 24, stating, “I won’t tolerate false, misleading, or deceptive advertisements targeted to any Texas consumers—especially Texas seniors. If Home Title Lock is misrepresenting its services or the need for its services I will put a stop to its unlawful behavior.”

The AG announced an investigation of this company for potentially violating the Texas Deceptive Trade Practices Act by misleading consumers with deceptive statements concerning the prevalence of home title theft and the need for this company’s services.

The press release states that Home Title Lock is a California-based entity that claims to provide 24/7 monitoring of a consumer’s home title. (How could that even be done?) The press release states that the company has received scrutiny in recent months over questionable advertisements, including its claim that the FBI calls home title theft “one of the fastest growing white-collar cyber-crimes in America.” Apparently, Home Title Lock admits that it markets to “older customers.”                      

The Texas AG’s office issued a Civil Investigative Demand on December 15 ordering the company to make documents available substantiating the following, among other matters:

  • Any home title theft resolution services;
  • Representative samples of customer contracts;
  • The claim that the Company monitors the title of consumers 24/7;
  • The claim that the Company provides nationwide monitoring;
  • The claim that like other white-collar crimes, title fraud remains under reported with losses totaling more than $5 million in 2015;”
  • The claim that a victim is responsible for payments incurred due to a fraudulent home equity loan. (“Now thieves take out massive loans using your home’s equity-leaving you with the payments and mountains of legal bills;”) and
  • The claim that the company offers “complete protection – including up to $250,000 in legal fees and expense coverage.”

I’m so glad to see this investigation is starting, and I hope other states follow.

Fannie Mae will accept attorney opinion letters in lieu of title insurance

Standard

Fannie Mae’s updated Selling Guide now allows attorney opinion letters in lieu of title insurance in some circumstances. This change aligns Fannie Mae with Freddie Mac’s similar announcement. Will the marketplace change dramatically because of these policy announcements. I hope not and I doubt it.

Fannie Mae touts its change as a method to reduce costs for borrowers. I don’t believe South Carolina lawyers will issue title opinions for residential loans that will be less expensive than title insurance. I know I wouldn’t.

The guidance indicates opinion letters will not be accepted where the loan is secured by a condominium, a leasehold estate, or a manufactured home.

According to the guidance, the attorney’s title opinion letter must:

  • be addressed to the lender and all successors in interest of the lender
  • be commonly accepted in the area where the subject property is located
  • provide gap coverage for the duration between the loan closing and recordation of the mortgage
  • list all other liens and state they are subordinate
  • state the title condition of the property is acceptable and the mortgage constitutes a lien of the required priority on a fee simple estate in the property

Do you see any problems with this list? I’ve never issued an opinion letter that provided gap coverage and I don’t recommend that you accept that risk in your transactions. What happens if you update title and discover a mechanic’s lien recorded in the gap? That lien would become your problem as the attorney who agreed to cover the gap as of the date of the opinion letter or the closing date.

Before the general use of title insurance, attorney’s routinely issued opinion letters to lenders and buyers. But title insurance has historically been determined to be the better choice.  Attorneys should not be responsible for title problems that cannot be discovered through a title examination.  A forgery in the chain of title, for example, would be covered by title insurance but should not be covered by an attorney’s opinion. The same may be true for missing heirs, matters that may be apparent from a visit to the property and survey matters.

But it concerns me that lenders who accept attorney’s opinions may perceive those items (and others) to be covered. To ensure your opinion letters are not perceived to cover matters outside the title examination, proper “exceptions” should be added to your letters. To protect you, your law firm and your malpractice carrier, your letters should contain many paragraphs of exceptions!

My best advice is to resist this proposed change in the marketplace. I believe title insurance provides the best coverage for owners and lenders, and it indirectly provides protection for closing attorneys. We can be encouraged that Freddie Mac’s similar announcement two years ago has not greatly impacted our industry. Let’s hope Fannie Mae’s announcement will have a similar reaction.

How do you advise clients on issues of insurable title vs. marketable title?

Standard

An age-old question for dirt lawyers: how do you explain the state of title to your client where you have discovered a title defect but you were able to obtain affirmative coverage over that defect from your favorite title insurance company?

I spent over two thirds of my legal career working for a title insurance company. A title insurance underwriter’s job involves, for the most part, fielding title questions from practicing lawyers. Questions go something like this: “Two links back in the chain of title, there is a deed from an attorney-in-fact to herself for no consideration. Is that a problem?”  What the caller really means is: “I found a title defect in the chain of title and want to know whether you will insure over it.”

The underwriter will answer “yes” or “no” and discuss whether the title defect is a real concern or merely a technical defect that will not cause future problems. Often the discussion will include suggestions of how to “fix” the problem if it can be remedied. And often the discussion will lead to how to insure the title. At the end of the discussion, the two lawyers will have determined whether the title is insurable.

The question of whether a title is marketable is an entirely different matter.  My unofficial definition of marketable title is title that is reasonably free from doubt and acceptable by a prudent purchaser or lender and their attorneys. That definition includes a great deal of reasonableness which means that the standard is open to discussion. I often picture the county’s best dirt lawyer and decide whether that person would close on the title without calling a title insurance company.

Most real estate contracts provide that the seller will deliver marketable title. When the standard is marketable title, the arbiter is the prudent purchaser or lender, their lawyers and, ultimately, the courts. Some contracts call for insurable title, a standard that is determined by title insurance company underwriters.

Let’s look at some examples. Take the case of the power of attorney question above. Case law in South Carolina and elsewhere (and common sense) all lead to the conclusion that this title is probably not marketable. Depending on the passage of time and the estate file for the principal, a title insurance underwriter may agree to insure over the defect.

What if you discover a tax deed in your chain of title? Depending on the age of the tax deed and ownership of the property since that deed, an underwriter may insure the title, but this title is most likely not marketable.

What if your title reveals a deed that recites, “we are all the heirs”, but there is no estate confirming the identity of the heirs? That title is probably not marketable but may be insurable, depending on the facts.

Assuming your underwriter can be convinced to insure these titles, how do you advise your client?

I suggest obtaining informed consent confirmed in writing is the only answer that will protect you and your client.

In a real-life example from private practice days, a doctor client purchased a large house in the Hollywood area of Columbia for his newly blended family. The current survey revealed a very tiny (inches!) violation of a side setback line and a reverter in the chain of title. Technically, the property had reverted to the developer when the house was built in the 1950’s.

Because the violation was so small, I was able to talk my friendly and brilliant underwriting counsel into insuring over it. But because the defect was so technically, if not practically, devastating, I wrote a letter to the client, advising him of the problem, telling him to refrain from adding onto the house which would have made the violation larger and more difficult, and suggesting that any sale of the house should involve a contract drafted by me to provide for insurable, not marketable, title.  I added a paragraph at the bottom to the effect that he understood the conundrum and agreed to purchase the house despite the defect. He dutifully signed the letter.

Did he listen to me? Of course not!

How do I remember this tale so well decades later?

The next time I heard from the doctor and his title was in the context of one of those phone calls a dirt lawyer never wants to receive. A lawyer friend called the day before closing of the sale of the property asking how I managed to close in the fact of the huge (yards, not inches) setback violation with a reverter clause in the restrictive covenants. The doctor had added onto the house and had subsequently signed a standard residential contract requiring marketable title. In the minutes between the phone call and retrieving the file, I lost ten years off my life. But thankfully, the file revealed my CYA letter. 

How was the situation resolved? My law firm brought a quiet title action for the client on his dime. The developer corporation was defunct with no apparent survivors. The court quieted the title, and I lived to practice law another day.

Here is my point. Never fail to explain title defects to your client even if you are smart enough to obtain affirmative coverage. And always obtain informed consent confirmed in writing.

Florida condo collapse class action lawsuit reaches settlement

Standard

This blog has previously discussed the June 24, 2021 collapse of the 136-unit Champlain Towers South condominium project in Surfside, Florida and Fannie Mae’s response by issuing Lender Letter (LL-2021-14) which directs lenders to gather information from owners’ associations about potential unsafe conditions.

As we near the anniversary of the disaster, a $997 million settlement has been reached for the wrongful death victims and survivors. The settlement was announced in the Miami-Dade Circuit Courtroom of Judge Michael Hanzman on May 11. The settlement includes insurance companies, developers of the project next door, engineers, architects, a law firm, and the owners’ association. 

The building has now been demolished, and the settlement does not include the potential sale of the underlying real estate, which will be auctioned later this month. The opening bid is $120 million. A prior settlement of $83 million was reached for economic losses.

Judge Hanzman will oversee the division of the settlement funds among the victims. He has announced that he would like to have the process completed by September.

South Carolina has many aging condominium projects, particularly along our coast. And we have an earthquake fault line to consider. Do our local homeowners’ association boards face expensive repair and reserve dangers like those in Florida? Should condominium purchasers consider the financial impact of possible major assessments to address delayed repairs? Should legislation be proposed to address these issues?

I’ve previously recommended Episode 8 of the podcast “Collapse: Disaster in Surfside” produced by Treefort Media and the Miami Herald for an excellent discussion of the legal and financial issues surrounding aging condominium projects.

Once these huge projects are completed, there is no legislative requirement for future inspections. The county in Florida where Champlain Towers South was located has a requirement to inspect tower projects after forty years. Forty years is a long time! Champlain Towers’ forty-year inspection had found the potential problems, but there were no “teeth” requiring the repairs to be made. The property owners of Champlain Towers were aware of the need for expensive repairs, but they continued to kick the can down the road to avoid the expense.

After the collapse, Florida’s legislature considered an act which would have required reserves and inspections, but the legislative effort failed because of the fear of chilling South Florida’s development frenzy. My guess is that South Carolina would face a similar roadblock.

Some condominium projects have served as affordable housing in certain geographic locations and as affordable second homes and rentals in resort areas. The podcast suggests that tacking on the annual cost of reasonable reserves may threaten this affordability. Think about elderly individuals who live in their dream coastal condominiums. Taken to a logical conclusion, these projects, properly run, may become available only to the wealthiest among us.

Residential sellers must disclose sea level rise risk in Hawaii

Standard

Like South Carolina, Hawaii has a mandatory seller disclosure form that must be completed by sellers of residential properties. Unlike South Carolina, Hawaii updated its legislation in 2021 to become the first state to require the disclosure of the risk of sea level rise to the property based on the 3.2-feet Sea Level Rise Exposure Area. The legislation went into effect on May 1 of this year.

Hawaii has developed a sea level rise viewer which you can check out here. To identify a property location relative to a sea level rise exposure, the street address or tax map key of the property must be entered into the viewer. The viewer is intended to provide map data depicting projections for future hazard exposure and assessing economic and other vulnerabilities resulting from rising sea levels.

The viewer was developed by the Pacific Islands Ocean Observing System (PacIOOS) at the University of Hawaii School of Ocean and Earth Science and Technology. Mapping is based on an upper-end projection of 3.2 feet of sea level rise by the year 2100.

Like the existing flood zone disclosure requirement, the sea level risk disclosure is intended to help home buyers better understand how the sea level risk will impact their properties. The disclosure requirement applies to oceanfront and near-oceanfront properties as well as properties near streams and other areas likely to flood in times of heavy rainfall.

Will we see similar legislation in South Carolina and other coastal states? My guess is that we probably will.

Should closing attorneys issue opinion letters instead of title insurance?

Standard

Fannie Mae just announced it will accept attorney’s opinion letters in lieu of title insurance policies to reduce closing costs. Is this good news for closing attorneys and their clients? Let’s discuss that issue.

When I was an associate in a law firm in the 1980’s, I was taught by the very smart lawyers who owned the firm that title insurance should be less expensive than attorneys’ opinion letters.  In other words, title insurance would protect everyone, the lender, the buyer, the seller, and even the closing attorney at a relatively nominal cost. The price of an attorney’s opinion (my opinion) would have to be commiserate with the liability directly assumed by the law firm through that letter. The very clear lesson was that I should issue title insurance, not opinion letters. And when a title opinion was demanded, I should charge a hefty fee for it.

I’ve taught law students and others that title insurance is the best choice for several reasons. First, attorneys are only responsible for their negligence, not hidden defects and mistakes in the public records. For example, I heard about a deed recorded in Greenville County where one person forged the signatures of eight individuals, including the witnesses and notary. Forgery is rarely evident on the face of the forged document. An attorney’s opinion of title would not cover that defect. Title insurance would. An attorney’s opinion would not cover a deed, mortgage, or set of restrictive covenants missed in a title examination because of mistaken indexing by a county employee. Title insurance would.

Second, attorneys die, move, are underinsured, allow their malpractice to expire and otherwise become unavailable when a title problem arises. Finally, statutes of limitations may come into play. Title insurance does not expire as long as the lender or owner has an interest in the property, including an interest arising from deed warranties. Title insurance shifts the risk of title defects from the property owner and lender, and, in a manner of speaking, from the closing attorney to a financially sound insurer.

Fannie Mae’s announcement said that acceptable opinion letters must come from properly licensed attorneys with malpractice insurance in an amount “commonly prevailing in the jurisdiction.” The letters must provide gap coverage. Every South Carolina title opinion I’ve seen takes a clear exception to matters arising after the date of the opinion. Fannie Mae will also require the letters to “state the title condition of the property is acceptable.” I’m not sure what that statement means, but I don’t believe I would give that unqualified opinion.

This news from Fannie May could be what politicians are calling a “nothing burger”. Freddie Mac issued a similar announcement two years ago, but that announcement has not had a major impact on the way lawyers and title insurers do business.

Let’s wait and see what happens. But, in the meantime, I don’t advise my friends who close real estate transactions to start issuing title opinions instead of title insurance.

Thoughts of a traveling dirt lawyer in the days of COVID

Standard

I am a planner. In November of 2019 I told my boss I planned to retire in February of 2021, giving us plenty of time to name and train my replacement. Thank goodness, Jennifer Rubin stepped up to learn more than I ever knew about my job. My husband, Frank, had already retired, and we had plans to travel.

But none of us planned for COVID!

Jennifer, the rest of our office and I all worked from home beginning March of 2020. We did manage to put everything in place for my retirement, and Jennifer has taken over like a champ…seamlessly.

After two COVID vaccines, Frank and I decided to put our toes timidly into the travel waters. Six adults flew with masks to Denver and toured Colorado for ten days. We drove over 1,700 miles and saw six National Parks, the Air Force Academy, and many other beautiful sites. (We crossed over to Utah on a whim to visit beautiful Arches National Park.)

 Except for the challenges of breathing at heights up to 14,000 feet above sea level, Colorado is a delightful state! Having grown up in Georgetown, South Carolina, and Panama City, Florida, my lungs are accustomed to breathing at sea level. And compared to Columbia, the temperatures in September were wonderfully cool!

A dirt lawyer can’t travel without having lots of real estate thoughts and raising lots of real estate questions.

Here are just a few from Colorado:  How was all that land accumulated for those National Parks? Were condemnations required? Who was displaced? What kinds of contracts are in place for care and maintenance of the parks?  How does the Federal Government share and manage the Academy’s real estate with the City of Colorado Springs and the State of Colorado? Is the Academy’s real estate treated like the real estate of our Fort Jackson? (I once handled the legal work for the creation of a subdivision from surplus Fort Jackson land, so I learned a good bit about the technicalities.) Where do those people who live in the middle of nowhere buy groceries and deliver babies?  How is that mountainous property surveyed?

I can do the research, but maybe some lawyers who are much smarter than I am will point me in a direction.

Of the six vaccinated, mask wearing adults, three came home and tested positive for COVID! Thankfully, the cases were minor, and everyone is fine by now.

After booster shots, Frank and I decided to travel again. This time, we struck out on our own and drove about 1,400 miles from Columbia to Asheville, Nashville, Memphis, Selma and back to Columbia. What a great trip!

We spent one night at an upscale, relatively new hotel in Asheville, and I was struck with how cramped it seemed, surrounded by busy Asheville streets. I, of course, thought about the developer’s thought process in accumulating the real estate and placing the hotel in that location.

Don’t judge, but it was Halloween week, so we took the “Spooky Asheville Walking Tour”. We didn’t see any ghosts, but I was struck with the stories of covering up cemeteries to create streets. I’m not sure I bought that story from a real estate standpoint. I’ve been involved in many claims involving missed cemeteries!

In fact, I couldn’t decide whether the tour guide was completely making up the stories or whether some of them were based in historical fact. Apparently, a lieutenant of Al Capone was pushed out of Asheville’s Flat Iron Building, and a United Methodist Church is haunted by a nun who predicts futures. I may need to check some of this out. Call me skeptical.

At Graceland, we saw Elvis’ Trust Deed with the notation, “A Title Policy is a Vital Policy.” I couldn’t agree more, and I’m attaching a picture for your enjoyment.

At the Peabody Hotel in Memphis, we watched the ducks leave their fountain in the hotel lobby to return to their “penthouse apartment” for the evening. We watched this show twice and dubbed it the best show in town. (The “rubber ducky” drinks I was imbibing may have added to the attraction.)

At the historic Edmund Pettus Bridge in Selma, we saw a “Witness Post” advising that we shouldn’t remove a survey market. What dirt lawyer could resist taking a picture of that? It is also attached for your enjoyment.

Thanks for indulging my real estate meandering thoughts and questions. Our next trip will be with children and grandchildren to Disney World for Thanksgiving week. Be prepared!

Is “title theft” a thing?

Standard

Can and should a consumer buy protection against title theft?

Several years ago, a real estate lawyer asked whether title insurance companies should offer protection against “title theft”…the protection touted by the companies who routinely advertise their services on the radio. This question prompted us to research the services of those companies and analyze whether title insurance companies should offer the same service.

The advertisers who bombard the airwaves with warnings about title theft say thieves can steal homes by forging the names of homeowners on deeds, then reselling or mortgaging the property to hijack the equity. The thieves would purportedly pocket the proceeds, leaving the homeowner without title or with new mortgage payments. The companies promise to monitor title to protect against such devastating losses.

My understanding of the product being offered at that time was that the company would regularly check the land records to see whether the homeowner’s name appeared on any deed or mortgage. The homeowner would be notified of any “hits”. If the homeowner responded to the notification that the instrument in question was, in fact, a forgery, then the company would prepare and file in the land records a document to alert future buyers and lenders of the forgery. I was told that the product did not include attorneys’ fees for clearing titles.

But is “title theft” a thing? Does a forged deed convey real estate? No! Does a forged mortgage require the true owner of the real estate to make payments? No! But can a forger wreak havoc for a property owner? Yes, indeed!

I’ll never forget the name, Matthew Cox or the telephone call that tipped us off that we had a serious mortgage fraud situation here in Columbia. Long before the housing bubble popped beginning in late 2007, an attorney called to let us know what was going on that day in the Richland County ROD office. Representatives of several closing offices were recording mortgages describing the same two residential properties in Blythewood, as if the properties had been refinanced multiple times in the same day by different closing offices.

At first, we thought our company and our attorney agent were in the clear because our mortgage got to record first. South Carolina is a race notice state and getting to record first matters. Later, we learned that deeds to the so-called borrower were forged, so there was no safety for anyone involved in this seedy scenario. Thousands of dollars were lost.

Next, we learned about the two fraudsters who had moved to Columbia from Florida through Atlanta to work their mischief here. The two names were Matthew Cox and Rebecca Hauck. We heard that Cox had been in the mortgage lending business in Florida, where he got into trouble for faking loan documents. He had the guts to write a novel about his antics when he lost his brokerage license and needed funds, but the novel was never published. With funds running low, Cox and his girlfriend, Hauck, moved to Atlanta and then Columbia to continue their mortgage fraud efforts.

We didn’t hear more from the pair until several years later, when we heard they had thankfully been arrested and sent to federal prison.

The crimes perpetuated by Cox and Hauck were made easier by the housing bubble itself. Housing values were inflated and appraisals were hard to nail down. And closings were occurring at a lightening pace. The title companies who had issued commitments and closing protection letters for the lenders were definitely “on the hook”. And the important thing about title insurance is that coverage includes attorneys’ fees for defending titles. I don’t believe the property owners in this case had any coverage but clearing the mortgage issues eventually cleared their title problems.

Would the title theft products have been valuable to the homeowners in this situation? The companies may have notified the owners of the forged deeds and may have filed some kind of notice of the forgery in the land records, but that is all they would have done. Nothing would have prevented the forged mortgages. I am now informed that, under some circumstances, attorneys’ fees to clear title may be included with the title theft products, so perhaps today, the owners would have some protection with a title theft product. These products require “subscriptions” and periodic payments.

A far better alternative is the coverage provided by the ALTA Homeowners Policy of Title Insurance which requires a one-time payment at closing. This is the policy we commonly call “enhanced” coverage. The cost of this policy is twenty percent higher than the traditional owner’s policy, but it includes protection for several events that may occur post-closing. Forgery is one of those events. And, again, title insurance coverage includes attorneys’ fees.

Dirt lawyers who are asked about the title theft products should advise their clients that they can check the land records, most of which are online, to discover whether anyone has “stolen” their titles. And, better yet, they can buy title insurance coverage for peace of mind.

Protracted litigation leads to noteworthy federal title insurance case

Standard

Early in my legal career, I searched a title prior to contentious litigation surrounding a commercial tract in Horry County. I was eight months pregnant with my son at the time. Title examiners as old as I am will remember we used to pull huge books down from high shelves to search titles in South Carolina. I remember this project so well not because of the difficult work in my puffy condition, but because of the time it took to resolve the litigation. When we finally received the final order, my son was in the second grade.

That timing may not hold a candle to the case decided last year in The United States District Court for South Carolina surrounding a tract in Dorchester County. Dudek v. Commonwealth Land Title Insurance Company* is the culmination (I hope) of what the court calls a “long- standing and enduring legal battle” over an eight-acre tract that was divided into two parcels of six and two acres, respectively.

Summarizing the almost undisputed facts as briefly as possible, plaintiffs Stephen Dudek and Doreen Cross entered into a contract to purchase the six-acre tract in 2012. A third party, Molly Morphew, entered into a back-up contract with the sellers to purchase the property in the event the plaintiffs’ purchase fell through. Both parties ultimately sued the seller for specific performance, and the plaintiffs in this case prevailed.

Dudek and Cross purchased the property in 2017 and obtained a title insurance policy from Commonwealth. The litigation with Morphew continued with two subsequent suits, the first alleging fraud and abuse of process in the purchase, and the second seeking to enforce a contract provision setting up a water and sewer easement in favor of the two-acre tract, which by this time had been purchased by Morphew. Dudek and Cross filed a title insurance claim on the easement issue, and Commonwealth denied the claim relying on an exception for easements and the exclusion for risks created by or known to the insured prior the policy date.

I’m eliminating a lot of facts and procedural nuances that title insurance nerds like me will find fascinating, so pull the case for the long story.

The Court held Commonwealth had no duty to defend the insured property owners, relying on the fact that they knew about the easement before they closed. Simple enough, right?

The more convoluted and interesting discussion revolves around the treatment of the policy of the easement issue.  The covered risk in question in the policy was that “someone has an easement on the Land”. The policy contained two exceptions, however, one for unrecorded easements and one for recorded easements. The court stated that the policy simultaneously extended and eliminated coverage for easements, rendering the policy provision meaningless and illusory.

Title insurance agents routinely add specific exceptions to title insurance policies to limit coverage. This case cautions against adding exceptions that operate to prevent all coverage from a covered risk. We will all need to be careful about this holding as time progresses.

*466 F. Supp. 3d 610 (D.S.C. 2020)

NC title agent fakes title insurance policies and gets fourteen month sentence

Standard

insurance fraud binder scales

A North Carolina title agent was sentenced this month for selling fake title insurance policies. Ginger Lynn Cunningham owned Blue Ridge Title Company, a title insurance agency located in Buncombe County, North Carolina.

The title insurance company that had done business with Cunningham had canceled the agency in March of 2016, but Cunningham continued through October of 2017 to represent herself as being a title insurance agent. During this time, she purportedly sold falsified title insurance policies, retaining 100% of the premium.

The court records reflect that at least 973 counterfeit title insurance policies were sold to the tune of around $400,000 in bogus premiums. Cunningham pleaded guilty to wire fraud on October 28, 2019.

Cunningham was sentenced to fourteen months in prison and three years of court supervision. She was also ordered to pay restitution.

I would love to say this is a novel case and that these facts don’t make my skin crawl, but former attorney, Brian Davis, was disbarred in South Carolina in 2015 for the same activity.*

By way of background, the vast majority of real estate lawyers in South Carolina are also licensed as title insurance company agents.  In other parts of the country, lenders receive title insurance documents directly from title companies’ direct operations.  In South Carolina, title companies run agency operations, supporting their networks of agents, almost all of whom are South Carolina licensed attorneys.

Lenders require closing protection letters for closings involving agents.  Stated simply, these letters inform lenders that the insurer may be responsible in the event a closing is handled improperly by the closing attorney.

Title insurance company agents also produce title insurance policies and commitments, following the guidelines of their insurance underwriters, and using software programs designed to support the production of these documents.

Some closing attorneys are not agents but instead act as approved attorneys for title insurance companies. Approved attorneys can obtain closing protection letters from their title companies, but they are not able to issue their own title insurance documents. Instead, they certify title to a title insurance company or to a title company’s agent.

If an attorney cannot provide lenders with closing protection letters, that attorney generally cannot close mortgage loans in South Carolina.

In 2007, Mr. Davis was canceled as an agent by his title insurance company**.  After that cancellation, he was able to legitimately obtain title insurance commitments and policies through an agent. In 2011, however, Mr. Davis was canceled as an approved attorney.  He didn’t let that fact stop him though. He began to fraudulently produce title insurance documents, making it appear that the title insurance company was issuing closing protection letters, commitments and policies for his closings.  He also collected funds designated as title insurance premiums, but he never paid those premiums to the title insurance company.  He continued to handle closings using fraudulent title insurance documents until his actions were discovered and he was suspended from the practice of law by the South Carolina Supreme Court in 2013. In 2015, Mr. Davis was disbarred.

I supposed I should close by saying don’t do this!  Please!

 

* In the Matter of Davis, S.C. Supreme Court Opinion 27480 (January 21, 2015)

** In the interest of full disclosure, I work for that company.