Do you know the name Dean Gerard Winters? He’s the actor who plays the character “Mayhem” in Allstate commercials. The character acts out cringe-worthy scenes involving car accidents, fires, falls and other calamities and advises us to buy insurance to protect against “Mayhem like me”.
I’ll never forget the name of a character who created mayhem in the midlands title world several years ago. That name is Matthew Cox.
A telephone call tipped us off that we had a serious mortgage fraud situation in Columbia. 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.
How do you protect against Mayhem like Matthew Cox? Beaufort County has found a way. My friend and excellent dirt lawyer, Sarah Robertson, who practices with Burr Forman in Bluffton recently sent out an article to her clients advising that Beaufort County has set up a program to allow property owners to register at no charge to receive alerts from the ROD regarding possible fraudulent activity involving their properties. Sarah’s article indicates some other counties are beginning to offer this service.
This is a great service for clients that could be championed by real estate lawyers in other locations to protect against Mayhem like Matthew Cox!
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.
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?
My husband and I have considered downsizing to a condominium in Columbia, but after spending some time with this repair and reserve issue, I would have to spend extensive time with the financials of any project that might interest us. And the high-rise projects at the coast face more difficult repair issues than those in the midlands because of salt, sand, water, and wind.
I’d like to recommend a podcast episode to lawyers who may be interested in this topic. And I believe all dirt lawyers who represent owners’ associations and even condominium purchasers should be aware of the legal and financial concerns that were clearly brought to the surface by this tragedy.
The podcast is entitled “Collapse: Disaster in Surfside” produced by Treefort Media and the Miami Herald. The podcast series discusses the collapse, the personal experiences of escape and failure to escape, the media coverage, the legal maneuvers, the insurance issues, and many other matters. The heart wrenching conflict between the victims who lost family members and those who lost their homes was difficult to absorb. I won’t ask you to listen to all of that.
But Episode 8 summarizes the legal and financial issues, and I highly recommend that episode.
Our horizontal property regime legislation is deficient at best. Reserves for repairs are discussed in our HPR legislation but not required.
Once these huge, often high-rise projects are completed, there is no legislative future inspection requirement. The county in South Florida where Champlain Towers 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 extensive 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 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 condominium. Taken to a logical conclusion, these projects, properly run, may become available only to the wealthiest among us.
Church schisms are tough in many ways, and the real estate issues are no exception. This week, the South Carolina Supreme Court filed an opinion* that it says finally resolves the real estate issues. In other words, the Court has decided who owns the real estate of the churches in dispute.
The dispute began in 2010 when the Lower Diocese of South Carolina, after doctrinal disputes, dissociated from the National Episcopal Church. The parties have been involved in extensive litigation in state and federal courts for the twelve years that have followed the dissociation. I am glad that I don’t have to figure out the doctrinal issues. The real estate issues are thorny enough.
My best advice to practicing real estate lawyers: when you are asked to close any transaction involving Episcopal church property, call your intelligent and friendly title insurance underwriter. In fact, call your underwriter when you deal with any church real estate transaction. They will stay current on the real estate issues involving churches.
The Court based its decision on which of the parishes adopted the national church’s “Dennis Cannon”. This church law provides that all real and personal property owned by a parish is held in trust for the national church. The actions taken by each church with regard to the Dennis Cannon were examined.
Without belaboring the analysis, the following parishes will maintain their properties:
Trinity Episcopal Church, Pinopolis
The Protestant Episcopal Church of the Parish of Saint Philip, Charleston
The Protestant Episcopal Church of the Parish of Saint Michael, Charleston
Church of the Cross, Inc., Bluffton
The Church of the Epiphany, Eutawville
The Vestry and Church Warden of the Episcopal Church of the Parish of St. Helena, Beaufort
Christ St. Paul’s Episcopal Church, Conway
The Church of the Resurrection, Surfside
The Church of St. Luke and St. Paul, Radcliffeboro
The Vestry and Church Wardens of St. Paul’s Church, Summerville
Trinity Episcopal Church, Edisto Island
St. Paul’s Episcopal Church of Bennettsville, Inc.
All Saints Protestant Episcopal Church, Inc., Florence
The Church of Our Savior of the Diocese of South Carolina, John’s Island
The Church of the Redeemer, Orangeburg
The properties of the following parishes are held in trust for the National Church:
The Church of the Good Shepherd, Charleston
The Church of the Holy Comforter, Sumter
St. Bartholomew’s Episcopal Church, Hartsville
The Vestry and Church Wardens of the Episcopal Church of the Parish of St John’s, John’s Island
The Vestry and Church Wardens of St. Jude’s Church of Walterboro
Saint Luke’s Church, Hilton Head
St. David’s Church, Cheraw
The Vestry and Church Wardens of the Parish of St. Matthew (St. Matthews, Fort Motte)
The Vestries and Church Wardens of the Parish of St. Andrew (Old St. Andrew’s, Charleston)
The Church of the Holy Cross, Stateburg
Trinity Church of Myrtle Beach
Holy Trinity Episcopal Church, Charleston
Vestry and Church Wardens of the Episcopal Church of the Parish of Christ Church, Mount Pleasant
St. James’ Church, James Island
I feel for all the parties involved. I am a United Methodist, and our international church authorities have been examining similar issues in recent years. We may see more church schism opinions in South Carolina and elsewhere. Stay in touch with your friendly title insurance company underwriter!
*The Protestant Episcopal Church in the Diocese of South Carolina v. The Episcopal Church, South Carolina Supreme Court Opinion 28095 (April 20, 2022).
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.
Real estate has always been a significant investment option but shelling out the required funds may be cost prohibitive for all but the most affluent among us. Jeff Bezos and his partners may have solved this problem.
Check out the real estate investment platform Arrived Homes. Go to the site and listen to the quick explanation entitled “What is Arrive in 1 min”. Very simply, an investor can buy “shares” of rental properties and collect the rental income attributable to those shares. If the economy holds out and real estate continues to appreciate, the properties (and the shares) will increase in value over time. The company intends to hold the properties for five to seven years before selling them and distributing the equity to the investors.
The business finds, buys and manages residential rental properties and offers shares of the properties to investors. Potential investors can browse and choose among available properties. Management includes locating tenants, maintenance, repairs, improvements as well as handling accounting and taxes. A quick review reflects several properties in South Carolina.
An interesting Arrived approach is to encourage the tenants of the rental properties to become investors in the properties they occupy. The idea is to encourage the tenants to treat the properties as if they own them….because they do! The longer the lease the tenant signs, the larger the equity incentive.
Rental income is paid quarterly in the form of dividends. Investors can review their returns and potential appreciation in the user dashboard.
How does the company make its money? It charges two fees, a sourcing fee and an assets under management fee. The sourcing fee is paid up front and the assets under management fee is charged at 1% per year. Both fees as listed on each property’s “page”. Costs are deducted from the rental income.
The site launched a little over a year ago and has experienced significant growth. One report indicates properties have been purchased valued at close to $40 million already. New properties are listed every couple of weeks, and many sell out quickly.
The intent it to make investing in real estate as easy as investing in stocks with a minimum investment of only $100. It’s an interesting concept!
It goes without saying that one of the most important partnerships for a real estate lawyer is a great title insurance company. I am biased, but in my opinion, there is no better title insurance company doing business in South Carolina than Chicago Title.
This week, a warning was issued from Chicago Title about a new and very specific fraud scheme that I want to share with all South Carolina practitioners.
Chicago Title received two reports last week of fraudsters apparently operating out of Houston. The fraudsters posed as owners of South Carolina properties and listed the properties for sale on Zillow. Mail away cash closings were scheduled with local real estate lawyers. In both cases, the fraudsters provided presumably fake identification and deeds to closing attorneys.
In the first case, the closing attorney very astutely foiled the scheme when he determined the signatures on the deed appeared suspicious. He contacted the New York notary who purportedly notarized the deed. She reported her seal had been stolen and used in at least one successful fraudulent scheme. The lawyer also learned from Federal Express that the deed had been sent from Houston rather than New York, where the seller was purportedly located. The transaction was stopped.
Unfortunately, the second transaction was not stopped. This seller package also originated in Houston. The fraudster’s telephone number appears on Zillow listing for properties in multiple states. Houston law enforcement has been notified and is opening an investigation.
Any mail away closings should be particularly scrutinized. If you conduct a closing with an unfamiliar seller, you should be especially vigilant in confirming the identities of the parties. Use more than one set of eyes in your office! Anything that appears unusual should be examined carefully. Give your staff the flexibility to slow down and carefully examine each document. Tell them to bring any unusual document to you. Check behind your staff! A great real estate paralegal is invaluable, but we spent three years in law school learning to spot issues. Use those issue-spotting skills to foil these fraudsters!
Vrbo and Airbnb are two go-to websites to find interesting short-term rentals in vacation locations. Sometimes a cabin or house seems much more appropriate and fun than a hotel room for a family get-away. Having a kitchen and room for dining is often a plus. And I love a hot tub with a view!
But I’ve seen a couple of news articles about South Carolina cities questioning whether these types of short-term rentals are appropriate in residential subdivisions, and I understand the concern.
The article quotes a man who said he and his wife operate nine Airbnb locations and have been put out of business by the resolution. The article quotes the resolution: “the homes are mainly in their older neighborhoods and these transient tenants have a negative effect on the peace and perceived safety of those neighborhoods.”
The city attorney in Spartanburg is quoted as saying that city’s “permissive” zoning ordinance does not address short-term rentals and that any use that is not specifically allowed is prohibited. He admitted, however, that there are “plenty” of short-term rentals—about 120 on Airbnb alone.
One councilman in Spartanburg was quoted as arguing in favor of creating rules to keep “bad actors” from causing trouble in neighborhoods.
Rules vary greatly in the cabins and houses we’ve rented, but a common theme seems to be that parties are not allowed. I’ve also seen limits on the number of cars that can be accommodated and, of course, the number of people permitted. Pets may or may not be allowed.
What do you think? Would you be comfortable with short-term rentals in your neighborhood? Could rules about groups, parties and parking make a difference?
We may see other cities in The Palmetto State considering whether to limit short-term rentals through zoning or permitting. It’s an interesting question!
The Oregon legislature believes they should, but a Federal Court issued an injunction
Late last year, my son and daughter-in-law decided to buy a new house, mainly to move into the school district where their children attend school and to be closer to their children’s friends. My daughter-in-law is an elementary school teacher who had enrolled her children in the school where she teaches. She’s a great teacher, by the way, as evidenced by being named Richland One teacher of the year several years ago. I’m not just bragging about her, although I am very proud of her. Being a great teacher is part of the story.
They immediately sold their house in our very hot seller’s market and were looking at the daunting process of having to move twice. They got lucky when their real estate agent found the perfect house in the perfect neighborhood. The real estate agent advised them to make an offer at full price, which they did, but apparently several other real estate agents gave the same advice to their customers.
My son and daughter-in-law got lucky again when they learned that she had taught the seller’s children. She wrote a letter to the sellers to make that connection and to express how much they loved the house. They are happily living in that house today.
I learned just this week that the real estate industry has dubbed such attempts to influence sellers “love letters”. And an article published in the oregonlive.com on March 6 entitled “Federal judge blocks Oregon’s first-in-nation ban on homebuyer ‘love letters’” tells the tale of the Oregon legislature attempting to ban these letters. The news story points to a preliminary injunction* issued by the U.S. District Court for the District of Oregon.
The opinion defined “love letters” as “notes, letters, and pictures that buyers may submit along with their offer to purchase in order to create an emotional connection between sellers and buyers – especially when significant competition exists on a given property.” A practicing real estate agent who is also an Oregon legislator introduced legislation to ban these letters because they “perpetuate systemic issues of bias in real estate transactions.”
The legislation, which passed in 2021, amended a statute that enumerates the duties and obligations owed by a seller’s agent and reads:
In order to help a seller avoid selecting a buyer based on the buyer’s race, color, religion, sex, sexual orientation, national origin, married status or familial status as prohibited by the Fair Housing Act (42 U.S.C. 3601 et seq.), a seller’s agent shall reject any communication other than customary documents in a real estate transaction, including photographs, provided by a buyer.
The statute does not define “customary documents”, but Oregon’s Real Estate Commissioner offered guidance: “the Agency interprets (customary documents) to mean disclosure forms, sales agreements, counter offer(s), addenda, and reports. Love letters would not be considered customary documents.”
The plaintiff, a real estate agency, sought a preliminary injunction against Oregon’s real estate commissioner and attorney general against enforcing the statute. The Court said the purpose of the legislation is laudable, to stop discrimination in home ownership based on protected class status, but agreed to issue the preliminary injunction because the legislation “unquestionably” interferes with free speech.
The defendants presented evidence of the history and prevalence of housing discrimination in Oregon, and the Court agreed that considerable racial disparities persist in home ownership. The defendant’s expert opined that the vast majority of “love letters” disclosed the buyer’s race, color, religion, sex, sexual orientation, national origin, marital status, familial status, or disability. He said about half the letters used as evidence in the case included photographs that revealed some information about race, color, sex, and other characteristics. He opined that love letters enable intentional and unintentional discrimination in housing.
The evidence indicated love letters are powerful documents! The opinion cites a study conducted by the real estate company Redfin that found 40% of offers include love letters and that love letters increase the likelihood of having an offer accepted by 52%. A real estate agent testified that love letters allow her clients to compete with higher offers, including those submitted by investors. The evidence also indicates that real estate agents play a significant role in drafting love letters, including providing templates to their clients.
The plaintiff suggested alternatives to the legislation: (1) greater enforcement of existing fair housing laws; (2) requirement that agents redact client love letters, (3) prohibition on the inclusion of photos; (4) fair housing disclosure requirement in real estate transactions; (5) increased fair housing training for real estate agents; (6) increase the stock of affordable housing; or (7) do nothing and allow individual real estate agents to advise their clients to not send love letters.
The Court indicated the last two alternatives do not merit serious consideration. The other alternatives, however, show that the defendants’ objectives could be achieved in a manner that places less of a burden on otherwise lawful speech.
I am confident we will see more “love letter” legislation and litigation in future.
*Total Real Estate Group, LLC v. Strode, 22 WL 633670, 2022 U.S. Dist. LEXIS 38653 (D. Or., March 3, 2022)
My preacher has suffered several email hacking schemes that prey on church members with kind hearts.
He has sent out a written notification and has announced from the pulpit more than once that church members have reported to him that they sent money because of his very touching email requests about persons in need…email requests that he never made. He assured his congregation that if he needs specific funds for specific needs, he will make phone calls. He shared that preacher friends of his have reported similar schemes. The fake emails always report that he is unavailable to take phone calls but that the need is urgent and immediate.
Phone calls may be the key to fraud prevention!
A lawyer friend of mine called me this week to ask an opinion on a potential client’s case. Help me answer the question: Does a closing attorney have a duty to make a telephone call to clients who may need to wire funds in connection with a closing to warn about the dangers of wire fraud and how to prevent the loss of closing funds?
I don’t know the answer to that question. My gut reaction is that the standard in our communities in South Carolina is that lawyers should provide very specific instructions on wiring instructions and engagement letters to prevent this type of fraud. I’ve seen several excellent examples of red-letter, bolded warnings.
Chicago Title in South Carolina continues to see a rise in the amount of fraud and attempted fraud in connection with real estate closings. The most recent memorandum was sent out to agents on February 2. Most of these incidents involve hacked emails where a party to the transaction fails to maintain strong computer or email security.
Unfortunately, law firms with significant security measures in place have also been victims of these schemes. The hackers typically submit altered payoff letters or wiring instructions to divert the funds. Like the emails that have plagued my preacher, the forged emails, wiring instructions and payoff letters look very similar to legitimate documents.
Here is the current advice on preventing these disasters in your law firms:
Obtain payoff information and wiring instructions early in the transaction so that there is ample time to review them and confirm their authenticity.
Review every payoff and wiring instruction to determine whether it appears authentic on its face. Many fraudsters are excellent at spoofing letterheads and logos, but sometimes, you may see tell-tale signs.
Compare each payoff letter and wiring instruction to prior instructions to determine whether account numbers have been changed.
If the wire is going to an entity to which you have previously sent wires, compare the new information with the prior transaction. If you save wiring instructions in your systems, make sure that repository is secure and cannot be easily shared.
Verify every wiring instruction verbally using a known and trusted telephone number. Do not use telephone numbers provided in the instructions themselves unless you can verify its validity.
If you cannot verify the instructions verbally or have doubts about the transaction, consider mailing, overnighting or even hand delivering a check to a confirmed address instead of using a wire.