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.”
An article posted on March 17 by South Carolina Public Radio entitled “Upstate cities ponder the fate of short-term rentals” discusses the Rock Hill moratorium as well as similar discussions by city officials in Spartanburg.
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.
Although politics are important to me, I see absolutely zero benefit in discussing politics on social media or in this blog. For that reason, I raise this topic with some apprehension and definitely without taking a political position. I raise it for educational purposes only.
I invite you to put this term in your favorite search engine: “terminating single-family zoning”. You will find articles that range in tone and opinion from, “The conservative case for ending single-family zoning” to “Dems are set to abolish the suburbs”. The arguments are all over the place!
My purpose in raising this topic is simply to ensure South Carolina real estate practitioners have it on their respective radars. Like most extreme changes, this one is likely to be very slow to make it to The Palmetto State, but it’s important for us to be prepared to address if and when it arrives at our borders.
One interesting perspective comes from Journal of the American Planning Association (Volume 86, 2020 – Issue 1) which argues that the privilege of single-family homes “exacerbates inequality and undermines efficiency” by making it harder for people to access high-opportunity places and contributing to shortages of housing in expensive regions. In many cities, the paper argues, single-family zoning prevents housing development where development would be most beneficial and instead pushes expansion into denser, lower income neighborhoods, onto polluted commercial corridors, and into the undeveloped land outside city boundaries. The authors have no illusion that making this change will be simple or that every city can handle the controversy the same way.
Arguments against eliminating single-family zoning include the idea that most Americans prefer detached single-family houses, that it creates more aesthetically pleasing neighborhoods, that it protects against excessive density, and that eliminating it will be impossible. Many arguments are made against constructing a housing tower next to existing detached homes. But counter arguments are made that removing single-family zoning might reduce rather than increase the prevalence of high-rise development because tall buildings are a response to scarcity of development-friendly parcels.
The conservate argument against single-family zoning is apparently that there is no greater distortion of the free market than local zoning codes, and that there are few bureaucracies doing more harm to property rights and freedom than local zoning officers.
See what I mean when I said the arguments are all over the place?
That being said, jurisdictions in California, Washington State, Oregon, Massachusetts, Minnesota, and Maryland are apparently considering loosening zoning restrictions. In one of his first actions after surviving an election seeking to oust him from office, California Governor Gavin Newsom essentially abolished single-family zoning throughout California and signaled his approval of legislation seeking to increase California’s housing production.
I doubt we will deal with this issue any time soon, but proactively becoming familiar with the arguments on all sides will only improve our ability to discuss the issues when the time comes.
Dirt Lawyers: take a look at this company’s website: www.pacaso.com
(Photo by Robbi Pengelly/Index-Tribune)
I try to keep abreast of trends in the real estate market, but I missed this interesting story entirely. Luckily, my husband, Frank, a voracious purveyor of the news, pointed this article from NPR out to me. The story, dated August 24, is entitled “A Startup is Turning Houses into Corporations, And the Neighbors Are Fighting Back”. You can read the story in its entirety here.
It seems a “unicorn” (a startup corporation with a billion-dollar valuation) called Pacaso, is buying homes, slightly refurbishing them, furnishing them, and creating limited liability companies to own them. The ownership of each house is then divvied into eight fractional shares, and each share is marketed on the company’s website. Each share entitles an owner to 44 nights per year. Each visit is limited to no more than 14 days.
The corporation offers an app to handle booking, maintenance, and cleaning. The cost is 12% of the value of the property up front and monthly maintenance fees. After ownership for a year, each fractional owner is entitled to sell its interest at a gain or loss. Gifts of stays at the houses can also be made to friends or family members. The company advertises that it only buys luxury and super-luxury homes and that it is not competing with middle-class families for housing.
The news story and the company’s website indicate the corporation was founded in 2020 by two former Zillow executives. One of the founders who lives in Napa bought a second home in Lake Tahoe and immediately became inspired with making the dream of second home ownership available for more people.
This type of ownership is not new to real estate practitioners who practice on South Carolina’s coast. For sale signs for beachfront houses touting “Interval Ownership” are common. In fact, intervals in these homes seem to be perpetually for sale.
My speculation about the frequency of these sales has always been that owning a home with multiple individuals and entities you don’t know can’t be much fun. It’s hard enough for two spouses to agree on when undertake major maintenance items. Imagine trying to decide when to spend the money on exterior painting with a large group.
The crux of NPR’s article is the opposition being mounted by neighbors of some of the houses. It’s not surprising that owners in nice single-family neighborhoods would oppose the parade of vacationers interval ownership might create. One group of neighbors in Napa printed signs reading “No Pacaso” for homes and cars, wrote opinion pieces for local newspapers and were otherwise extremely vocal in their opposition.
Valid legal arguments might be made in these neighborhoods if restrictive covenants or zoning ordinances exclude timeshares or Airbnb-types of ownership, but Pacaso insists its model involves neither form. All real estate law is, of course, local, so various arguments will be mounted in different locations.
In response to the opposition in the Napa neighborhood, the company agreed to sell the home in question in the traditional manner. It also agreed to beef up noise provisions in its documents, to create a local liaison dedicated to assisting neighbors, to refrain from buying homes in the area valued less than $2 million and to donate funds to a local nonprofit dedicated to affordable housing.
I didn’t see any South Carolina homes in a quick review of the company’s website, but I did see homes located in Florida. I can only imagine that South Carolina’s beautiful coastline will be discovered soon. Real estate practitioners will likely be involved in both sides of this controversy.
Last Thursday, the United States Supreme Court blocked the CDC’s Covid-related eviction moratorium. The eight-page unsigned 6-3 opinion stated Congress was on notice that a further extension would require new legislation but failed to act in the weeks leading up to the moratorium’s expiration.
Congress has approved nearly $50 billion to assist renters. But estimates indicate many states have disbursed less than 5% if the available funds. More than 7 million renters are in default and subject to eviction. Bureaucratic delays at state and local levels have prevented payments that would assist landlords as well as tenants.
At the beginning of the pandemic, Congress adopted a limited, temporary moratorium on evictions. After the moratorium lapsed last July, the CDC issued a new eviction ban. The ban was extended twice more.
The three liberal justices dissented. The dissenting opinion, written by Justice Breyer said that the public interest is not supported by the court’s second-guessing of the CDC’s judgment in the fact of the spread of COVID-19.
Landlords, real estate companies and trade associations, led by the Alabama Association of Realtors, who challenged the moratorium in this case, argued that the moratorium was not authorized by the law the CDC relied on, the Public Health Service Act of 1944.
That law, the challengers said, authorized quarantines and inspections to stop the spread of disease but did not give the CDC the “the unqualified power to take any measure imaginable to stop the spread of communicable disease – whether eviction moratoria, worship limits, nationwide lockdowns, school closures or vaccine mandates.”
The CDC argued that the moratorium was authorized by the Public Health Service Act of 1944, and that evictions would accelerate the spread of the virus by forcing people to move into closer quarters in shared housing settings with friends or family or congregate in homeless shelters.
Some states and municipalities have issued their own moratoriums, and some judges have indicated they will slow-walk cases as the pandemic intensifies. We will have to watch and see how the termination of the moratorium interacts with the current backlog of cases in South Carolina. Real estate lawyers should be prepared to advise their landlord and tenant clients.
The federal block on evictions expired on July 31, but on August 3, it was extended for an additional sixty days. The new order indicates it is designed to “target specific areas of the country where cases are rapidly increasing, which likely would be exacerbated by mass evictions.” The new deadline is October 3. The money received through this program is nontaxable.
I’ve read that the targeting language only limits the extent of the moratorium to 80 percent of the country geographically and 90% of the population, so that’s not much of a restriction. The Department of Housing and Urban Development (HUD) has indicated that 14.3% of the 44.1 million renter households are behind of rent.
There are many problems with the system. I’ve read the major concern is that the bulk of the available funds for rental assistance haven’t been distributed. Landlords seem to be faced with helping their tenants apply for the funds in order to receive the funds. And for all of us who have dealt with government, we understand that few governmental processes are efficient. This one is apparently not an exception to that general rule. For tenants who are living on the outer edge of their ability to work and take care of their children, time and patience to deal with the inefficient process may be in short supply.
Under the new order, protected renters include:
Renters who have tried to obtain governmental assistance for rent or housing.
Renters who earned no more than $99,000 or $198,000 filing jointly in 2020 or do not expect to earn at those levels in 2021.
Renters who are unable to pay the full rent because of loss of household income or out-of-pocket medical expenses.
Renters for whom eviction would result in homelessness or force them to reside in close quarters in a shared living setting (thus increasing the risk of COVID).
Renters who living in a county experiencing a high rate of infection.
Because the bulk of the funds have not been claimed, the CFPB has introduced an on-line tool to help landlords and tenants locate the funds in state and local governmental agencies. The tool can be found here.
I have concerns that this program is going to take a great deal of sorting out at some point. Is it constitutional? What will a holding of unconstitutionality mean? Will COVID require further extensions? Will funds have to be repaid by states and local governments if the funds are not properly applied? Will landlords or tenants be forced to repay such funds? Dirt lawyers will undoubtedly have to deal with of these issues in the future in representing their landlord and tenant clients.
All of us are tired of COVID. We seemed at one point to being so close to having it under control, but now we are seeing a frightening trend of rising cases and deaths, particularly among a younger population. All of us with children and grandchildren who cannot be vaccinated are concerned about what this school year will bring. At the risk of being perceived as preaching and apologizing up front who have medical reasons to resist, I strongly encourage vaccines!
Several news sources are reporting that the City of Columbia, South Carolina, is considering imposing restrictions on short-term rentals such as those promoted by the online site Airbnb.
WLTX News 19 quoted City Councilman Howard Duvall last week: “To me, a non-owner-occupied residence that’s being rented out for less than 30 days is a hotel, and it needs to be in a commercial area.” Duvall told WLTX that he believes short-term rentals have a bad impact on neighborhoods because renters often come in for a few days for an event and they party, with loud music, in the middle of a residential area.
In a story on July 4, the Post and Courier reported that about 600 rentals are offered in Columbia neighborhoods, and some neighborhood representatives have complained of disruptions.
This report includes a statement that Duvall along with Councilmen Sam Davis and Will Brennan have drafted an ordinance for the Council to consider on July 20. Multiple opportunities for public input are planned.
Both stories report resistance to the idea. WLTX quoted the owner of a real estate business who said short-term rentals have become a part of life and a part of travel because millions of people like it and expect it when they come to a city.
The Post and Courier quoted Columbia Chamber of Commerce CEO Carl Blackstone who said some regulations of short-term rentals could be welcome, but an outright ban is a nonstarter in a time when we are trying to open back up from a pandemic. Blackstone said we need to be opening our arms and welcoming visitors anyway we can.
Other cities have imposed restrictions on short-term rentals. Duvall mentioned Asheville, Raleigh, Myrtle Beach, Greenville, Charleston, Beaufort and Summerville in his discussions with the Post and Courier.
In Charleston, he said, short-term rentals can only be operated as a part of the owner’s primary residence, with a maximum of four guests. Myrtle Beach doesn’t allow short-term rentals in some residential areas. Some cities have restricted special events and large gatherings.
What do you think? Should short-term residential rentals be routine in our neighborhoods or should we impose restrictions?
South Carolina rarely leads the pack when it comes to innovation, and we certainly didn’t break our streak with the early passage of an electronic notarization law. When we did pass legislation, it undoubtedly wasn’t the RON (remote on-line notary) legislation we need to move into this century. Instead, we have “IPEN” legislation—in person electronic notary, a term I had never heard. Why do we need in person electronic notarization when old fashion notarization is easier?
Doing my best to put a positive spin on this idea, perhaps we have taken baby steps. Our legislature passed the South Carolina Electronic Notary Public Act on May 13, and Governor McMaster signed it into law on May 18. Our Code was amended to add Chapter 2 to Title 26. Chapter 1 was also amended.
At first blush, the new law does appear to be RON legislation, but buried deep inside is the requirement that signatory be in the notary’s presence. This provision defeats the whole purpose of RON legislation.
The last time I was at an in-person seminar with a roomful of South Carolina real estate lawyers where the topic of RON was discussed (and that seminar was pre-COVID, so it’s been awhile), several lawyers pushed a collective panic button and encouraged the group to lobby against this idea because they believed RON legislation may lead to electronic notaries, not South Carolina lawyers, supervising closings.
The new law specifically addresses that issue. Section 26-1-160 was amended to add Section 5, “Supervision of attorney”, which reads, “Nothing in this act contravenes the South Carolina law that requires a licensed South Carolina attorney to supervise a closing.” Maybe this is the baby step we need. If lawyers are assured that this provision will be included in RON legislation, they may support that legislation.
Implementing the new law we do have will not be a simple process. Our Secretary of State has significant work to do to get ready to receive applications for registration of electronic notaries. The Secretary of State must create the regulations necessary to establish standards, procedures, practices, forms and records relating to electronic signatures and seals. The regulations must create a process for “unique registration numbers” for each electronic notary. The Secretary of State must approve “vendors of technology.”
Each electronic notary must secure an electronic signature, an electronic journal, a public key certificate and an electronic seal. A form called a “Certificate of Authority for an Electronic Notarial Act” must accompany every electronic notarization. I’m not sure any of this is worth the effort unless it facilitates the implementation of true RON legislation that may be passed in the future. The earliest the new legislation can be considered is January of 2022.
South Carolina dirt lawyers: let’s get behind RON legislation with the provision requiring lawyers to continue to supervise closings. We really don’t have anything to lose, and there is much to gain!
Special thanks to Teri Callen, professor and dirt lawyer extraordinaire, who helped me figure out what is going on with this legislation!
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