Day of the Dead: Director Cordray didn’t get his Halloween wish

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President Trump signed the legislation repealing the CFPB arbitration rule

As we discussed in this blog last week, the United States Senate recently voted to dispose of a Consumer Financial Protection Bureau (CFPB) rule that allowed consumers the right to bring class action lawsuits to resolve financial disputes. Under that rule, banks and credit card companies could not use mandatory pre-dispute arbitration clauses in the fine print of credit card and checking account agreements.

Day of the DeadThe vote was 51-50 with Vice President Pence casting the deciding vote. The vote in the Senate followed a previous vote with the same result in the House of Representatives, leaving only the stroke of President Trump’s pen to finalize the repeal.

After the Senate’s vote, CPBP director Richard Cordray released a statement stating the action was “a giant setback for every consumer in the country.” “Wall Street won”, he said, “and ordinary people lost.”  Interestingly, Director Cordray wrote a letter directly to President Trump on October 30 pleading with him to save the arbitration rule.

The letter said, “This rule is all about protecting people who simply want to be able to take action together to right the wrongs done to them.” It also appealed to President Trump’s support of veterans and lower income Americans by saying, “I think you really don’t like to see American families, including veterans and service members, get cheated out of their hard-earned money and be left helpless to fight back.”

The letter obviously had no effect. President Trump signed the law on November 1 to the delight of banking and business groups. Director Cordray said, “In signing this resolution, the President signed away consumers’ right to their day in court.”  The Trump administration, however, is clearly in favor of dismantling regulatory efforts it believes may put a damper on the free market in any way.

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History repeats itself

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Fraudulent mortgage satisfaction schemes are back

We have heard recently that a group is engaging in a scheme to fraudulent satisfy mortgages (or deeds of trust) in California and Florida. We all know that trends in California and Florida eventually make it to South Carolina, so I wanted to make sure South Carolina dirt lawyers are aware of this scheme. This is not a new scheme, but we thought it had died down until we got this news last month.

Here are some good rules of thumb to assist you in avoiding losses and protect clients in this area:

  • Have your title examiners provide you with copies of mortgage satisfactions and releases. Two sets of eyes reviewing the documents should help with spotting issues.
  • Pay particular attention to satisfactions and releases within a year of your closings. The normal schemes involve satisfying mortgages in order to collect funds at subsequent closings.
  • Pay particular attention to satisfactions and releases that are not connected with a sale or refinance. Contact the lender for confirmation that the loan has been paid in full.
  • Don’t accept a satisfaction or release directly from a seller, buyer or third party without contacting the lender for confirmation that the loan has been paid in full.
  • Many of the fraudulent documents are being executed by an unauthorized party on behalf of MERS. Compare MERS satisfactions with others you have seen in connection with your closings.
  • Check spellings and compare signatures against those of genuine instruments.
  • Be wary of hand-written documents, unorthodox documents, cross-outs, insertions and multiple fonts.

The perpetrators of this fraud are sophisticated and will change aspects of the scheme as needed, so remain vigilant and discuss any suspected fraudulent documents with your title insurance underwriter.

It’s suitable to be a Lincoln Lawyer in SC

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…at least when it comes to using a PO Box address in lawyer advertising

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Ethics Advisory Opinion 17-07 fielded a question from a solo practitioner with a virtual law office. He practices wherever his smart phone and laptop are, which, at any given moment, may be his home, a coffee shop, a park, his car or his vacation spot. His practice generates very little paper, and he keeps that paper at his home. He meets with clients at their places of business or at third-party meeting spaces. He uses a post office box address for all business mail.

He does not actively advertise his practice beyond a single online directory listing, but he is considering increasing his web presence for advertising purposes, and he doesn’t want to disclose his home address. His question was whether the use of a post office box address in advertising materials satisfies the requirement in Rule 7.2 that advertising communications must include the office address of at least one lawyer responsible for its content.

The Ethics Advisory Committee looked North for authority and cited an opinion from North Carolina* which stated: “…(R)equiring a street address in all legal advertising has proved problematic, particularly as the number of lawyers working from home offices or operation in virtual law practices has increased. The requirement is no longer practical or necessary to avoid misleading the public or to insure that a lawyer responsible for the advertisement can be located by the State Bar.”

The Committee also noted that the Bar accepts post office addresses as lawyers’ addresses and the Supreme Court accepts post office addresses in its Attorney Information System (AIS) as a part of the “official contact information”.

The Committee stated that use of a post office address qualifies as an “office address” for the purposes of Rule 7.2(d) provided the post office address is on file at the lawyer’s current mailing address in the lawyer’s listing in the AIS.

Interestingly, though, the Committee noted that Rule 7.2(h) also imposes a geographic location disclosure requirement, which was not addressed by this opinion.  Here is the text of that portion of the Rule:

“(h) All advertisements shall disclose the geographic location, by city or town, of the office in which the lawyer or lawyers who will actually perform the services advertised principally practice law. If the office location is outside a city or town, the county in which the office is located must be disclosed. A lawyer referral service shall disclose the geographic area in which the lawyer practices when a referral is made.”

This Lincoln Lawyer may have to come back to obtain an answer to that issue!

*2012 N.C. Formal Eth. Adv. Op. 6 at 2.

Despicable Acts: Absentee property owners can be targets of fraud

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Despicable acts

And real estate lawyers may be the best minions to prevent these crimes!

Imagine this scenario: Lucy Wilde’s family owns a farm in rural Orangeburg County, South Carolina. Since the sudden death of Lucy’s husband, Felonius Gru in 2007, no one has farmed the property. The fields are sitting fallow awaiting the opening of the estate and the division of the property among and Felonius’ heirs, including Lucy. The relatives have all fled small-town living to join the Anti-Villain League, so no one is available to literally mind the farm, and no one is in a hurry to settle the estate.

Enter Balthazar Bratt, a fraudster from Miami who sees the vacant property, searches the public records and learns the property is owned by the late Felonius Gru. Bratt also learns the property is ripe for development because it is located near the prime corridor between Charleston and Columbia, and very near Interstate access.

How can Bratt take advantage of this scenario while the Anti-Villain League employed family members are not paying attention? Absentee owners of real property are often the targets of criminals who pose as true owners offering the property for sale or as collateral for a new loan. These fraudsters may sell or refinance the property and abscond with the sale proceeds or strip any equity in the property with a new loan. The true owner has no idea the property is the subject of a real estate transaction.

In our fictional account, if Bratt was able to ascertain through the public records that Felonius Gru was deceased, a good title examiner should be able to use the same sleuthing methods.  If rural Orangeburg County is not your stomping grounds, as we say in the South, you might hire a title examiner who does have experience in the locale. In small towns in South Carolina, people know each other!

Another tip to fight criminals like Bratt is to compare the mailing address provided by the seller or borrower to the tax bill. While this step may not help in an estate situation, it may very well reveal an absentee owner located in a different address than the one provided by the fraudster.  If the address is different from the address provided to you or the lender, send a letter to the address shown on the tax bill. Your letter might simply suggest that you are happy to be of service to the buyer in the transaction and that if the seller is unaware of the situation, he should have his attorney contact you. That letter should get the attention of an absentee and clueless property owner.

Another tip is to compare signatures of the seller or borrower against documents in the public records. While we are not expected to be handwriting experts, we can spot obvious forgeries. I remember a war story from long ago where one person signed in seven spots in a deed, for the five owners and the two witnesses. The alert closing attorney called an immediate halt to the potentially disastrous real estate transaction!

A well-known and well-used technique that often works is to obtain and carefully review picture identifications for everyone who signs documents in your office. Also, do not accept an assignment of proceeds. Make sure proceeds are paid to the seller or borrower of record only.

And finally, give yourself and your staff members permission to carefully and slowly consider every aspect of your closings. Staff members should be encouraged to be cautious and suspicious and to discuss their concerns with each other or with an attorney in the office.  If the closing attorney needs a sounding board, she should call her friendly title insurance company lawyer.  I can’t count the number of times someone has called me, explained a situation, and before I could even respond, said, “oh, that’s a problem, isn’t it?”

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Sometimes just explaining the situation out loud to another person makes the problems crystal clear!

Be careful out there!

Two positive articles for dirt lawyers from national sources

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REALTOR®Mag is reporting that although financing remains the top roadblock to successful closings, fewer real estate agents are reporting financing as an issue today as opposed to previous months. This trend is a good one! Check out the article here.

The article indicates that, according to the REALTORS® Confidence Index, which is based on the responses from 2,500 real estate agents nationwide, the decline in complaints about financing may reflect an improvement in the economy, better credit histories from buyers and an improvement in loan evaluation processes.

But the article does report that appraisals are becoming a growing concern. Real estate agents indicated that a shortage of appraisers, valuations that are not in line with market conditions and “out-of-town” appraisers who are not familiar with local markets create the difficulties.

And for the first time in eleven years, the Fannie Mae and Freddie Mac conforming loan limit has increased to $424,100, allowing more home buyers to avoid jumbo loans, obtain lower interest rates and deliver lower down payments. The non-conforming loan limit had previously been stuck at $417,000. Read the article from INFOGRAPHIC here.

The economic news surrounding real estate closings is generally positive nationally. And the news is good in South Carolina, too. I’ve traveled around the state a good bit since the beginning of the year, and everywhere I go, I ask lawyers about business.

Early in the year, it seemed residential practices were sluggish in some markets while commercial practices were extremely busy statewide. In the last few weeks, I’m hearing much more encouraging news about residential practices, and commercial lawyers continue to report that business is excellent.

Our office is in the middle of a seminar series we have entitled “The future’s so bright, we have to wear shades.” We’re drinking the Kool-Aid and enjoying these economic good times. Those of us who weathered 2008 – 2012 deserve it!

Dirt Lawyers: Make sure you conform(a) with your pro forma policies

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businessman paper magnifying glass

Commercial real estate lawyers are routinely asked to issue pro forma title insurance policies. A friend who routinely acts as lenders’ counsel recently told me he sees lots of pro forma policies coming from borrowers’ counsel, and they are not being handled appropriately. For that reason, I thought I’d list a few reminders for all of us.

What is a pro forma policy? It is a sample policy provided to the customer and customer’s counsel in advance of closing. It outlines the actual language and format the final policy will contain, in the event the transaction actually closes and the policy is actually issued. A pro forma policy is not intended to serve as a promise to issue the final policy. And it is definitely not a substitute for a commitment.

One excellent process is to never send out a pro-forma policy independently. When I was in private practice, I issued a pro forma as an attachment to a letter which said, basically, “A policy in the form attached may be issued when the requirements in Commitment #_____, dated _____ have been satisfied.” My lenders’ counsel friend nails this matter down further by issuing the pro-forma policy as an attachment to the commitment with a note in the requirements section to the effect that upon satisfaction of all applicable requirements, a policy in the form set forth in Exhibit ___ will be issued.

A note to this effect be added to the policy:  “NOTE: This is a Pro Forma Policy. It does not reflect the present state of title and is not a commitment to insure the title or to issue any of the attached endorsements. Any such commitment must be an express written undertaking on appropriate forms.”

The pro-forma policy and all endorsements should be clearly marked “Pro-Forma Specimen” or “Sample” and should not be signed.  Many lawyers have a large “Specimen” stamp to use in these situations. My lenders’ counsel friend told me he actually stamps pro forma policies coming from borrowers’ counsel. Not all lenders’ counsel are that accommodating.

Where the policy date and policy number are requested on the form, supply the note “None”.

These rules are very simple and comply with common sense. A pro-forma policy is not a policy and should be clearly shown in every instance as a sample. Following these very straightforward rules will keep you and your title company out of trouble. And, as always, call you underwriter if you have questions or concerns!

A useful SCDOT website for South Carolina dirt lawyers

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opposite-road-signs-sc-dot My colleague Tom Dunlop recently shared a South Carolina Department of Transportation website with me that is a nifty tool for determining whether the DOT maintains a road.  Check out the site here.

I entered my own street, Chimney Hill Road, and found out that the DOT does not maintain my street but that I could get more information from the Resident Engineer’s office at 803-786-0128. (I know Chimney Hill Road is marginally maintained by the City of Columbia from watching the repair of the pothole in front of my house at least annually.)  Here’s what the website shows:

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Then, I tried Garners Ferry Road (U.S. 76) and learned that the DOT does maintain this road.  Here’s the map:

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Trying another County, I entered one of my favorite roads (the road to the beach!), Highway 17 (Ocean Highway S) in Georgetown County. This road is maintained by the DOT, and the phone number for the local office, for more information, is 843-546-2405.

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Turning to the upstate, I tried Woodruff Road (SC 146) in Greenville County and learned that this road is maintained by the DOT, and the phone number for the local office, for more information, is 864-241-1224.

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I hope this website will provide real estate closing attorneys with some quick information when road maintenance becomes an issue.