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Home lender BB&T announced in August that it will communicate with settlement agents (closing attorneys in South Carolina) through Real EC’s Closing Insight™ once the TRID rules become effective on October 3. The announcement stated that there will be no exceptions to the rule that settlement agents must be registered with Closing Insight™ to close TRID-impacted mortgage loans.*

Registration is required even if the closing attorney’s software company is integrated with Closing Insight™. We understand, however, that RealEC does not require registration for each lender. Once a closing attorney is registered once with Closing Insight™, additional registrations are not required.

As we have heard from other lenders, BB&T stated that beginning Oct. 3, Closing Insight™ will be the only means of communication for completing the Closing Disclosure. E-mail, fax and other delivery methods will no longer be used.

Initially, title orders will continue to be e-mailed from BB&T’s mortgage loan officer to the settlement agent, but BB&T states that it is in the process of changing the title order request process so that it will be communicated through Closing Insight™.

Like other large lenders, BB&T will generate and deliver the borrower’s Closing Disclosure. Settlement agents will generate and deliver Closing Disclosures to sellers and will provide copies to BB&T.

BB&T states that it will monitor TRID-required timeframes and will attempt to begin collaboration with settlement agents ten days prior to scheduled closing dates.

BB&T has established a new settlement agent web page at www.BBT.com/settlementagent for updates and frequently asked questions.

 

*The memorandum pointed closing agents here for more information about the registration process, and here for the fee structure for Closing Insight™. For further questions, settlement agents were directed to reach out to RealEC by e-mail at ProviderRegistration@RealEC.com or phone at 877.273.2532.

Don’t fall for this theft scheme!

This particular brand of fraud might not have struck South Carolina closing attorneys, but similar schemes definitely have! I am passing this one along because it is hitting the direct operations of title insurance companies in other states on a regular basis.

The facts: A buyer contacts a closing office by e-mail only, never by phone or in person. The initial e-mail attaches an agreement to purchase an option on real estate for $95,000. The agreement does not contemplate that title to the property will change hands, only that funds will pass for the purchase of the option.

No real estate agents or attorneys are involved. (Of course, if this happens in South Carolina, the recipient of the e-mail and intended victim will be a closing attorney.) The document is not on a standard contract form, and fonts vary within the document. The word “authorization” is spelled “authorisation” throughout.

The agreement provides:

Escrow holder will release said funds to seller upon receipt by Escrow holder of a written authorisation (sic) from buyer that he is satisfied with the inspection of said premises and will complete the purchase.

The buyer sends a cashier’s check drawn on a credit union in a different state by overnight delivery in the amount of $98,000, which is $3,000 more than the option purchase price. The check is received by the closing office April 6th.

On April 7^th, the closing office receives an e-mail from the buyer that reads:

You have my permission to release funds to the seller.

Also on April 7^th, the seller e-mails wiring instructions to the closing office, directing $98,000 to be wired to the account of an unrelated third party. The closing office initiates the wire on April 7^th. On April 10^th, the closing office is informed that the cashier’s check is counterfeit, and that the credit union in question had changed its name over two years ago. The closing office attempts to recall the wire, but the account holder had drained the account.

Notice the red flags in this fact pattern:

• No real estate agents or attorneys are involved;
• The transaction is not a purchase of real estate, only an option to purchase;
• The contract is unusual, and the fonts vary within the document;
• The cashier’s check is from a little known credit union in a different state. Often the location will be remote enough to involve a different Federal Reserve;
• The word “authorization” is spelled incorrectly in the contract and in an e-mail;
• The seller instructs the closing office to wire funds to an unrelated third party;
• The contract purchase price is less than the amount shown on the check, and the wiring instructions use the higher amount; and
• E-mail is the only form of communication.

Timing is crucial to the scheme! The fraudsters know that they must withdraw the funds the moment the wire hits.

Take these steps to avoid being a victim:

• Call the bank or credit union to verify the validity of the check;
• Do not disburse against uncollected funds of any type;
• Recognize the unusual initial contact and refuse to become involved in the transaction; and
• Require live signatures and picture identifications to release funds.

Have you seen similar fraud scheme attempts?  If so, please share them with the letstalkdirtsc.com audience so we can all be more vigilant!

A Cautionary Tale for South Carolina Closing Lawyers

An employee falls prey to a phishing scheme causing her computer to contract a virus that allows an unscrupulous third party access to her user name and password and allows the third party to mimic the computer’s IP address and other characteristics. The thief instructs the bank to wire $440,000 to a bank in Cypress, beyond the reach of U.S. authorities.

This story gives me cold chills and is the true account of Choice Escrow and Land Title, LLC v. BancorpSouth Bank, an Eight Circuit Court of Appeals case from June of 2014.

The victim of the scheme was a Missouri real estate escrow service company, a company that handles real estate closings. That company sued the bank but lost because it had not followed the bank’s security measures.

The bank used four security measures for wire transfers:

1. Each employee had a unique user ID and password;
2. Bank software recorded the IP address and other information about each employee’s computer. If a user attempted to wire from an unrecognized computer, the user would be prompted to answer challenge questions.
3. The bank allowed customers to place dollar limits on the daily volume of wire transfer activity.
4. The bank offered “dual control” which required one user to initiate a wire and another user to approve the wire. The initiator and the approver had to have separate user IDs and passwords.

Choice Escrow had declined dual control twice mainly because of the inconvenience of it and the fact that an employee may need to wire funds when only one person is in the office.

This case is an example of a failure to comply with Pillar 2 of ATLA’s Best Practices which requires appropriate and effective escrow controls and staff training in order to safeguard client funds. As South Carolina attorneys, we already have the duty to protect client funds. Don’t let your office fall prey to this kind of scheme by failing to follow security measures in the interest of convenience.

I am the treasurer of a non-profit organization that has too few employees for normal safeguards. For that reason, the bank statements are mailed to my house, and I am a second signatory for checks. My point? Safeguards can be accomplished even in very small offices.

The CFPB and Best Practices are going to require these safeguards. Implement them now!

S.C. Supreme Court Affirms Limitation on Developer’s Rights

A family-run bed and breakfast inn and wedding venue on property located along the Great Pee Dee River in Georgetown County sounded like a treat for the community to Levon and Pamela Dunn. Unfortunately for them, their neighbors did not agree (in fact, they felt tricked) and a legal battle began in 2005 between the Dunns and their neighbors culminating in a S.C. Supreme Court case published on October 22, 2014.

AJC Holdings, LLC. v. Dunn arose when Levon and Pamela Dunn began renovating an existing guest house on two residential lots subject to restrictive covenants that prohibited commercial use of the property absent the developer’s approval. The neighbors complained, involved the planning and zoning commission, the hazard insurance agent and the U.S. Army Corps of Engineers, and finally brought this action seeking an injunction. The Dunns contacted the developer, Helen Sasser, and obtained a written assignment of any developer’s rights. The Dunns then executed a document asserting that, as the assignee of the developer’s rights, they consented to the commercial use of the property.

Unfortunately for the Dunns, Helen Sasser had sold her last remaining lots in the subdivision in 1991 and retained no remaining rights in the subdivision except, as the Dunns argued, the right to amend the restrictions.

The circuit court found that Sasser no longer retained any developer’s rights to assign to the Dunns, and the Dunns’ execution of the written consent to commercial use was meaningless. The Dunns appealed, and the Court of Appeals affirmed, citing Queen’s Grant II Horizontal Property Regime v. Greenwood Development Corp.,* which set out five conditions that must be met for a developer to reserve the right to amend or impose new restrictive covenants running with the land:

1. the right to amend the covenants or impose new covenants must be unambiguously set forth in the original document;
2. the developer, at the time of the amended or new covenants, must possess a sufficient property interest in the development;
3. the developer must strictly comply with the amendment procedure set forth in the covenants;
4. the developer must provide notice of amended or new covenants in strict accordance with the original document and as otherwise provided by law; and
5. the amended or new covenants must not be unreasonable, indefinite, or contravene public policy.

The Dunns argued that they met the second requirement because, despite the fact that Sasser had sold all the lots, she had reserved developer’s rights. The Court of Appeals said this argument was circular: the developer had a sufficient property interest in the development to allow her to reserve developer’s rights because she reserved to herself developer’s rights.

The Supreme Court agreed, citing, in addition to Queen’s Grant II, McLeod v. Baptiste, * (“[A] grantor lacks standing to enforce a covenant against a remote grantee when the grantor no longer owns real property which would benefit from the enforcement of that restrictive covenant.”

The Court also cited a Georgia case* reasoning that so long as the developer owns an interest in the subdivision, that economic interest will tend to cause the developer to exercise rights in a manner which takes into account potential harm to the other lots. In other words, there is an economic restraint against arbitrary waiver that is lacking after the developer is divested of all interest in the subdivision.

Finally, our Court cited a New York case* holding that a right reserved in a developer cannot be exercised after the developer has conveyed all of the land because that action may be used to ruin the property of others who have bought and improved their land on the faith of the restrictions.

This case is instructive for all South Carolina practitioners whose clients seek to amend or waive restrictive covenants. Always consider whether the amendment would be objectionable to neighbors and what actions those neighbors may take! And definitely follow the guidelines set out in Queen’s Grant II.

*Contact me if you would like the citations.