Underwriting

Cybersecurity Threats and Their Impact on Real Estate Transactions

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Imagine arriving at your real estate closing only to learn that the county’s property records are unavailable. If the documents can’t be recorded, then the transaction may be left hanging in the air. Depending on lender funding requirements, the closing attorney may not be able to disburse the funds, and the buyer may not be able to receive their keys until recording is available. It sounds far-fetched, but it’s exactly the type of disruption that recent cyber-attacks on county governments have made possible.

Most people never think about their county recording office until they’re buying or selling real estate. Deeds, mortgages, easements, plats, liens, and other documents are quietly recorded every day, creating the public record that establishes who owns property and what interests affect it. It’s a system that has worked for generations because it relies on one simple principle: the public records must be accurate, complete, and accessible.

Recent events in South Carolina serve as a reminder that this system is more fragile than many people realize.

A recent cyber attack disrupted access to property records and other county services, temporarily preventing normal operations. While the details of the investigation continue to emerge, the incident highlights just how dependent modern real estate transactions have become on digital access to public records. Unfortunately, this is not an isolated event. Several South Carolina counties have experienced technology failures, ransomware attacks, or other disruptions in recent years.

Cyber security, however, is only one challenge facing county recording offices.

Many counties across the state operate with limited budgets and skeleton crews. Employees often process hundreds of documents each day while balancing increasing demands and aging technology. Even the most dedicated public servants can struggle when resources are stretched thin. Under staffing and insufficient training increase the likelihood of recording errors, indexing mistakes, or delays in processing documents – all of which can create headaches for property owners years later.

The integrity of the public record is essential because virtually every real estate transaction depends on it.

Before issuing title insurance, conducting a closing, or approving a mortgage loan, attorneys and title professionals examine the public records to confirm ownership and identify any issues affecting the property. They are looking for deeds that properly transferred title, unreleased mortgages, judgments, tax liens, easements, restrictive covenants, and countless other matters that could affect ownership rights.

If those records are unavailable because of a cyber attack, the transaction may be delayed. Buyers may not be able to close on schedule. Sellers may miss contractual deadlines. Lenders may refuse to fund loans until title can be verified. Even a short interruption can create significant inconvenience for everyone involved.

More concerning are situations where records have been altered, corrupted, or improperly indexed. The public recording system functions because people can trust that what they find is complete and accurate. Preserving that trust requires not only secure computer systems but also adequate staffing, proper training, and ongoing investment in the offices that maintain these records.

Although county governments bear much of the responsibility for protecting these systems, cybercriminals often gain access through surprisingly simple methods.

Many cybersecurity incidents begin not with sophisticated hacking tools but with social engineering. Rather than attacking computers directly, criminals manipulate people into providing passwords, opening malicious attachments, or clicking fraudulent links. These phishing emails are designed to look legitimate and frequently impersonate trusted organizations, coworkers, financial institutions, or government agencies.

While this blog focuses on real estate law, cyber attacks and scams aren’t limited to real estate transactions. Anyone, not just government employees, can become a target. A few simple precautions can dramatically reduce the risk of becoming a victim. Be cautious of unexpected emails requesting urgent action. Verify unusual requests through a separate phone call or trusted contact information rather than responding directly to the email. Avoid opening attachments or clicking links unless you are confident they are legitimate. Enable multi-factor authentication (“MFA”) whenever possible, and keep software updated to address known security vulnerabilities.

These habits protect more than your personal information. They help protect the institutions that communities depend upon every day.

County recording offices rarely make headlines when everything is working properly. Yet they perform one of the most important functions in our legal system by preserving the history of property ownership and ensuring that buyers, sellers, lenders, and attorneys can rely on the public record.

As counties continue modernizing their technology, cybersecurity must remain a priority. At the same time, we should not overlook the importance of investing in the people responsible for maintaining these records. Secure systems, well-trained staff, and accurate public records are not simply administrative conveniences: they are essential to protecting property rights and keeping South Carolina’s real estate market functioning smoothly.

Residential sellers must disclose sea level rise risk in Hawaii

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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.

Advice for purchaser clients: obtain a survey!

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Advice for lawyers: paper your file when clients refuse!

On this cold, wet Monday morning, I was wondering what I could write to help my real estate lawyer friends through a February week in South Carolina. Then I remembered this news article from the U.S. Sun an excellent dirt lawyer friend from the coast sent to me. His quote was: “I wish I could get all buyers to read it when they turn down a survey.” Perhaps you can use this article to convince a client or two.

Any of us who are old enough to have practiced in the 1990s will remember a time when lenders and title insurance companies required current surveys for every closing. A current survey is a great tool for a real estate lawyer to review along with the title work. Comparing the boundary lines with the title work and checking for easements, encroachments and such horrible mishaps as sewer lines running under improvements gave the lawyer and client a great deal of comfort.

Our backdoor neighbors were once Steve and Wendy Spitz. Many real estate lawyers in South Carolina attribute our knowledge and enthusiasm for the practice to Steve’s property classes in law school. We both built in a new subdivision, and a corner of the Spitz home, as revealed by a survey, sat squarely on a City of Columbia water easement. That builder’s mistake was corrected prior to closing by negotiating with the City to move the easement. Thankfully, the water line itself was not a problem.

To hold down closing costs, at some point in the 1990s lenders began to eliminate the requirement for a survey in most residential closings if the lender could obtain title insurance survey coverage. One of the title insurance companies agreed to provide survey coverage to lenders without a new survey. There were some requirements back then, like having a survey of record showing the improvements or having an affidavit from the owner that nothing had changed since the prior survey.

Then, for competitive reasons, all the title insurance companies caved. Current surveys were no longer required. Over the years, the requirements were even softened.

My thought was that the title companies had unceremoniously hung the lawyers out to dry. Previously, the closing attorney simply told the client that a survey was required to close. With the change, the closing attorney had to convince the client of the need for a survey despite the added cost. I believe one of the biggest traps for the unwary closing attorney is failing to advise purchaser clients to obtain surveys and failing to paper files when surveys are rejected.

And don’t even mention the surveyors! They were collectively and understandably furious that they had lost a large portion of their business. I remember being the sacrificial lamb who was sent to speak to a statewide group of surveyors on behalf of the title insurance industry. It wasn’t pretty.

Here’s another story from my neighborhood. A kindly preacher friend bought a house several doors down from us. The free-standing garage had been added prior to my friend’s purchase and well after the original construction. My friend did not obtain a current survey. When he sold the house, a new survey revealed that the garage violated the side setback line by more than ten feet, and the purchaser refused to close. Keep in mind that contracts typically require sellers to give marketable title. A setback violation of this magnitude may be insured over by a title insurance company, but the title may not be marketable. This purchaser was within his rights to reject this title.

By that time, the developer, a Greenville based insurance company, had sold all the lots, and took the position that it could no longer waive violations of the restrictions even though the restrictions clearly allowed for developer waivers. The solution was that my friend went door to door to obtain the signatures of the required majority of the owners. Thankfully, my friend was a very nice guy, and the neighbors were willing to accommodate his request by signing the waiver.

Today, title insurance policies have evolved to the point that survey coverage is often given to owners without current surveys. But the example above demonstrates that title insurance coverage may not cure the underlying problem. Title insurance can never create marketable title. And title insurance claims may take time and cause aggravation that clients will not appreciate.

So let your clients read the linked article and advise them to obtain surveys. And, if they refuse, obtain  informed consent confirmed in writing for your file!

Embrace ALTA’s Best Practices

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 BestPractices2Some real estate practitioners are furiously bringing themselves into compliance with ALTA’s Best Practices, while others are furiously ignoring the entire topic or, at best, waiting until they hear marching orders from lenders. I propose that we all step to the plate and embrace Best Practices.

Residential practitioners can and should use compliance as a marketing tool. Some commercial practitioners are assuming that when lenders become educated and begin demanding compliance from residential practitioners, they will naturally ask for the same or similar compliance from commercial practitioners. Striving for compliance is an opportunity for all practitioners to demonstrate to their clients, to real estate agents and to lenders their value in real estate transactions.

ALTA is now encouraging practitioners to conduct a self-assessment of their adoption of Best Practices by September of 2014. Time may be of the essence because a practitioner may first hear marching orders from a lender in connection with a specific real estate closing. If it is impossible to demonstrate compliance quickly, that closing will likely be lost to someone who is better prepared.Best-Practice-processes

I am convinced that the numbers of residential real estate practitioners in South Carolina will be drastically reduced in the next year or two. Attorneys approaching retirement age may decide to retire rather than to learn how to use the new forms. Large law firms  who handle commercial transactions may decide that residential transactions are no longer worth the effort. Left standing will be the practitioners who embrace this change and tackle it now. There is opportunity for growth for those who act wisely in the face of change.

Title insurance companies are willing and able to help and have resources that can ease the pain. But no outsider can do the actual work. Each pillar requires careful consideration from a management standpoint, and only the closing attorneys themselves can make the necessary decisions for implementation. Each pillar will require on-going demonstration of compliance. Files must be papered. Calendars must be tickled. Software and hardware must be kept current. Compliance will not be a matter of establishing written procedures and continuing business as usual. We should establish a culture of compliance and make it the responsibility of all employees.

I can’t say this strongly enough: At some point, practitioners will either have to embrace compliance or get out of the game. The time to act is now.

If you want to continue to handle residential real estate transactions, call your title insurance company today and ask for assistance in nailing down each pillar.