Ethics Advisory Opinion advises lawyers: stay away from Expertise.com

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Ethics Advisory Opinion 22-02 fielded two marketing questions from a lawyer concerning a website, Expertise.com. This website finds and reviews service professionals and states that it researches businesses by using customer referrals, public records, accreditations and licenses and mystery shoppers.

Some law firms are listed on the site without the knowledge of the lawyers through the site’s unilateral research and screening. The site states that it lists businesses alphabetically, but it allows law firms to submit to be reviewed and included at no cost. The site indicates this process takes approximately one year to complete.  A law firm can also purchase a “featured placement” to take advantage of being seen first on the website page and to include links to the law firm’s social media.

The lawyer’s questions were:

  1. If an attorney or law firm pays for a featured placement on Expertise.com, does that attorney violate Rule 7.4(b) by holding the law firm and its attorneys out as experts by virtue of the website’s name?

2. Does paying for a featured placement on Expertise.com violate Rule 7.2(c)?

The Ethics Advisory Committee responded definitely: “Lawyer may not participate in any way in marketing via Expertise.com.” Actively participating in an online business listing at a website whose stock language violates the advertising rules is itself a violation of the advertising rules, according to the Committee.

The Committee referred to an earlier EAO: 09-10 which opined that a lawyer who adopts, endorses, or claims an online directory listing takes responsibility under the Rules for all content of the listing and general content of the directory itself, regardless of who created the material. While the prior opinion focused on comparative language contained in client testimonials and endorsements submitted to the website, the reasoning applies to content created by the host that violates some other rule, like 7.4(b), according to the current EAO.

Regardless of the creator of the offending content and regardless of which rule it violates, the Committee’s view is that a lawyer may not adopt, endorse, claim, or contribute to any online listing that contains language or other material that would violate the Rules if created and disseminated directly by the lawyer.

Paying for a featured placement within a business directory website is not itself a violation of Rule 7.2(c) if the payment obligation or amount is not tied to the referral of business as a quid pro quo, according to the EAO. In the Committee’s view, if a featured placement is the only benefit received in exchange, the payment would be a “reasonable cost of advertisement” under the 7.2(c)(1) exception.

However, the Committee believes a lawyer may not pay Expertise.com for a featured placement because that step would be prohibited by Rule 7.4(b).

Be careful out there, lawyers!

Wire fraud continues to be a significant problem

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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:

  1. Obtain payoff information and wiring instructions early in the transaction so that there is ample time to review them and confirm their authenticity.
  2. 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.
  3. Compare each payoff letter and wiring instruction to prior instructions to determine whether account numbers have been changed.
  4. 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.
  5. 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.
  6. 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.

Chicago Title has developed an excellent APP for your cell phone that contains the information you will need in the event your law firm or your clients become victims of fraud. As always, I highly recommend Chicago Title!

Can mortgage lenders force arbitration on consumers?

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Fourth Circuit says no in a published opinion

In Lyons v. PNC Bank*, a consumer, William Lyons, Jr., filed suit against his home equity line of credit lender alleging violations of the Truth in Lending Act (TILA). The lender, PNC Bank, had set-off funds from two of Mr. Lyons’ deposit accounts to pay the outstanding balance on his HELOC.

PNC moved to compel arbitration of the dispute based on an arbitration provision in the parties’ agreements relating to the deposit accounts. The case contains some discussion about jurisdiction, and one judges dissented on that basis. But the important holding in the case relates to pre-dispute arbitration provisions in consumer mortgages and related documents.

The Court found the relevant legislation to be 15 U.S.C. §1639c(e)(1) and §1639c(e)(3) from the Dodd-Frank Act, which had amended TILA. The first provision states:

“No residential mortgage loan and no extension of credit under and open end consumer credit plan secured by the principal dwelling of the consumer may include terms which require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.”

The second provision states:

“No provision of any residential mortgage loan or any extension of credit under an open end consumer credit plan secured by the principal dwelling of the consumer, and no other agreement between the consumer and the creditor relating to the residential mortgage loan…shall be applied or interpreted so as to bar a consumer from bringing an action in an appropriate district court of the United States…”

The Court held that the plain language of the legislation is clear and unambiguous that a consumer cannot be prevented from bringing a TILA action in federal district court by a provision in any agreement related to a residential mortgage loan. The Court’s holding indicates its opinion that Congress clearly intended consumers to have the right to litigate mortgage disputes.

* United States Court of Appeals for the Fourth Circuit Opinion No. 21-1058 (February 15, 2022)

First Ethics Advisory Opinion of 2022 discusses “Land Title Dispute” email

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Is a unilateral non-client communication entitled to confidentiality?

We have our first Ethics Advisory Opinion of 2022 and it touches on a real estate matter.  In EAO 22-01, a lawyer posed a question to the Ethics Advisory Committee about an unsolicited email from an individual with whom the lawyer had no prior relationship.

The subject line of the email read “Land Title Dispute”. The email requested the lawyer’s “legal insight on a real estate situation” and included a description of the underlying facts with an inquiry of the lawyer’s opinion about whether the sender had a “legitimate claim.”

The lawyer immediately recognized that the facts recited in the message related to a matter in which the lawyer and the lawyer’s client had adverse interests to those of the sender. The lawyer replied to the email informing the sender of the adverse interests and stating that the lawyer could not represent the sender. The email further stated, “Please let me know if and when you are represented by other counsel and I will (be) happy to communicate with them regarding this matter.” The lawyer then took the opportunity to inform the sender that the lawyer believed the sender’s “proposal to profit off of this mistake is both theft and fraud.”

The lawyer asks the Committee whether the lawyer has an ethical obligation to maintain confidentiality of the information in the email since it was provided in the course of seeking legal advice.

The Committee first stated that the sender was neither a current nor a former client of the lawyer. The answer to the question depended on whether the sender is a “prospective client” under Rule 1.18. This rule reads: “A person with whom a lawyer discusses the possibility of forming a client-lawyer relationship with respect to a matter is a prospective client only when there is a reasonable expectation that the lawyer is likely to form the relationship.” Comment 2 reads: “Not all persons who communicate information to a lawyer are entitled to protection under this Rule. A person who communicates information unilaterally to a lawyer without any reasonable expectation that the lawyer is willing to discuss the possibility of forming a client-lawyer relationship, therefore, is not a “prospective client” …

The Committee concluded that the lawyer had no ethical obligation to maintain confidentiality of the information in the email.

This is excellent news! We’ve all heard stories of an individual about to seek a divorce who holds meetings with all the divorce lawyers in town to limit the spouse’s choice of counsel. Thankfully, that tactic should not extend to an unsolicited email.

Charleston ROD litigation reaches temporary resolution

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This blog has previously discussed (here and here) the excellent lawsuit brought by The Finkel Law Firm against the Charleston County Register of Deeds seeking a writ of mandamus requiring the ROD (1) to immediately file all documents delivered to the ROD within one month of delivery; (2) to mark the documents as having been recorded on the date of delivery; and (3) to record all future documents in the order of the time delivery regardless of whether they were delivered in person or by the U.S. mail or parcel post.

The Court appointed Howard Yates, one of the most experienced real estate lawyers of the Charleston Bar, as Court Monitor. Mr. Yates issued a report dated January 31, 2022, the parties signed a Consent Order on February 10, and the Court issued a separate Order, also dated February 10. Please read all three documents here.

Mr. Yates has made numerous recommendations involving, among other matters, increasing office hours, increasing work hours for staff, and hiring employees from other ROD offices to reduce the backlog by working weekends.

The Court will maintain jurisdiction and will require frequent reports on progress. We can all applaud the efforts of The Finkel Law Firm and Howard Yates in bringing this matter to satisfactory conclusion, at least temporarily.

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!

Do you represent residential condominium HOAs or residential lenders? Do you handle residential condominium closings?

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This news from Fannie Mae negatively impacts condo closings

This blog has previously discussed the June 24, 2021 collapse of the 136-unit Champlain Towers South condo project in Surfside, Florida.

South Carolina has many aging condominium projects, particularly along our coast. And we have earthquake issues to consider. Do our local homeowners’ association boards face expensive repair and inadequate reserve dangers like those in Florida? These concerns may impact HOAs, lenders and purchasers. Dirt lawyers should be prepared to assist their clients in navigating these concerns.

Fannie Mae has addressed this issue by issuing Lender Letter (LL-2021-14), which took effect on January 1 of this year. The letter directs lenders that make loans on condominium projects containing five or more attached units to gather information from owners’ associations about potential unsafe conditions.

Dale Whitman, the esteemed retired professor from the University of Missouri School of Law who moderates the national Dirt Real Estate Lawyers Listserv has commented on this letter. He said on a January 24 DIRT entry that HOAs are probably not obligated legally to respond to a lender’s inquiry prompted by Fannie Mae’s letter, but a potential buyer of a unit may not be able to obtain a loan absent a response.  

That’s the crux of the problem. If repair and reserve issues arise in connection with a condominium project, it may become impossible to obtain loans.

DIRT also discussed a December 2021 addendum to the condominium questionnaire of Fannie Mae (Form 1076) that asks if there have been any findings relating to safety, soundness, structural integrity or habitability of the buildings in an inspection report, reserve study or government inspection or if the HOA board knows of such issues. This information is requested whether the issues have been resolved or would be resolved. The form requests information of how funds to make repairs will be obtained.

The lender letter points to a growing concern across the nation about aging infrastructure and significant deferred maintenance issues in condominium projects because a majority of these projects were built more than twenty years ago. Fannie Mae states its condominium standards are designed to support the ongoing viability of these projects.  

Fannie Mae will change the status of deficient condominium projects to “unavailable”, and lenders are able to check the status of projects on Fannie Mae’s “Condo Project Manager™” software.

Consider representing wealthy consumers who may seek to purchase expensive coastal condominium units paying cash. How should a closing attorney advise these clients considering these repair and reserve concerns? This is an issue that should be addressed in residential closing practices.

Here’s a great idea!

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The official who records our deeds should not be selected via popularity contest!

I’m all about the democratic process. But when it comes to the Register of Deeds, I believe that person should be appointed locally based on a very specific skill set. Popularity and politics should have nothing to do with choosing the appropriate person to handle the very meticulous administrative process that deals with recording public documents.

Apparently, the Executive Committee of the Charleston County Bar Association wants to take action to make sure the ROD for Charleston County is qualified. Take a look at this letter that body wrote to County Council on January 19.

If you follow this blog, you know that the Finkel Firm has brought suit against the Charleston County ROD asking for a writ of mandamus based on the horrific lag involved with recording documents in that county. This letter provides additional evidence that something is terribly wrong in the Charleston County ROD office, and action needs to be taken sooner rather than later.

As this letter points out, South Carolina is a race notice state. If our deeds, mortgages and other documents are not recorded in a timely manner and in the proper order, then the proper priorities among parties is thrown to the wind. The rights of parties relating to real property are based on when the documents establishing those rights are properly recorded.

The letter lists eighteen counties where the RODs are currently appointed. The letter also states that no constitutional provision or statutory edict requires an election in this case.

What do you think? Should the Register of Deeds be appointed by County Council?

If affirmative coverage is needed for your closing…

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Be sure to advise your client and paper your file!

This blog recently discussed one of the biggest mistakes I made in private practice.  This edition relates a war story where I (thankfully) did the right thing.

I represented real estate developers and rarely handled residential closings.  When my clients developed residential subdivisions and residential condominium projects, I would gladly handle those cookie-cutter closings. And every now and then, another lawyer in my firm would ask for a favor: “Please close our good client’s purchase of a new home so he won’t choose another lawyer the next time he needs representation for his business….and please close it without charging an attorney’s fee.” I bet 90% of my dirt lawyer friends have fielded similar requests. Maybe you were smart enough to say “no”.

The client in this tale was a doctor. I’ll call him Dr. Roe. There are several doctors in my life that I hold in high esteem, but I have never liked representing doctors in legal matters. My experience is that they are too busy to listen to advice. They prefer for the magic to happen without their involvement.

This particular doctor had recently gone through a nasty divorce, and he had found a new home for himself and his four children who would be with him half of the time. This house was in the Hollywood area of Columbia, and the restrictive covenants contained a reverter clause. The clause stated that a violation of the normal residential restrictions would cause title of the lot to revert to the corporation that had developed the subdivision fifty or so years ago.

The reverter clause posed no problem if there was no violation of the covenants. I ordered a new survey and held my breath. The stars did not align for me, and the survey revealed a very slight violation of the side setback line. By very slight, I mean a couple of inches. The house was several decades old, and the violation may have been caused by settling.

I had a great relationship with my friendly title insurance company underwriter and called him to discuss my problem. He was very reasonable, and because of the minuscule violation, he authorized affirmative coverage for the lender as well as the owner. I was relieved but also concerned about relaying this information to my client. To get his attention, I had to set up an appointment at his office to explain the problem and show him the restrictions and the survey.

The bottom line was that he would obtain insurable title but not marketable title. I had seen marketability issues previously in my practice. In a commercial transaction, I saw a buyer walk away from a closing he had decided was not a good deal for him when his lawyer was able to uncover a questionable title problem that he argued defeated marketable title. I didn’t want that to happen to my client when he decided to sell his house.

He wanted the house! I gave him two pieces of advice: (1) when you decide to sell this house, please come to me, and let me help you with the listing agreement and contract. We will draft both documents to provide for insurable title instead of marketable title; and (2) please do not add onto this house in a way to increase the setback violations.

He said he understood completely. Before the closing, I drafted a letter to explain both problems. His signature at closing evidenced that I had delivered both pieces of advice.  Done deal.

Fast forward about ten years. My office phone rings, and a residential closing lawyer friend calls me and says, “Claire, how did you handle this HUGE setback violation for Dr. Roe when you closed his house?” You know the feeling, dirt lawyers, my heart fell, and I lost several years off my life between that call and the moment I could get my hands on the file to see what had happened ten years previously.

Since I had explained marketability vs. insurability to my client verbally and in writing, I was in the clear. It turns out that Dr. Roe added a pool, a very nice and very big pool house and brick fencing, all of which violated the setbacks.

And I got payback! The lawyer who had asked me to handle the closing free of charge was asked to bring the quiet title action to “fix” the title problem. Luckily, the corporation that had imposed the restrictions was defunct, and no surviving officers or directors could be located. The title was cleared with a simple action served by publication. And Dr. Roe paid attorney’s fees and costs.

Never forget that obtaining affirmative coverage does not “fix” title problems. Affirmative coverage often provides a mechanism for a closing to take place, but your client always must be advised that marketable title is unavailable. And your client must be advised of the consequences of accepting insurable title. In writing!

Court of Appeals answers novel JTROS question

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In the first Advance Sheet of 2022, our Court of Appeals answered a novel question concerning the severance of a joint tenancy with right of survivorship. The case* involved the estate of a father who owned property in Garden City with his son, one of his five children. Father and son had purchased the property together, each owning a fifty percent interest.  

The facts are simple. The property owners entered into a contract to sell the property in November of 2013, prior to the father’s death on December 20, 2013. The transaction closed on December 27, just seven days after the father’s death. The son, who was also the personal representative, treated the sale as if he was the sole owner and claimed the proceeds of the sale individually. His siblings argued that the contract severed the joint tenancy, entitling the estate to half of the proceeds.

The Probate Court and Circuit Court agreed with the siblings, relying on South Carolina Federal Savings Bank v. San-A-Bel Corporation**, which held that a purchaser under a contract has an equitable lien on the property. The Probate Court reasoned that the sales contract entered into prior to the Decedent’s death encumbered the property, entitling the purchaser possession of the property upon payment of the purchase price and entitling the estate to one-half of the proceeds. The Circuit Court found that the Probate Court had correctly interpreted the law.

Dirt lawyers understand the San-A-Bel case sets up a trap for the unwary lawyer who fails to deal with the equitable lien that case established, but we have never understood that case to affect JTROS severance. The Court of Appeals agrees with us. Since neither San-A-Bel nor the JTROS statutes address the question at hand, the Court decided to look at rulings from other states to address the novel issue of whether a contract of sale severs a joint tenancy.

The Court cited cases from the states of Washington and Florida (citations omitted) and decided to follow the Florida court which held that severance does not automatically occur upon the execution of a contract executed by all joint tenants unless there is an indication in the contract or from the circumstances that the parties intended to sever and terminate the joint tenancy.

The Court found that the contract at issue was silent on the severance issue and no extraneous circumstances indicated severance was intended by the parties, so the joint tenancy was not severed by the contract, and the son was entitled to the sales proceeds.  

Dirt lawyers tend to hold our collective breath when our Courts address a novel real estate issue. But I believe that, this time, we can agree that they got it right. Let me know if you disagree with me!

*In the Matter of the Estate of Moore, South Carolina Court of Appeals Opinion 5887, January 5, 2022.

**307 S.C. 76, 413 S.E.2d 852 (Ct. App. 1992).