The Keys to the Parsonage

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Ever handled a church closing? Oy vey! Never assume church properties make for simple closings. I grew up Baptist, where the congregation votes on real estate matters, but happily married a Methodist preacher’s kid and attend churches where real estate matters are usually handled more methodically.

churchMany transactional lawyers across the country were asked to handle closings of the Episcopal Church while those properties were in dispute, beginning in 2006 when Anglicans left the fold and sought title to church properties. The resulting litigation brought global attention and wound its way through the courts, until the Supreme Court ended the controversy in March of 2014 by declining to take up an appeal by the last remaining plaintiff. We had a dramatic case of our own in South Carolina involving All Saints Parish, Waccamaw in Georgetown County.* And I understand from talking to some lawyers in Myrtle Beach this week, that at least one of these cases is pending in lower court in South Carolina.

When handling church transactions in South Carolina, the first step is to determine the church’s form of governance. South Carolina has cases on point* which discuss two general forms of religious organization. The congregational church is an independent organization, governed solely within itself, either by a majority of members or by another local organism. The hierarchical church is organized as a body with other churches having similar faith and doctrine with a common ruling convocation or ecclesiastical head. The Baptist churches of my youth are congregational churches. The Methodist churches of my adult life are hierarchical.

Sales and mortgages of church properties must be properly authorized. A congregational church authorizes its own transactions, following its own formalities. The level of formality varies greatly. Some churches are incorporated and governed like a business corporation. The closing attorney will typically request a resolution passed in a business meeting, held pursuant to the bylaws of the corporation, authorizing the transaction and designating the appropriate church officers to sign the documents. Congregational churches may have other governing organizations. The closing attorney should pay careful attention to the governing documents and obtain written authorization.

If an independent church has no documented form of government, the closing attorney should assume the entire congregation must act. The typical title insurance old sheldoncommitment will require a resolution by the congregation passed at a special meeting convened after reasonable notice from the pulpit, authorizing the sale or mortgage. The documents will typically be signed by the trustees and the pastor pursuant to the resolution.

A transaction involving a hierarchical church will require written authorization from the ruling convocation. The United Methodist church must receive consent from the District Superintendent and the Conference.

Title insurance companies are familiar with most churches and will be able to assist in these transactions.

Be skeptical of anyone (pastor included) who says he or she can act alone in any church transaction. We have seen numerous claims where church transactions are not properly authorized.

*I’ll be glad to e-mail the citations to anyone who asks.

Trick or Treat?

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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. Dunnpumpkin 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.”

spooky houseThe 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.

Closing Attorney Warriors: Battling Terrorism One Closing at a Time!

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None of us focus on fighting terrorism through our closing procedures, but we do, in a small way, fight terrorism every day. Real estate practitioners should comply with updated (as of 8/8/2014) OFAC policies and procedures. Specifically, the names of the buyers, sellers and borrowers involved in real estate closings should be run through the Specially Designated Nationals (“SDN”) list and the Foreign Sanctions Evaders (“FSE”) List. The link to these lists is: http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx.

If the search reveals a match, consult with the U.S. Department of Treasury’s website and review the FAQs. Keep in mind that it is a criminal violation to reveal to any party to the transaction the results of an OFAC search or that an OFAC search has been completed.

OFAC implements economic sanctions against countries, entities and individuals determined to be threats to national security. OFAC prohibits “U.S. persons”, including organizations, from, in general, dealing with property in which these named individuals or groups have a direct or indirect interest.

Compliance will avoid Federal civil and criminal penalties. Criminal penalties for OFAC violations can include fines of $50,000 to $10,000,000 and imprisonment of 10 to 30 years, and civil penalties of $50,000 – $250,000, or twice the value of the transaction, per violation.

Title insurance company underwriters should be able to assist with questions.

Lions, and Tigers and Seller Financing, Oh My!

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If you are closing seller financed transactions on primary residences including contracts for deed (hereafter referred to as seller financing), or if you have clients who are accepting seller financing, you should take the time to educate yourself and your clients on the current pitfalls.  Please refer to Martha McConnell’s excellent article entitled “Seller Financing – the New ‘Jabberwocky’!” in the Summer 2014 issue of Chicago Record Title for a detailed report on what has led to this serious concern.

lions1 Because it is a complicated issue, I am not sure I can express a bottom line in any kind of succinct manner, but I will attempt to do so here.

The CFPB has been given the power to supervise and regulate laws that impact seller financing, including the SAFE Act, TILA, the Ability to Repay and Qualified Mortgage Rule, HOEPA and the Loan Originator Rule.

Under the applicable federal rules, it is possible that sellers engaging in seller financing may have to become licensed as “loan originators” or “mortgage brokers”.  The loans may have to be fully amortized, and it is possible that these seller/lenders may have to make determinations and disclosures that have not previously been required. Certain exclusions are available, but the rules are complex and detailed, and should be handled with care.

Inconsistencies between the federal and state versions of the SAFE Act, both of which require licensing and registration of loan originators, is another area of concern.

Clients who fail to become licensed or to fall into an exclusion may find they are unable to foreclose, and may, along with the attorneys who closed the transactions and the title policies that insured them, be subject to claims and litigation. In addition, the CFPB has broad enforcement powers including the power to impose civil monetary penalties ranging from $5,000 to $1 million per day.

This is an area of the law that is going to require monitoring and thought in the coming months. Legislation in South Carolina to address the inconsistencies in our version of the SAFE Act may be one avenue for improvement. In the meantime, please take great care if you or your clients venture into seller financing.

Georgia On My Mind

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GA Supreme Court takes a page from our playbook and prohibits “witness only” closings

On September 22, 2014, The Supreme Court of Georgia issued an opinion approving the State Bar’s Formal Advisory Opinion No. 13-1, which states that a Georgia licensed lawyer may not ethically conduct a “witness only” closing.

georgia with flagThe Court indicated a “witness only” closing occurs when an individual presides over the execution of closing documents but purports to do so merely as a witness and notary and not as someone who is practicing law. In order to protect the public from those not properly trained or qualified to render these services, lawyers are required to “be in control of the closing process from beginning to end,” according to the opinion.

The opinion also requires the closing attorney to review the closing documents, resolve errors in the paperwork, and detect and resolve ambiguities in title and title defects, indicating, “A lawyer conducting a real estate closing may use documents prepared by others after ensuring their accuracy, making necessary revisions, and adopting the work.”

The closing lawyer must “review and adopt” the work used in a closing, even if he or she didn’t prepare that work.  Georgia law allows title insurance companies and others to examine title records, prepare abstracts and issue related insurance.  And other persons may provide attorneys with paralegal and clerical services, so long as “at all times the attorney receiving the information or services shall maintain full professional and direct responsibility to his clients for the information and services received.”

The obligation to review, revise, approve and adopt documents used in closings applies to “the entire series of events that comprise a closing.”

I’m a South Carolina dirt lawyer, so I don’t have the background to comment at length on this opinion, but from my bank of the Savannah River, it seems this opinion places closing lawyers in a precarious position, not unlike the position of our Bidding on a homepractitioners. We don’t necessarily have to perform all aspects of closings, but we do have to supervise and take professional responsibility for the entire closing.  We have learned how difficult it is to supervise third parties and take responsibility for their work.  The Georgia Bar asked for this opinion.  I hope they like it!

Surely Dave Whitener is smiling down from heaven at this effort to rein in the unauthorized practice of law!

Who Will Get On the Wells Fargo Wagon?

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Wells Fargo announces it will generate and deliver the Closing Disclosure

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Wells Fargo announced on September 24, 2014 that it will generate and deliver the borrower’s Closing Disclosure when the TILA-RESPA Integrated Disclosure Rule becomes effective on August 1, 2015.

Software companies, title insurance companies and closing attorneys have been speculating about this for many months. Now we have an answer, at least as to this mega-lender. Whether other lenders will fall in line remains to be seen.  The stated rationale is that the process will allow Wells Fargo to consistently meet compliance and regulator expectations.

The announcement stated that Wells will continue to collaborate with closing attorneys to determine fees and other content required for the Closing Disclosure and to ensure that the lender has accurate information.

For purchase transactions, the closing attorney will continue to be responsible for the seller’s information and will prepare and deliver the seller’s Closing Disclosure. A copy must be provided to Wells Fargo.

The Closing Disclosure must be delivered three business days prior to the closing, and Wells Fargo anticipates this requirement will require that all the parties work together more than ever on scheduling closings.

Conducting closings will continue to be the responsibility of closing attorneys, but with increasing focus on compliance with the lender’s closing instructions, according to this announcement.

This announcement has a huge impact on the closing process. The closing attorney will continue to be responsible for gathering information required to generate the document that replaces the HUD-1 Settlement Statement, but Wells Fargo, not the closing attorney’s office, will actually generate and deliver the form.

Please recall that Wells Fargo is the lender that endorsed ALTA’s Best Practices. My best advice for residential closing attorneys in South Carolina who want to remain in the game after August, 2015?  Get your office in compliance with Best Practices now so you will be prepared to implement the hardware/software changes this announced “collaborating” with lenders will require.

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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.

A Life Well Lived …

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Hugh Dave WhitenerHugh Dave Whitener, Jr.
September 14, 1944 – September 14, 2014

It is with great sadness, but with immense respect and admiration that South Carolina real estate lawyers, in conjunction with a host others, prepare to say farewell to Dave Whitener, who died this week after a long battle with cancer.

Dave was the consummate lawyer-educator who taught, mentored, nurtured and molded many of us in the practice of transactional law. He was a University of South Carolina School of Law Platinum Compleat Lawyer as well as an Adjunct Professor at that treasured school for 24 years. He was the ideal professor in that his love for the law was only exceeded by his love for students. He never taught from a theoretical ivory tower, but from a concrete point of view, grounded in decades of practical experience. As a result, he was awarded the school’s Excellence in Teaching and Distinguished Service Award.

Dave was an entertaining and engaging seminar speaker. A group of real estate lawyers can recite many of his best stories that were told well and often and always with a sense of humor.

He was a protector of our practice. Many of us remember the seminar several years ago when he first began speaking about “The Palmetto Logs”, a list of authorities beginning with the South Carolina Constitution and meandering through State v. Buyers Service Co., Inc., and its progeny. He encouraged us to use The Palmetto Logs to protect our practice from those who participate in the unauthorized practice of law, those who demean our practice, and those who seek to take it away from us.

We extend our condolences to our friend and Dave’s wife and law partner, Trisha Wharton Whitener, and to all of Dave’s family. And we send to them a word of appreciation for sharing him with us.

Tell it to Grandma!

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DSC_1879aWhen my friend and mentor Chris Abbinante was President of American Land Title Association, he encouraged real estate professionals to explain what we do in terms our grandmothers can understand. He said when we can explain the value of our profession to our grandmothers; we will be able to be to enlighten our clients. Knowledgeable clients who recognize our value are more satisfied, more willing to pay our fees and more likely to return for future transactions.

  Our jobs are important and honorable! We assist consumers in realizing the American dream. We hold their hands during their most significant purchases. We examine the titles to identify and eliminate risks. We draft documents to protect their interests. We explain documents to confirm clients understand their obligations.

We are entrusted with and carefully handle closing funds. We vigilantly maintain our trust accounts so client funds will be safe. We protect our clients’ private, sensitive information. We are mortgage fraud watch dogs. We provide clients with the best title insurance products available so that the title to their investment will be protected from third parties by reputable and solvent companies. When they leave our offices, they hold keys to the home where their family will live. There is a reason we call the scheduled event a “closing”. It is the end, the culmination of the process of dreaming about, finding, and obtaining a home.

Commercial practitioners assist clients in procuring properties for their business activities or for investment purposes using the skills that no other professional can provide. We form their business entities. We assist with accumulating multiple properties for a single endeavor. We assist clients in satisfying the requirements of their lenders. We know when to call on other professionals…surveyors, inspectors, appraisers, environmental engineers, attorneys and bankruptcy attorneys. We protect clients’ equity and assist in their business pursuits. After their closings, they can begin to build their office buildings, shopping centers and residential subdivisions. Commercial practitioners also assist clients in achieving the American dream.

Learn to articulate your story. Own your story! Tell your story, like you would tell Grandma, to real estate agents, builders, lenders, developers, service organizations and others. This is Marketing for Dirt Lawyers 101. You will see results!