This news is only real estate adjacent, but it should be of interest to all of us who represent consumer clients who attempt to qualify for loans.
The Consumer Financial Protection Bureau issued a press release on January 17 proposing to rein in excessive overdraft fees charged by large financial institutions. The agency estimates this rule change would save consumers $3.5 billion or more per year.
You can read the press release here. The press release includes relevant attachments that include the rule, a fact sheet and other documents that should provide the information you need on this topic.
The Truth in Lending Act, enacted in 1968, generally requires lending institutions to disclose the cost of credit to consumer borrowers. But the Federal Reserve Board created an exemption for banks honoring checks when their depositor “inadvertently” overdrew their account.
Originally, overdrafts were infrequent, and overdraft fees were modest. In the 1990s and 2000s, with the rise of debit cards, large banks began raising fees and using the exemption to generate overdraft loans, creating quite the income stream.
The proposed rule would require large financial institutions to treat overdraft loans like credit cards, with all the related disclosure requirements. Alternatively, banks may charge a small fee in line with their costs. The CFPB suggests these fees may be as low as $3.
According to the press release, the agency took action in 2022 against three of the largest financial institutions to curb these fees. As a result, many banks began to voluntarily revise their overdraft policies. This proposed rule is a continuation of the agency’s efforts to control junk fees.
The CFPB is accepting comments on the proposed rule through April 1.
This blog has discussed legislation limiting the purchase of real estate by some foreigners twice. Remember the Chinese surveillance balloon the United States shot down off the coast of the Palmetto State last February?
That incident and other rising tensions between our government and China over several issues (the war in Ukraine, recognition of Taiwan, to name only two) have resulted in politicians proposing to broaden state law bans on foreign ownership of real estate.
Professor Whitman of the DIRT listserv has provided a New Year’s update on the legislation across the country. He said one of the most significant developments of 2023 in the real estate arena was the noticeable increase in restrictions on foreign acquisitions of US property.
Chicago Title published an Underwriting Memorandum on April 5 entitled “Foreign Ownership of Property in South Carolina” to advise agents of the pending legislation in our state.
For your information, here is a link to Professor Whitman’s email. He gives credit for some of the list to Womble Bond Dixon. And I, as always, recommend and give credit to the listserv. Professor Whitman and his colleagues attempt to keep all of us up to speed on real estate law and trends across the country.
If you encounter potential foreign purchasers in your transactions, consult your friendly and intelligent underwriting counsel.
This blog has discussed the new Corporate Transparency Act three times recently. This is a reminder that the CTA goes into effect on January 1, 2024.
For reporting companies formed prior to the effective date, beneficial owner information will need to be reported to FinCEN prior to January 1, 2025.
For companies formed or registered after January 1 2024 and before January 1,2025, reporting is required within 90 days of the acceptance of the company’s formation or registration filing. FOR NEW COMPANIES, YOU HAVE ONLY 90 DAYS TO REPORT!
If you missed the discussion of the Small Entity Compliance Guide FinCEN issued in September, here is the link.
On September 28, FinCEN issued a Notice to extend the deadline for filing beneficial ownership information reports. You can read the notice here.
Please refer to the excellent September 2023 article in SC Lawyer entitled, “The Basic Ins and Outs of the Corporate Transparency Act” by Matthew B. Edwards and D. Parker Baker III.
This article provides an analysis of the basics of the Act, which is intended to help prevent money laundering, terrorist financing, corruption, tax fraud and other illicit activities. Many entities will be required to report information concerning beneficial owners to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), identifying their beneficial owners and providing certain information about them.
The act may apply to virtually every commercial real estate transaction because of the use of multi-tier entity structures to achieve business objectives. Lawyers will need to review clients’ organizational structure charts to determine entity by entity whether an exemption is applicable. If not, organizational documents, stockholder agreements, operating agreements will have to be reviewed to determine beneficial ownership.
Reporting information will include the name, address, state of jurisdiction and taxpayer identification number of every beneficial owner. Other information may be required, such as passports and driver’s licenses. Penalties for failure to comply will include civil penalties of no more than $500 per day, fines of no more than $10,000 and imprisonment for no more than two years. A safe harbor is included for voluntarily and promptly correcting an inaccurate report within 90 days.
Everyone will get through this together, and it’s likely that experts will emerge to help. This blog will keep you posted on new developments.
I no longer must spend six weeks of my life working on budgets each year, but I sympathize with the dirt lawyers who are in the throes of budgeting this time of year. The real estate economy picture may have been somewhat bleak in 2023, but some news I saw today makes me think 2024 may be a little better.
The New York Times is reporting that the Federal Reserve left the current interest rate unchanged and projects three quarter-point rate cuts for 2024. Federal policy makers are projecting that interest rates will be lowered to 4.6 percent by the end of 2024. This projection is down from the 5.1 percent estimate that was released in September.
Your 401(K) probably showed happy increases today. My personal financial planner got lucky because his holiday party is scheduled for tomorrow, and his clients should be happy after a period of uncertainty in the market.
Inflation has decreased, which is also very good news for all of us heading into the new year. Everyone seems to be feeling much better about the economy, which should signal a Merry Christmas and Happy New Year for all of us involved in real estate transactions! Let’s collectively keep our fingers crossed!
The Federal Housing Finance Agency (FHFA) issued a press release on November 28 announcing the conforming loan limit values for Fannie Mae and Freddie Mac mortgages in 2024 will increase.
For most locations, the new loan limit will be $766,550, an increase of $40,350 from 2023. The press release indicates that average home prices increased 5.56% between the third quarters of 2022 and 2023, and the conforming loan limit will increase by the same percentage.
In some areas with high housing values, the applicable loan limit will be doubled ($1,149,825). In addition, special statutory provisions require that the limit in Alaska, Hawaii, Guam, and the U.S. Virgin Islands must be set at 150% of the limit in other areas. That limit will be the same as in the high housing value areas ($1,149,825).
This update furthers my effort to keep South Carolina dirt lawyers up to speed on the real estate agent commission cases that are proceeding through courts across the country. HousingWire is reporting that a judge in the Western District of Missouri has preliminarily approved a settlement with two corporate broker firms, RE/MAX and Anywhere Real Estate.
According to the article dated November 21, RE/MAX will pay $55 million, and Anywhere Real Estate will pay $83.5 million.
Settlement agreement provisions include no longer requiring agents to be members of the National Association of Realtors and that the brokerage firms will require or encourage agents to make it clear that commissions are negotiable. Agents will also have the flexibility to set or negotiate commissions as they see fit.
The parties are required to contact the court to schedule a final approval hearing before December 22.
Last week’s blog spoke to Housingwire’s November 10 article that Sauntell Burten has filed a lawsuit in the U.S. District Court for South Carolina alleging that the National Association of Realtors and Keller Williams colluded to artificially inflate agent commission rates.
The plaintiff is seeking class action status for all home sellers in South Carolina who have sold a home on the MLS with a Keller Williams agent since November of 2019. The 107-page complaint states that NAR’s “clear cooperation” policy leads to the commission problem because that policy requires agents to provide a blanket offer of compensation to the buyer’s agent to list a property on the MLS.
Real estate lawyers, let me know if you hear local updates on this situation.
This blog recently discussed the Missouri class action by residential real estate sellers against the National Association of Realtors (NAR), a real estate agent trade association, and several real estate agent entities, which resulted in a judgment of $1.8 billion. The plaintiffs argued that commissions are rarely negotiable and that the seller is required to pay commissions for both sides of transactions
A South Carolina lawyer posted on a listserv I read on the subject that litigation like this wouldn’t happen in South Carolina because standard residential contracts leave a blank for the percentage of the buyer’s agent’s commission. This poster was, sadly, wrong.
Housingwire reported on November 10 that Shauntell Burton has filed a lawsuit in the U.S. District Court for South Carolina alleging that the NAR and Keller Williams colluded to artificially inflate agent commission rates. You can read the story here.
The plaintiff is seeking class action status for all home sellers in South Carolina who have sold a home on the MLS with a Keller Williams agent since November of 2019. The 107-page complaint states that NAR’s “clear cooperation” policy leads to the commission problem because that policy requires agents to provide a blanket offer of compensation to the buyer’s agent to list a property on the MLS.
Apparently, similar suits are being brought in multiple states.
Dirt lawyers, what do you think about this? Is Keller Williams the only broker involved in the practice, or will other brokers be named in the future? Is it your experience that commissions paid by sellers to buyers’ agents are negotiated, as the poster mentioned above suggested? I’d love to hear your thoughts and learn from your experience.
Halloween brought a scary judgment in a Missouri class action by residential real estate sellers against the National Association of Realtors (NAR), a real estate agent trade association, and several real estate agent entities. The judgment of $1.8 billion will surely be appealed all the way to the Supreme Court. Appeals may take several years to be completed.
The sellers argued that commissions are rarely negotiable, and that the seller is required to pay commissions for both sides of transactions. I heard a seller interviewed by Lester Holt on NBC Nightly News on November 1. He said that he must pay commission to a real estate agent he never met, will never meet and who did no work for him.
The plaintiffs also argued that this commission structure keeps home prices artificially high.
At least two real estate agent entities settled for large sums prior to the judgment. And similar lawsuits are pending in other jurisdictions.
Dirt lawyers, how do you project this suit may ultimately affect our industry? I wonder if any type of injunction will be put into place pending appeal. I wonder whether the Department of Justice will see the necessity to become involved. I wonder whether commissions will ultimately become negotiable and whether buyers will be required to pay their agents up front or at closing. If that happens, I can imagine extensive negotiations with sellers to pay more of their buyer’s closing costs than customary. I even wonder whether buyer agents may become obsolete.
I hate to report that any South Carolina law firm has fallen victim to fraud, but my friend and successor at Chicago Title, Jennifer Rubin, tells me that fraud is a daily challenge for closing attorneys in South Carolina. I am going to discuss this case delicately, because I believe this might happen to anyone who handles closings. I have sympathy for each closing law firm because they remain under constant pressure. But I also believe that everyone needs all the warnings we can collectively muster! This blog is yet another warning.
First, let me thank my friend, Bill Booth, Columbia attorney who keeps me posted on cases he follows. I appreciate being kept informed. This is an unpublished South Carolina Court of Appeals case* Bill brought to my attention. Bill said, “The fraudster was very clever in how he changed the seller’s email by a single letter.” Clever indeed! I stared at the real email address and the fraudulent email address for several minutes and failed to find the discrepancy. I handed the opinion to my husband and asked him to see if he could find it. He did, but it took him awhile.
Here are the two email addresses: mail4marvin@gmail.com vs. mail4rnarvin@gmail.com. Do you see it? The “m” in marvin was changed to “rn”. The Court of Appeals called this discrepancy “cunning”. I’ll say!
At trial, the seller was awarded a $10,306 verdict against the law firm, and the Court of Appeals affirmed. I assume the law firm will appeal to the South Carolina Supreme Court, and we may get further guidance.
Here are the facts. In 2016, Marvin Gipson contracted to sell his property to Clyde and Betty Williamson for $12,000. Gipson lived in Texas, and his local real estate agent recommended the closing firm, which represented both sides. Gipson testified that his only contact with the law firm was by mail, telephone, and email, mostly with an assistant.
Prior to closing, according to Gipson, the assistant told Gipson that she had received wiring instructions. Gipson testified he told her that he had never sent wiring instructions and expected to receive a check. He said he never received a phone call informing him that the closing had been completed and never received the check. He waited eleven days before contacting the law firm to report that he hadn’t received his seller’s proceeds.
Investigation revealed that the assistant had emailed the fraudulent address that the closing had taken place. By return email, she received fraudulent wiring instructions.
At trial, the law firm presented expert witness testimony to the effect that the law firm’s server was not hacked, and that the theft was facilitated by a “man in the middle attack”, wherein the thief was privy to information possibly obtained through a breach of Gipson’s or the real estate agent’s systems or by overhearing information. But the law firm was held liable at the trial level and by the Court of Appeals.
Lawyers, here is my advice. Please give your closing paralegals time. They need time to discover issues. They need time to investigate discrepancies. Please also give them training, not just once but weekly or even daily. They need to know about this case! No amount of training is too much. Talk to your title company. They have resources to assist! Use those resources! Stay up to date yourself! We spent three years in law school learning to spot issues. Apply those skills to your closing practices to spot those difficult issues.
This blog has previously discussed MV Realty PBC, LLC. South Carolina title examiners report they are discovering “Homeowner Benefit Agreements”, or “Exclusive Listing Agreements” filed in the public records as mortgages or memoranda of agreement. The duration of the agreements purports to be forty years, and a quick search revealed hundreds of these unusual documents filed in several South Carolina counties. The documents indicate that they create liens against the real estate in question.
The company behind these documents is MV Realty PBC, LLC which appears to be doing business in the Palmetto State as MV Realty of South Carolina, LLC. The company’s website indicates the company will pay a homeowner between $300 and $5,000 in connection with its Homeowner Benefit Program. In return for the payment, the homeowner agrees to use the company’s services as listing agent if the decision is made to sell the property during the term of the agreement. The agreements typically provide that the homeowner may elect to pay an early termination fee to avoid listing the property in question with MV Realty.
In response to numerous underwriting questions on the topic, Chicago Title sent an underwriting memorandum last year to its agents entitled “Exclusive Listing Agreements”. Chicago Title’s position on the topic was set out in its memorandum as follows: “Pending further guidance, Chicago Title requires that you treat recordings of this kind like any other lien or mortgage. You should obtain a release or satisfaction of the recording as part of the closing or take an exception to the recorded document in your commitments and final policies.”
Several states have sued this company or passed legislation making the contracts unenforceable. South Carolina is not one of those states. On September 6, United States Senators Casey, Brown and Wyden (Chairmen of Special Committee on Aging, Committee on Banking, Housing, and Urban Affairs and Committee on Finance, respectively) wrote a comprehensive letter setting out the legal concerns and seeking information. You can read the letter in its entirety here.
Now, MV Realty of South Carolina has filed for Chapter 11 Bankruptcy reporting assets of $1 – $10 million and debts of $1-$50 million.
Dirt lawyers, pay attention to this situation. We will certainly see updates. If you see these contracts in your chains of title in the meantime, contact your underwriting counsel for guidance.
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