Chicago Title Insurance Company

WannaCry? We don’t want you to have to!

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(Guest blog by IT Guru Cris Hudson)

A global cyberattack happened over the weekend, affecting some 100+ countries, and crippling hospital networks, large manufacturers and even some small governments.

Dubbed “WannaCry”, but technically named “WannaCrypt,” the attack preyed on vulnerabilities in machines where Windows and virus scan programs were not up to date. It delivered its payload via a typical “phishing” email, and once launched, encrypted and locked down files, demanding ransom from those institutions before the files would be released.

How does this affect you? Please be sure that you are working on a current version of Windows, and that you run a regular Windows Update. We still see the occasional office using Windows XP, which Microsoft ended support for in April 2014. Without a more current version of Windows such as Windows 7 or Windows 10, those machines are not able to download updates to guard against attacks such as these.

Also, make sure that you take a moment right now and update your virus scan software. DAT files for most major security providers have been updated to recognize this threat, but only if they’ve been updated since the attack on May 12th, 2017. And as always … backup, backup, backup! If you were to fall prey to something like this, you’ve at least got a fighting chance with a current backup of your server and files.  Without it .. you might definitely be crying.

Two positive articles for dirt lawyers from national sources

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REALTOR®Mag is reporting that although financing remains the top roadblock to successful closings, fewer real estate agents are reporting financing as an issue today as opposed to previous months. This trend is a good one! Check out the article here.

The article indicates that, according to the REALTORS® Confidence Index, which is based on the responses from 2,500 real estate agents nationwide, the decline in complaints about financing may reflect an improvement in the economy, better credit histories from buyers and an improvement in loan evaluation processes.

But the article does report that appraisals are becoming a growing concern. Real estate agents indicated that a shortage of appraisers, valuations that are not in line with market conditions and “out-of-town” appraisers who are not familiar with local markets create the difficulties.

And for the first time in eleven years, the Fannie Mae and Freddie Mac conforming loan limit has increased to $424,100, allowing more home buyers to avoid jumbo loans, obtain lower interest rates and deliver lower down payments. The non-conforming loan limit had previously been stuck at $417,000. Read the article from INFOGRAPHIC here.

The economic news surrounding real estate closings is generally positive nationally. And the news is good in South Carolina, too. I’ve traveled around the state a good bit since the beginning of the year, and everywhere I go, I ask lawyers about business.

Early in the year, it seemed residential practices were sluggish in some markets while commercial practices were extremely busy statewide. In the last few weeks, I’m hearing much more encouraging news about residential practices, and commercial lawyers continue to report that business is excellent.

Our office is in the middle of a seminar series we have entitled “The future’s so bright, we have to wear shades.” We’re drinking the Kool-Aid and enjoying these economic good times. Those of us who weathered 2008 – 2012 deserve it!

SC Supreme Court publishes new commentary on social media

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Real estate lawyers are involved in two disciplinary cases

Two disciplinary cases* were published by the South Carolina Supreme Court on April 19 concerning lawyers involved in multi-state mortgage modification practices. Stay tuned for a blog on the mortgage modification issues because Palmetto State dirt lawyers should steer clear of the unauthorized practice of law and other prickly issues these practices may trigger.

But ostensibly even more pressing, the Court provided ample guidance on lawyer marketing in the context of social media. Using websites and social media in marketing effort is common in 2017 for most lawyers.

The lawyers in these cases failed to adequately monitor the individuals (staff members and third parties) who handled these marketing efforts for their practices.  Failure to properly supervise these effort resulted in running afoul of the Rules of Professional Responsibility.

Dirt lawyers, here are some practices you should avoid taking in your marketing efforts:

  • You should not “cut and paste” from other lawyers’ websites without scrutinizing the materials.
  • If you are a sole practitioner, your website and other marketing materials should not indicate your practice includes “attorneys” or “lawyers”.
  • You should not exaggerate your years of experience.
  • You should not use the word “expert” except in those areas where you are certified as a specialist by the Supreme Court.
  • You should not advertise practice areas where you have no experience in those areas and where you do not intend to take cases in those areas.
  • You should not congratulate clients on their closings without obtaining the clients’ permission to post their names and other information about their legal matters on social media. I see (and “like”) lots of these congratulatory messages on Facebook, and these messages are not objectionable if the lawyer has obtained the clients’ consent.
  • Your marketing materials should not refer to your legal services as “best”.
  • You should not advertise special discounted rates for legal services without disclosing whether or not these rates include anticipated costs.
  • You should not compare your services to other attorneys in ways that cannot be factually substantiated.
  • You should not allow third party vendors to identify themselves as employees of your firm when communicating with prospective clients.

Not many of us are “experts” in the area of attorney advertising, but I strongly recommend that you pay close attention to the Rules in all aspects of website development and social media use. Unlike most areas of the law, the Rules of Professional Responsibility that control advertising appear to be somewhat “black and white”. And failure to follow these Rules will anger your fellow lawyers and will likely to land you in the Advance Sheets. Be careful out there!

 

* In the Matter of Bacon, S.C. Supreme Court Opinion 27710, April 19, 2017; In the Matter of Emery, S.C. Supreme Court Opinion 27712, April 19, 2017.

Dirt lawyers: guard your clients and your offices against sloppy title search practices

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Our Supreme Court has made it crystal clear that searching titles is the practice of law. For every real estate closing, the closing attorney should perform or supervise the title examination. Theoretically, all title insurance and malpractice claims caused by title search errors can be prevented. Having safe title examination practices in real estate closing offices would go a long way toward minimizing claims and protecting clients and their properties!

The following are some dangerous practices that lead to claims:

  • Hiring title examiners who are inexperienced, who cut corners and who are not covered by errors and omissions insurance coverage.
  • Failing to properly instruct title examiners as to how titles should be searched. Whether law firm employees or outside abstractors are used, the closing attorney should develop and use his or her own set of title examining procedures.
  • Failing to require title examiners to pull documents. It is not sufficient to search titles using indexes. Doing so puts the lawyer and client at the mercy of the county employee who typed the index.
  • Failing to review chain documents. The attorney should review chain documents. Attorneys spot issues that are missed by abstractors. If a link in the chain of title is a foreclosure or an estate, the foreclosure file or the estate file should be reviewed.
  • Failing to use proper search periods. The long-standing search period standard in South Carolina is sixty years. Title insurance companies have shortened this standard to forty years, particularly for residential transactions. But some title insurance companies and sloppy practitioners are allowing for much shorter periods of time, like ten years, or “up from the developer” or “up from the deed into the borrower” without informing the client that the title has not been examined. Title examinations are the practice of law in South Carolina, and  title companies do not have the power to permit a lawyer to shorten search periods without the informed consent of the attorney’s client.
  • Relying on prior title insurance policies that are not worthy of reliance. In “tacking on” to prior policies, closing attorneys should use common sense and good judgment. Determine who issued the prior policy and decide whether that person’s work should be substituted for your own. Review the prior policy to determine whether it looks normal on its face. Some title insurance companies are issuing products that are not backed by title examinations or are backed by very short title examinations. Those policies are not worthy of reliance in an atmosphere where title examinations are the practice of law. As in the case of other short searches, informed consent confirmed in writing from clients should be obtained for employing a short search based on a prior policy.
  • Failing to pull back title notes where a short search is used. It does not help that the attorney’s office has closed properties in the same chain of title if that prior title work is not used. Exceptions and requirements from the prior title work should be used in the current title insurance commitment and policy.
  • Failing to search for a longer period of time where the shorter search does not reveal normal easements and restrictions for the type of property being searched. A search involving a residential subdivision created in the 1950’s should not stop in the 1960’s.

At least two sets of eyes should review every title examination. And one of those sets of eyes should belong to an attorney who was taught in law school to spot issues!

IRS issues for tax season…for your reading pleasure

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Just in time for tax season, the IRS announced on April 4 that it will begin using private debt collectors pursuant to federal law enacted late in 2015.

The IRS said that it will begin this month sending around 100 letters per week to taxpayers who have accumulated years-overdue tax debt. If the process goes smoothly, the number of letters will be increased to 1,000 per week.

Outsourcing debt collection will likely provide scammers with new opportunities, so the IRS has provided some advice for the safety of taxpayers.

The taxpayer will hear from the IRS first by letter. The letter will provide the name and contact information for the debt collection firm. After that initial contact, the debt collection firm will send its first letter confirming that it will handle the case. Neither initial contacts will be by telephone.

At this point, only four firms have been identified:  CBE Group of Cedar Falls, Iowa; Conserve of Fairport, New York; Performant of Livermore, California; and Pioneer of Horseheads, New York. Each taxpayer’s account will be assigned to only one of these firms.

None of the firms will ever ask for payments to be made to anyone other than the United States Treasury. If a taxpayer is asked to make payment to anyone else, this is a scam.

In the case of mistreatment under this new program, taxpayers are urged to file complaints with the Treasury Inspector General for Tax Administration and the Consumer Financial Protection Bureau.  The IRS and Congress have indicated they will be monitoring this situation carefully.

On a related topic, real estate lawyers should be reminded that the IRS may issue a levy, which is a legal seizure, of a taxpayer’s property to satisfy a tax debt. When a levy is issued, it applies to real property, money, credits and bank deposits. A levy can also reach property held by third parties, such as retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivable, the cash loan value of life insurance policies and commissions.

The IRS issues a levy only after it has exhausted other means to collect a tax debt.

From time to time, a settlement agent will receive a levy for a party involved in a closing. The taxpayer should be sent a notice in writing of the receipt of the levy and should be directed to consult with his or her tax advisor. Remember that a real estate lawyer who is not also competent as a tax lawyer should never offer tax advice. Typically, after the taxpayer has time to seek tax advice, the settlement agent should comply with the levy.

(If I received a levy, however, I would also seek my own tax advice prior to disbursing any funds!)

The Carolinas are basketball states!

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(And states dealing with a “clarified” boundary)

Congratulations to the University of North Carolina on last night’s win in the Men’s College Basketball National Championship!  North Carolina has always been a basketball state, and our hats are off to you!  Our Gamecocks made it to the Final Four for the first time ever, so both states are proud of their men’s basketball teams!  And congratulations to our Gamecock women who won their National Championship on Sunday!  We love seeing that flag fly over our statehouse! Both Carolinas are apparently now basketball states!

We are also states with a newly defined boundary line between us. The long awaited and much debated legislation “clarifying the original location the boundary” became effective on January 1, 2017, and both states are dealing with the ramifications of the legislation.

Some parcels previously believed to be in South Carolina are now confirmed to be in North Carolina and vice versa. Both legislatures insist that the boundary has not changed, but that since markers have been lost or destroyed by the elements, it was necessary to have the boundary researched and resurveyed. (If they had taken the position that the boundary line was being moved, they would have had to involve Congress.)

South Carolina real estate lawyers have been advised to consult with their title insurance companies for guidance as they deal with affected properties. In North Carolina, however, the Real Property Section of the Bar and the Land Title Association have issued a lengthy memorandum, dated March 20, 2017, to provide guidance to North Carolina lawyers. I thought this memorandum might be useful to point out the various issues to South Carolina lawyers and link it here.

The best advice I can give all of us dealing with issues surrounding this change is to proceed slowly and with due diligence, consulting your title insurance company underwriters every step of the way!

Wells Fargo distributes new settlement agent communication

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Note: Settlement agents are scheduled to be re-evaluated

Wells Fargo delivered a memo entitled “News for Wells Fargo Settlement Agents” on March 23. The first paragraph cryptically announced that future communications will detail the Uniform Closing Dataset (UCD) that will become effective for lenders in 2018.

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For insight into the UCD, review Fannie Mae’s or Freddie Mac’s websites. Briefly, the UCD is going to be a common industry dataset to allow information on the Closing Disclosure to be communicated electronically. Fannie Mae and Freddie Mac have developed the UCD at the direction of the Federal Housing Finance Agency in an effort to enhance loan quality and consistency through uniform loan date standards. Stay tuned for more information on this topic and lenders gear up to comply.

The Wells Fargo memo also touted continued expansion of settlement agents who are using Closing Insight™.  Settlement agents who are just getting started were asked to take advantage of the support available at RealEC’s Closing Insight Resource Center at http://www.closinginsightresourcecenter.com or to contact the company at CISupport@realec.com or 800.893.3241. I encourage all South Carolina closing attorneys to get up to speed on this system as soon as possible.

The serious news from Wells Fargo, however, relates to a new effort to evaluate settlement agents.

The memo warned that Wells Fargo will evaluate the population of settlement agents who have closed loans within the past twelve months for problems such as missing documents, execution errors and other frequent problems that require curative work. As a result, settlement agents may receive letters indicating they are being removed from Wells’ list of approved settlement agents.

Processes are in place, however, to accommodate the customer’s choice for a settlement agent who is not on the approved list. Apparently, a new approval process will be instituted, but no detail on this process is provided.

house made of cashThe memo further indicates that attorneys’ ability to act as counsel for customers will not be impacted.  I don’t read this last directive to mean that attorneys who are not on the approved list will be in a position to close loans. They will only be in a position to dispense legal advice, if I am interpreting this correctly.

Settlement agents with questions are encouraged to communicate with Wells at WellsFargoSEttlementAgentCommunicatons@wellsfargo.com. I urge anyone who is interested in continuing to close Wells Fargo loans to hang onto this information.

Finally, the memo is requesting acknowledgement of Master Closing Instructions from all active and approved settlement agencies. Requests for this acknowledgement are coming from Wells Fargo in the form of e-mails to settlement agents. Please respond!

All lenders are beginning to hold settlement agents to higher standards. South Carolina closing attorneys are encouraged to stay abreast of changes and train, train, train staff members.

And, as always, contact your title insurance companies for insight into these matters.

Tax-related identity theft is on the rise

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Some safety tips for you and your clients

The dreaded tax day is fast approaching! Please be aware of tax-related identity fraud, which we are being told is on the rise.

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This fraud occurs in several forms. One scheme is to file more than one return using a single Social Security Number. The fraudster steals the SSN and other identifying information, files a return and receives the refund before the true taxpayer has a chance to file. (Or the true taxpayer is a lawyer who always files late.)

Another scheme involves calling the taxpayer to inform him that he owes additional taxes and will have collection actions taken against him. He can get off the hook by providing credit card information to resolve the problem.

A third scheme involves calling the taxpayer to inform her that she received wages or other income from an employer for whom she never worked. Again, she can resolve the problem by paying additional taxes via credit card.

In a similar situation not involving tax-identity fraud, my husband received a voicemail on his cell phone this week indicating a subpoena was about to be served on him either at home or at work and to avoid that subpoena, he could call a telephone number. He is a lawyer, so having a subpoena served wouldn’t be outside of the realm of possibility, but he was able to determine this was a scam based on very limited Internet research.

The IRS advises that anyone who receives a telephone call, letter or e-mail purporting to come from the IRS should call the agency directly at 800.908.4490 to validate the request. In other words, never contact the requester by the method indicated in the communication. Go directly to the source.

The IRS also gives some very common sense advice:  never give personal information without validating the source.

If you are a victim of tax-related identity theft, the IRS recommends the following steps:

  • Notify the IRS at 800.908.4490;
  • If instructed to do so by the IRS after the initial notification, go it its identity verification service website to report the incident.
  • If your return is rejected because of a duplicate filing, complete IRS Form 14039, Identity Theft Affidavit, available at IRS.gov.

The Federal Trade Commission recommends the following steps if you are a victim of identity theft:

  • File a complaint with the FTC at identitytheft.gov;
  • Contact one of the three major credit bureaus to place a “fraud alert” on your credit records:

Be safe out there, use common sense, advise your clients to use common sense, and get those returns filed on time, lawyers!

Dirt Lawyers: Make sure you conform(a) with your pro forma policies

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Commercial real estate lawyers are routinely asked to issue pro forma title insurance policies. A friend who routinely acts as lenders’ counsel recently told me he sees lots of pro forma policies coming from borrowers’ counsel, and they are not being handled appropriately. For that reason, I thought I’d list a few reminders for all of us.

What is a pro forma policy? It is a sample policy provided to the customer and customer’s counsel in advance of closing. It outlines the actual language and format the final policy will contain, in the event the transaction actually closes and the policy is actually issued. A pro forma policy is not intended to serve as a promise to issue the final policy. And it is definitely not a substitute for a commitment.

One excellent process is to never send out a pro-forma policy independently. When I was in private practice, I issued a pro forma as an attachment to a letter which said, basically, “A policy in the form attached may be issued when the requirements in Commitment #_____, dated _____ have been satisfied.” My lenders’ counsel friend nails this matter down further by issuing the pro-forma policy as an attachment to the commitment with a note in the requirements section to the effect that upon satisfaction of all applicable requirements, a policy in the form set forth in Exhibit ___ will be issued.

A note to this effect be added to the policy:  “NOTE: This is a Pro Forma Policy. It does not reflect the present state of title and is not a commitment to insure the title or to issue any of the attached endorsements. Any such commitment must be an express written undertaking on appropriate forms.”

The pro-forma policy and all endorsements should be clearly marked “Pro-Forma Specimen” or “Sample” and should not be signed.  Many lawyers have a large “Specimen” stamp to use in these situations. My lenders’ counsel friend told me he actually stamps pro forma policies coming from borrowers’ counsel. Not all lenders’ counsel are that accommodating.

Where the policy date and policy number are requested on the form, supply the note “None”.

These rules are very simple and comply with common sense. A pro-forma policy is not a policy and should be clearly shown in every instance as a sample. Following these very straightforward rules will keep you and your title company out of trouble. And, as always, call you underwriter if you have questions or concerns!

IRS issues urgent warning about W-2 phishing scam

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On February 2, the Internal Revenue Service issued an urgent alert to all employers about a W-2 email phishing scam. The scam was launched in 2016 but has been expanded this year, according to the bulletin, which can be read here.

The bulletin warned that cybercriminals employ a number of spoofing techniques to create an email that appears to originate from an organization’s executive. The email is sent to employees in human resources and payroll departments, requesting a list of employees and their W-2 forms. These forms, of course, contain identifying information including addresses and Social Security numbers.

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Last year, the scam targeted the corporate sector, but this year, the scam appears to be spreading to school districts as well as nonprofit and tribal organizations. Another twist is that the cybercriminals may follow with emails requesting wire transfers. Some companies have lost funds in addition to sensitive information. Some organizations report having received these emails in 2016 and 2017.

The IRS memo urges employers to be vigilant and to share this information with their payroll, finance and human resources departments. Organizations should report incidents to phishing@irs.gov with a subject line of “W2 Scam” and should file a complaint with the Internet Crime Complaint Center (IC3).

Individuals whose W-2 forms have been stolen should take the actions set out in www.identitytheft.gov or www.irs.gov/idenditytheft.  They should also file a Form 14039, Identity Theft Affidavit, if a tax return is rejected because of a duplicated Social Security number.

IRS Commissioner John Koskinen said, “This is one of the most dangerous email phishing scams we’ve seen in a long time. It can result in the large-scale theft of sensitive data that criminals can use to commit various crimes, including filing fraudulent tax returns. We need everyone’s help to turn the tide against this scheme.”