Claire Manning

What should you do when faced with a letter from the ODC?

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This disciplinary opinion clearly sets out what not to do!

I’ve blogged before about Mike Goodwin, the “Bow Tie Comedian” based here in Columbia, who entertained us during lunch at Chicago Title’s seminar several years ago. I highly recommend Mike if you need a comedian suitable for a family audience. A joke that bubbled up through his very funny presentation was a line his mother used to keep him on the straight and narrow during his childhood, “what you NOT gonna do is…..” 

For example, she would say, what you NOT gonna do is to stand there and hold that refrigerator door open while you try to decide what you want to eat. During one lull in the laughter, Mike said to us, “what you NOT gonna do is sit there and not laugh at my jokes.” (So we laughed.)

Mike’s tag line came to mind when I read a recent disciplinary case* involving a real estate lawyer. This lawyer did exactly what he should not have done when the ODC contacted him.

This lawyer had been previously disciplined for financial misconduct in 2011. In that case**, he was given a public reprimand. He did not learn from his mistake.

In 2016, a client gave the check in the amount of $8,969. Just prior to the deposit of this client’s check, the balance in the lawyer’s trust account was $0.15. The lawyer negotiated nine checks to himself totaling $365. Then he issued a check to the client’s seller in the amount of $8,969. This check was returned as unpaid for insufficient funds, and the bank notified the ODC. The client also filed a complaint with the ODC.

Later, he misappropriated trust funds by writing checks to himself in amounts totaling just over $8,000.

What did the lawyer do in response to the ODC? Nothing!

  • He failed to respond to notices of investigation, despite being served with reminder letters.
  • He failed to respond to the court-appointed receiver after he was placed on interim suspension.
  • He failed to cooperate with the receiver and failed to produce client files and trust account files after being ordered to do so.
  • He failed to file an answer to formal charges.
  • (The Court didn’t say this, but his worst mistake may have been failing to hire a lawyer experienced in disciplinary matters.)
  • He failed to appear at his hearing.
  • He failed to file a brief taking exception to the report issued subsequent to the hearing, thus accepting the findings of fact, conclusions of law, and recommendations.

The Court, siting the central purpose of the disciplinary process is to protect the public from unscrupulous and indifferent lawyers, disbarred the lawyer. Learn well from this lawyer’s lack of action!

*In the Matter of Griffin, South Carolina Supreme Court Opinion 28124 (December 14, 2022).

**In the Matter of Griffin, 393 S.C. 142, 711 S.E.2d 890 (2011).

Beware of recent seller imposter fraud

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Fraudsters are creative, changing their schemes to meet the current market at every turn! Seller imposter fraud has been an issue for several years, but we’re hearing new reports in South Carolina. My favorite title insurance company and former employer, Chicago Title, sent out its third memorandum about seller imposter fraud on December 8. I wanted to make sure all readers of this blog are aware of the new efforts by fraudsters.

Several dirt lawyers in Charleston have reported variations in the seller imposter fraud arena in the last month.

Here are warning signs Chicago Title’s memo highlights:

  • The property involved is often unimproved.
  • The property is often advertised for sale through internet-based listing services.
  • The property is often listed at a price less than fair market value.
  • Contact with the imposter seller is often only by email.
  • The purported seller declines any requested in-person contact.
  • The purported seller supplies identification only by photocopy or teleconference.
  • The purported seller suggests executing documents outside of closing.
  • The purported seller suggests acting via power of attorney.

If you see any of these factors in your closings, pay particular attention to the identity of the seller. Advise your staff of these matters and advise them to allow a second set of eyes to review any questionable practices suggested by sellers.

As the excellent underwriting staff of Chicago Title reports, most of these attempts to steal are entirely preventable by paying attention to documents and taking extra steps to verify the identities of the parties involved in your closings.

South Carolina lawyers have prevented these fraud attempts by using the following tactics:

  • They carefully review documents for irregularities and inconsistencies.
  • They verify seller identity through contact information available in the public records or through other trusted sources.
  • They verify foreign identities and notarizations by contact with appropriate embassies.
  • They confirm witnesses and notorizations with the notary whose signature appears on the documents.
  • They compare package tracking information and wiring instructions to the purported location of the seller.

Please be careful out there and advise your staff members of these issues.

Fifth Circuit addresses short-term rental challenge

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This blog has previously discussed challenges by various cities, including cities in South Carolina, to short-term rentals in residential areas.

Vrbo and Airbnb are two go-to websites to find interesting short-term rentals in vacation locations. Sometimes a cabin or house seems much more appropriate and fun than a hotel room for a family get-away. Having a kitchen and room for dining is often a plus.

Arguments against such rentals often focus on noise and parking problems in otherwise quiet residential subdivisions.

Rules vary greatly in the cabins and houses we’ve rented, but a common theme seems to be that parties are not allowed. I’ve also seen limits on the number of cars that can be accommodated and, of course, the number of people permitted. Pets may or may not be allowed.

The Fifth Circuit Court of Appeals recently addressed such a challenge in Hignell-Stark v. City of New Orleans, 46 F. 4th 317 (August 22, 2022). Thanks to Professor Dale Whitman of the University of Missouri at Kansas City Law School via the Dirt Listserv for information on this case.

An ordinance in the City of New Orleans required an owner to be a resident of the city to obtain a license to become a landlord allowing short-term rentals. When the plaintiffs challenged this ordinance using a “takings” theory, the Fifth Circuit held that theory to be inapplicable because permission to make short-term rentals of a residential unit is not a property interest. It is instead, according to the Court, a privilege.

The plaintiffs also argued that the ordinance was an undue burden on interstate commerce, and the Court agreed, stating that an ordinance that discriminates against interstate commerce is per se invalid unless there are no available alternative methods for enforcing the city’s legitimate policy goals. The ordinance in question was a blanket prohibition against out-of-state property owners’ participation in the short-term rental market. The Court pointed out that the ordinance doesn’t just make it more difficult for non-residents to compete in the market for short-term rentals in residential neighborhoods; it forbids them from participating altogether.

The Court pointed to alternative methods for achieving the city’s legitimate goals of preventing nuisances, promoting affordable housing, and protecting neighborhoods’ residential character. More aggressive enforcement of nuisance laws, increased penalties for nuisance violations, increased taxes on short-term rentals, requiring an operator remain on the property during night hours, and capping the number of short-term rentals licenses in particular zoning district might be alternatives.

The ordinance was held unconstitutional and void because the city’s objectives could be addressed in other ways that did not burden interstate commerce.

What do you think? Would you be comfortable with short-term rentals in your neighborhood?

All the Rules of Professional Conduct are not intuitive

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…but this one is: be honest!

Some of the rules we learned in our professional responsibility classes in law school were problematic because they didn’t seem intuitive. I found the advertising rules to be particularly prickly. The rules surrounding financial recordkeeping require extreme attention to detail in accounting, and we went to law school because we aren’t strong in math, right? Even the rules surrounding competency require careful study for each practice area.

But Rule 407’s requirement of honesty is identical to the directive our parents imposed and, for that reason, absolutely intuitive. As lawyers, we must be honest in our professional relationships.

One lawyer learned this lesson the hard way according to a November 23 attorney disciplinary opinion from the South Carolina Supreme Court. *

This lawyer worked as a law clerk for a firm after graduation and became an associate attorney when he was admitted to practice in November 2017. He was paid on an hourly basis. The firm used computer software to track working hours in real time, and throughout 2018, the lawyer used software to clock in and out during times when he was not in the office or otherwise working to inflate his hours and increase his pay.

Fortunately, the lawyer did not bill clients directly, so no client overpaid because of his misconduct. At tax time, though, the lawyer’s supervising attorney discovered the discrepancy and confronted the associate. The total overpayment was just short of $18,000. After confronting the lawyer, the firm allowed the associate to self-report. His report included a signed restitution agreement in which he agreed to repay the law firm in full. 

The lawyer also filed an affidavit in mitigation, in which he expressed remorse and explained that his preoccupation with financial security arose from his disadvantaged upbringing. He said he was desperate to prove his personal worthiness and to achieve financial security. Those goals eclipsed his better judgment. He also stated he has worked with counselors to understand why he committed this misconduct.

He entered into an agreement for a six-month suspension, which the Court accepted. He was also required to complete the Legal Ethics and Practice Program Ethics School and to pay the costs incurred by the ODC in investigating and prosecuting the matter.

Stay honest out there, lawyers, and take the time to mentor young lawyers with regard to their ethical responsibilities.

*In the Matter of Jacob, South Carolina Supreme Court Opinion No. 28122 (November 23, 2022).

A Blog for Thanksgiving Week

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The top ten things this dirt lawyer is thankful for professionally…

As a happy United Methodist (by virtue of my marriage 42 years ago to a P.K.* who refused to be baptized again at a Baptist church) I believe an attitude of thankfulness makes life better.

So, from a real estate standpoint, here are the top ten things for which I’ll give thanks this Thursday:

  1. We live and work in a state where closing real estate transactions is the practice of law and where, by hard work and vigilance, we are in a position to protect the interests of our clients.
  2. We help our consumer clients achieve one of their biggest dreams, home ownership.
  3. We help our commercial clients purchase, lease, finance and refinance properties. These activities allow our clients to make money and allow our communities to thrive.
  4. We don’t ignore title problems. We find them, discuss them, cure them, obtain insurance over them, and, hopefully, make them better for the property owner and lender, and for the next lawyer.
  5. If things go well, everyone involved in the closing is “happy”.
  6. We generally, as a community of real estate lawyers, seek to get along with each other. (Don’t make me point out exceptions to this rule!) Older lawyers mentor younger lawyers. Lawyers ask each other for guidance and, generally, that guidance is given with a smile. We train lawyers and paralegals, we serve on committees, we speak at seminars, write papers and books, participate in the Bar’s and the law schools’ mentorship programs and handle pro bono matters. As lawyers, we try to be good citizens.
  7. Those of us who weathered the financial downturn that began in 2007 encourage those of us who have not that there is life on the other side. If we suffer from another downturn in 2023, we will get through it.
  8. Technology has made our lives easier in the last few years, and improvements in technology will continue to make our lives easier. (I know that technology has also led to a great deal of fraud that we must fight every day, but I’m being positive here! Work with me!)
  9. I am thankful for the team of dedicated professionals who worked with me before I retired and who continue to take the best care possible of title insurance agents (dirt lawyers and their staff members.)
  10. I am thankful for the network of attorney agents who ably handle real estate matters throughout the Palmetto State.

I know. I know. Many of you are shaking your heads and pointing out that I no longer work “in the trenches” and don’t see the problems that plague real estate lawyers in the form of the constantly changing environment, changing technologies, difficulties in hiring and retaining staff members, increased competition and encroachment into “our” part of the closing by third parties.  I do see those difficulties, I am sympathetic, and that team of professionals I used to work with are constantly seeking improvements.

But, for Thanksgiving week, let’s pause for just a moment to be thankful!

*I’m guessing most South Carolinians know what a P.K. is, but, just in case you don’t, it’s an acronym for Preacher’s Kid, which I am told means the worst kid in church. My husband tells two stories to demonstrate:  (1) His father once spoke to him from the pulpit and threatened to have him sit with him during the sermon if he didn’t behave; and (2) There are unconfirmed rumors that my husband’s initials have been carved in various church pews across South Carolina.

Fannie Mae will accept attorney opinion letters in lieu of title insurance

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Fannie Mae’s updated Selling Guide now allows attorney opinion letters in lieu of title insurance in some circumstances. This change aligns Fannie Mae with Freddie Mac’s similar announcement. Will the marketplace change dramatically because of these policy announcements. I hope not and I doubt it.

Fannie Mae touts its change as a method to reduce costs for borrowers. I don’t believe South Carolina lawyers will issue title opinions for residential loans that will be less expensive than title insurance. I know I wouldn’t.

The guidance indicates opinion letters will not be accepted where the loan is secured by a condominium, a leasehold estate, or a manufactured home.

According to the guidance, the attorney’s title opinion letter must:

  • be addressed to the lender and all successors in interest of the lender
  • be commonly accepted in the area where the subject property is located
  • provide gap coverage for the duration between the loan closing and recordation of the mortgage
  • list all other liens and state they are subordinate
  • state the title condition of the property is acceptable and the mortgage constitutes a lien of the required priority on a fee simple estate in the property

Do you see any problems with this list? I’ve never issued an opinion letter that provided gap coverage and I don’t recommend that you accept that risk in your transactions. What happens if you update title and discover a mechanic’s lien recorded in the gap? That lien would become your problem as the attorney who agreed to cover the gap as of the date of the opinion letter or the closing date.

Before the general use of title insurance, attorney’s routinely issued opinion letters to lenders and buyers. But title insurance has historically been determined to be the better choice.  Attorneys should not be responsible for title problems that cannot be discovered through a title examination.  A forgery in the chain of title, for example, would be covered by title insurance but should not be covered by an attorney’s opinion. The same may be true for missing heirs, matters that may be apparent from a visit to the property and survey matters.

But it concerns me that lenders who accept attorney’s opinions may perceive those items (and others) to be covered. To ensure your opinion letters are not perceived to cover matters outside the title examination, proper “exceptions” should be added to your letters. To protect you, your law firm and your malpractice carrier, your letters should contain many paragraphs of exceptions!

My best advice is to resist this proposed change in the marketplace. I believe title insurance provides the best coverage for owners and lenders, and it indirectly provides protection for closing attorneys. We can be encouraged that Freddie Mac’s similar announcement two years ago has not greatly impacted our industry. Let’s hope Fannie Mae’s announcement will have a similar reaction.

Renaissance Tower condo owners file federal lawsuit

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Renaissance Tower (left), Myrtle Beach, SC

This blog previously discussed the evacuation of Renaissance Tower condominium project in Myrtle Beach on October 7 because the building was deemed unsafe. The concern was reported to be the structural foundation of the 22-story building which is located just north of Ocean Lakes Campground.

The Sun News reported on October 14 that Horry County Code Enforcement posted a sign outside the resort that the building is unsafe, and occupancy has been prohibited. The paper also reported that residents received an evacuation letter from the management company stating that the steel frame within the foundation is in substantially worse condition than previously believed. The damage was apparently discovered during a repair project that had just begun.

A proposed federal class action lawsuit has now been filed by condo owners alleging the board of directors of the homeowners’ association and the management company of the project knew for years about steadily worsening damage to structural steel components supporting the building but failed to further inspect and repair the damage. These failures allowed the damage to worsen, according to the 34-page complaint.

The complaint further alleges that the building management company had known since 2016 that the foundation of the building was corroding. In 2016, an engineer was hired to perform an inspection and reported that the foundation was in “bad shape” and needed to be repaired or replaced. The complaint alleges that no repairs were made in response to this report.

After the collapse of the Champlain Towers South building in Surfside, Florida in June of 2021, according to the complaint, the HOA board asked the engineer to return and present repair options. The engineer determined that the conditions had worsened. On October 7 of this year, contractors determined that the steel was so corroded that the building was not structurally sound. Thus, the evacuation was ordered.

The complaint alleges that despite being left homeless, stuck paying for temporary housing, or deprived of income from a tenant, Renaissance owners now face more than $2 million assessment for repairs to the building’s structural steel as well as an unknown additional assessment for temporary shoring to make the building safe.

Like the Surfside, Florida building that collapsed, the Renaissance tower is an ocean-front project that is structurally supported by steel and concrete. The building remains unoccupied. The complaint alleges that some owners are homeless, and others are living in tents. Sales of units have also been stalled.

I would not be surprised to see additional inspections and lawsuits involving ocean-front projects.

Columbia house purportedly sold as an NFT

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149 Cottage Lake Way – one of the first NFT-based residential home sales for the US

When bizarre topics are discussed in my family, we often employ the famous quote by actor Chris Tucker from the funny movie Rush Hour: “Do you understand the words that are coming out of my mouth?” I’m not sure I understand the words I am typing here, so we’ll add links below for you to read for yourself.

A company called Roofstock onChain claims to have sold a house located in Columbia, South Carolina using NFT technology. The address of the house is revealed: 149 Cottage Lake Way, and it’s located in my zip code. If you Google that address, you’ll see lots of pictures of the house and articles about this transaction.

I had to start with the basics to attempt to get a handle on this topic. An NFT is a non-fungible token, a digital asset that can come in the form of art, music, in-game items, videos, and other assets. They are bought and sold online using cryptocurrency. The NFT allows the buyer to own the original item. NFTs have been described as physical collector’s items, only digital. Instead of receiving an actual painting, the buyer gets a digital file that represents exclusive ownership.

To trade in NFTs, the buyer must first have a digital wallet that allows storage of cryptocurrency and NFTs. The wallet must be funded with cryptocurrency. After that step, there are apparently several NFT marketplaces to explore.

So how did this house purchase take place? An LLC was created for the ownership of the three-bedroom recently renovated home. (And here are the words that I don’t understand.) Several of the articles say something along the lines of: The house was sold on the Roofstock onChain NFT marketplace by transferring the home identity to an Ethereum address owned by the buyer.

Dirt lawyers, I ask you, do you see any problems with this transaction? Did anyone search the title? Was there a physical inspection of the home? Was there a survey? Were the taxes prorated?  Did a South Carolina licensed attorney close the transaction?  I have more questions, but I bet you can come up with a list of your own.

I’ll continue to read about this topic and attempt to keep readers informed. In the meantime, here are some links for your education:

The future is now? Columbia becomes blockchain testing ground with house bought as an NFT

Blockchain Makes Deeper Inroads Into Real Estate As Roofstock Announces Its First NFT Home Sale

Are NFTs the future of home ownership?

How NFTs Could Change Real Estate

Blockchain Facts: What it is, how it works, and how it can be used

Roofstock onChain – https://onchain.roofstock.com/

Welcome to Ethereum – https://ethereum.org/en/

Congressional method for funding CFPB held unconstitutional

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A three-judge panel of the United States Fifth Circuit Court of Appeals ruled on October 19 that the Consumer Financial Protection Bureau’s funding structure is unconstitutional. *

Rather than receiving its funding through periodic Congressional appropriations, the CFPB is funded directly from the Federal Reserve, which is funded through bank assessments. This funding method was intended to remove some congressional influence on the bureau.

Most federal agencies receive annual appropriations from Congress that are determined each year through legislative negotiations. Many agencies have separate funding sources like fees and assessments collected from the entities they regulate. The arrangement, like CFPB’s, which provides for a continuous funding source, is common among financial regulatory agencies like the Federal Reserve, the FDIC, the Federal Housing Finance Agency, the National Credit Union Administration, and the Office of the Comptroller of the Currency.

Many commentators have suggested that this opinion will not stand because nothing in the Constitution prevents Congress from funding agencies in a variety of ways. The case is expected to be appealed to the full Fifth Circuit and after that to the Supreme Court. But while this holding stands, it renders all CFPB actions from its inception vulnerable to challenge.

*Community Financial Services Association of America, Ltd. v. CFPB

Myrtle Beach condominium project evacuated

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Several news sources have reported that Renaissance Tower condominium project in Myrtle Beach was evacuated on October 7 because the building was deemed unsafe. The concern is apparently the structural foundation of the 22-story building which is located just north of Ocean Lakes Campground.

The Sun News reported on October 14 that Horry County Code Enforcement posted a sign outside the resort that the building is unsafe, and occupancy has been prohibited. The paper also reported that residents received an evacuation letter from the management company stating that the steel frame within the foundation is in substantially worse condition than previously believed. The damage was apparently discovered during a repair project that had just begun.

This blog has discussed unsafe condominium projects earlier, most recently in June.  

I have recommended previously that all South Carolina dirt lawyers subscribe to the DIRT listserv run by Professor Dale Whitman of the University of Missouri at Kansas City Law School. Two updates from that service in June relate to problem high-rise projects.

First, a 50-unit condominium building in Waukesha, Wisconsin, Horizon West, has been ordered to be demolished by the Waukesha City Council. Professor Whitman reports that the building’s steel structure has been compromised by water infiltration, much like the collapsed Surfside project near Miami, and is considered a risk for collapsing.

The residents don’t have the funds to pay for the demolition, and the insurance company is taking the position that the building should be repaired, not demolished. The cost of the demolition has skyrocketed because of the presence of asbestos.

The units were valued at $90,000 to $140,000 according to Zillow, prior to the discovery of the defects. During the current high-priced housing market, it is not likely that the property owners will be able to replace their housing even if they receive their full replacement costs from insurance. It is a very sad situation, but, of course, not as sad as an actual collapse resulting in the loss of lives.

Second, Florida’s legislature has passed a law that requires regular building inspections and requires homeowners’ associations to maintain reserves. The act was unanimously passed by both houses, and Governor DeSantis signed the bill into law on May 26th.

Under the new law, inspections are required when a condominium building reaches 30 years of age and every ten years thereafter. For buildings within three miles of the coast, the first inspection is required at 25 years of age.

In addition, mandatory structural integrity reserve studies are required every ten years under the new law, and reserves are required to be maintained based on the studies. The power of the HOA to waive reserves was removed, effective December 31, 2024.

This legislation is encouraging and should be considered in South Carolina, particularly because of the existence of our numerous high-rise coastal condominium projects. The Renaissance project is an example.

The only downside I see about such legislation is that it will make condominium living more expensive and may price some retirees and lower-income individuals out of the market entirely. But, logically, the cost of maintenance should be factored into every residential property purchase. The ability of an owners’ association to waive reserves and thereby kick the maintenance can down the road is a dangerous proposition.