What’s up with this crazy housing market during a pandemic?

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I’ve been scratching my head since late February or early March about why the housing market has been doing so well during this crazy coronavirus year. For the first time since I’ve been running our South Carolina operation, I was asked to re-do (reduce) my 2020 budget earlier this year. As it turns out, the original budget my crystal ball predicted last October is closer to reality than the reduced budget from April. In fact, we’re having a record year.

How can we be having a record year in the real estate industry when jobs are being lost and small businesses are closing? Our real estate closing offices are running at full pace, vacations are few and far between, lawyers are trying to hire closing staff members to alleviate the pressure and are finding that task next to impossible. Most lawyers and paralegals are attempting to hang on for the ride, knowing a slow-down will likely occur at some point.

One major factor attributing to the frenzy in the market, of course, would be the record low mortgage rates we’ve experienced this year. Another factor may be the legislative efforts to prop up paychecks and the economy until we have a solution for COVID. Additionally, I keep hearing tales from South Carolina law firms that clients are sick of the houses from which they’ve been working at home and either want to renovate or relocate. I get that! Finally, we hear our friends from the north want to relocate to our sunshiny, beautiful state. I get that, too!

Now, autumn is near, a time where the speed of our business typically slows. But we’re not yet seeing a slowdown. I don’t want to jinx us. That slowdown may yet hit us in 2020. But I read an interesting article from Forbes dated September 11, entitled “The Fall Real Estate Market is Abnormally Hot as Mortgage Rates Break Records.” That article is linked here for your reading pleasure.

This article quotes a Zillow economist who said demand in housing continues to be fueled by low mortgage rates. Who would have predicted the thirty-year mortgage rate would be under 3% and the fifteen-year rate would be under 2.5%? Additionally, home prices continue to increase as inventory shrinks. It’s clearly a seller’s market!

Read this article, real estate friends, to see whether you think it holds true for our fair state. If so, let’s all buckle up for the ride!

CDC announces COVID eviction moratorium through the end of 2020

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On Tuesday, September 1, the CDC announced a temporary eviction moratorium through December 31, 2020. The order applies to all rental units nationwide and goes into effect immediately. Treasury Secretary Steven Mnuchin said that the order applies to around 40 million renters.

The CDC announced the action was needed to stop the spread of the coronavirus and to avoid having renters wind up in shelters or other crowded living conditions. This order goes further than the eviction ban under the CARES Act which covered around 12.3 million renters in apartment complexes of single-family homes financed with federally backed mortgages.

The Order, entitled, “Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19, does not suspend mortgage foreclosures. To take advantage of the suspension, the tenant must sign a declaration form alleging:

  1. The individual has used best efforts to obtain all available government assistance for rent or housing;
  2. The individual either (i) expects to earn no more than $99,000 in annual income for Calendar Year 2020 (or no more than $198,000 if filing a joint tax return), (ii) was not required to report any income in 2019 to the U.S. Internal Revenue Service, or (iii) received an Economic Impact Payment (stimulus check) pursuant to Section 2201 of the CARES Act;
  3. The individual is unable to pay the full rent or make a full housing payment due to substantial loss of household income, loss of compensable hours of work or wages, a lay-off, or extraordinary out-of-pocket medical expenses;
  4. The individual is using best efforts to make timely partial payments that are as close to the full payment as the individual’s circumstances may permit, taking into account other nondiscretionary expenses; and
  5. Eviction would likely render the individual homeless— or force the individual to move into and live in close quarters in a new congregate or shared living setting— because the individual has no other available housing options.

The order specifically does not excuse rent, it just delays eviction. There is a substantial body of depression -era caselaw that holds this type of governmental action is permissible because it does not impair the contract, it only delays the remedy, and it is not a taking because the rent is still due. Lawsuits are likely to follow regardless of this old caselaw.

Many would argue that a temporary ban on eviction for non-payment burdens landlords with the cost of rental delay. Many landlords are individuals or small businesses that cannot spread the losses and cannot pay maintenance costs, mortgages and property taxes without the benefit of rental income.

Excellent forbearance and CARES Act information from our company

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Diana Hoffman, Corporate Escrow Administrator with our company recently wrote an excellent article about mortgage forbearance that I am sharing with South Carolina closing attorneys in its entirety:

“Forbearance does not erase what the borrower owes. The borrower will have to repay any missed or reduced payments in the future. Borrowers able to keep up with their payments should continue to make payments. The types of forbearance available varies by loan type.

At the end of the forbearance, the borrower’s options can include paying their missed payments:

  • At one time
  • Spread out over a period of months
  • Added as additional payments, or
  • Added as a lump sum at the end of their mortgage

The CARES Act requires servicers to grant forbearance up to 180 days, with a one–time extension of 180 days for borrowers experiencing a hardship due to COVID–19 issues, such as, loss of income, unemployment, illness or caring for a sick relative.

The CARES Act also provides protection against derogatory marks against the borrower’s credit. However, the servicer can report notes to the credit bureau that can be seen by any future creditor that could prevent the borrower from obtaining any type of new financing for a 12–month period.

When the Federal Housing Finance Agency reports servicers who collect payments on mortgages backed by Fannie Mae and Freddie Mac, they will only be required to cover four months of missed payments on loans in forbearance.

The big question is what happens when that four–month period is over? As it turns out, the Government Sponsored Entities (GSEs) themselves are preparing to cover any remaining advances for as long as those loans remain in forbearance.

What does this mean to the title industry? To prevent payoff losses due to deferred payments, settlement agents should:

  • Ask borrowers if they have entered into a forbearance or loan modification agreement with their lender at the opening of the transaction
  • Review the preliminary report or commitment for title insurance for junior liens, securing the deferred payments
  • Ensure the payoff request includes the following language:
    • Please furnish to us a statement of the amount necessary to pay in full including any amounts deferred due to a forbearance or modification agreement.
      If the borrower entered into a forbearance agreement and you are not the entity servicing any deferred amounts, please provide the contact information for the entity who is.
  • Review the payoff statement for deferred principal balance amounts

The last item is important. If the deferred amounts are not contained in the payoff statements, it is likely the amounts are being serviced by another loan servicer and a separate payoff statement will need to be requested”

Court of Appeals case lets us talk dirt

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In the midst of COVID-19, it’s a pleasure to return to a simple discussion of South Carolina dirt law. A case decided by our Court of Appeals last week* surrounds the rights of a condominium project’s owner’s association and a successor developer.

The Edgewater on Broad Creek is a luxury condominium project in Hilton Head developed beginning in 2002. The developer, Broad Creek Edgewater, L.P. planned to develop the project on 23.65 acres in multiple phases. Phase 1, located on 7.64 acres of the property, consisted of a building containing 23 units and a clubhouse. The developer recorded a master deed in Beaufort County on December 31, 2002. In the master deed, the developer reserved the right to incorporate the remaining 16.01 acres into future phases.

The developer failed in the great recession. Its creditors placed Broad Creek Edgewater, L.P. into involuntary Chapter 7 bankruptcy in May of 2007. The bankruptcy court approved a sale of the additional property to Bear Properties, LLC on May 28, 2008. In addition to the property, the successor developer was given all of the developer’s reserved rights by a quitclaim deed and a bill of sale. Later, Bear Properties assigned all its rights and interests to Appian Visions, LLC, which subsequently assigned its rights and interests to Ephesian Ventures, LLC, the appellant in this case.

While the parties are involved in other litigation, this case involves the attempted construction of a pool and tabby walk by the owner’s association on Phase 1. In March of 2010, the association sought a development permit from the Town of Hilton Head to construct a swimming pool. Following a hearing, the permit was granted and the association began construction. Later, the association began constructing a tabby walk leading from the residential building to the swimming pool. Construction was halted when the Town notified the association that an additional permit was required for the tabby walk.

Ephesian administratively opposed the permit to construct the tabby walk, alleging the master deed required its approval for any construction. The Town rescinded approval for the development permits, stating that it planned to hold the matters in abeyance until the covenant issue was resolved. In 2011, the association brought suit in circuit court seeking a declaratory judgment as to Ephesian’s reserved rights in Phase 1. The association sought an order that it had a right to construct a swimming pool and other amenities on Phase 1, subject only to the land use requirements of the Town, free of any interference by Ephesian.

Although the developer argued that other language created an ambiguity,  language focused on by the Master in Equity and Court of Appeals reads:

“The Declarant expressly reserves the right to improve the aforementioned property by clearing, tree pruning, constructing additional parking and common facilities, including, but not necessarily limited to recreational facilities, draining facilities, lagoons, and the like, pertaining to The Edgewater on Broad Creek Horizontal Property Regime.”

The Master in Equity found, and the Court of Appeals agreed, viewing the facts and inferences in the light most favorable to the successor developer, as is required in considering summary judgment, that the successor developer maintains the right to construct additional amenities in Phase 1, but that this right is not exclusive.

The Court held that the master deed was unambiguous in its reservation of a non-exclusive right in the developer. Litigation between the parties is likely to continue, so we may be able to discuss further developments later.

Talking dirt law is so refreshing!

 

*The Edgewater on Broad Creek Owners Association, Inc. v. Ephesian Ventures, LLC, Opinion 5724, South Carolina Court of Appeals (May 6, 2020).

 

Are RON closings now allowed in South Carolina?

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After a tease from our Supreme Court on Friday, the answer is still “no”

For about 15 minutes on Friday afternoon, May 1, those of us involved in real estate transactions in South Carolina got excited. An Order* from the South Carolina Supreme Court hit our in-boxes. The order was entitled “RE: Participation in Closings of Real Estate Transactions”. We collectively thought South Carolina may have moved into the 21st Century with an authorization for Remote Online Notarization (RON) closings.

Then we read the order.

You can read it here.

By way of preamble, the Court said, “we find that the public health emergency created by COVID-19 requires changes in the usual operation of the Rules of Professional Conduct in terms of the normal functioning of real estate transactions.”

Then the order stated that until August 1, lawyers may “participate in and supervise the closing of a real estate transaction by way of a video conference.”

Fair enough, but I think most South Carolina transactional lawyers believed they could already ethically handle closings via video conference.

Most lawyers definitely believed they can ethically handle “mail away closings.” Were we wrong? Ethics Advisory Opinion 05-16 states that an attorney may ethically conduct real estate closings by mail as long as it is done in a way that: (1) ensures that the attorney is providing competent representation to the client; (2) all aspects of the closing remain under the supervision of an attorney; and (3) the attorney complies with the duty to communicate with the client so as to maintain the attorney-client relationship and be in a position to explain and answer any questions about the documents sent to the client for signature.

To meet this test, according to the EAO, clients must have reasonable means to be in contact with the attorney, by telephone, facsimile, or electronic transmission. The EAO further states that there is no legal requirement that a client attend the closing, but that it must be the client’s decision not to attend the closing.

Ethics Advisory Opinions are, of course, not binding on the South Carolina Supreme Court. But if we rely on the EAO and handle mail-away closings, why can we not also handle closings via video conference, as long as we comply with all of our ethical obligations to properly represent our clients? Technology has changed since 2005!

Setting that issue aside, let’s look at the real problem. The primary obstacle to any closing that is not conducted strictly in the presence of the lawyer is the proper notarization of the recordable documents. According to South Carolina Code §26-1-5, the notary must be in the physical presence of the signatory. For this reason, clients and their lawyers must employ notaries in the client’s location when the client and the lawyer are not in the same location.

Did the May 1 Supreme Court order fix the notary problem at least temporarily? Lawyers who have spent the last four days debating this question via listserv and Facebook have decided that it does not. But did the Court try to help? Maybe.

The Order goes on to say, “necessary persons to a real estate transaction may, under the direction of the supervising attorney, similarly participate in the real estate closing by way of a video conference, provided any necessary person so consents; further, the supervising attorney shall ensure that the attestation of a recordable instrument is accomplished, which may be satisfied by use of real-time audio-visual communication technology, provided the identity of the necessary person is confirmed and a notary attests the signature of any necessary person.” (Emphasis added.)

Giving the Court the benefit of the doubt, perhaps the Justices did not attempt to fix the notary problem but, instead, believed they must address the professional responsibility aspects of the closing process to allow the legislature and governor address the statutory notary issue.

I think I am going to go with that interpretation. Otherwise the Order is useless.

And, I have another concern. Anyone of us who has read and struggled with the facts in the notorious Quicken** case knows that the Court by implication blessed dividing the various aspects of the closing that must be handled by an attorney among many attorneys. But the final sentence of this Order reads, “This order does not suspend any other provisions of the Rules of Professional Conduct, and nothing in this order is intended to relieve an attorney of his or her obligation to assume the full professional and direct responsibility for the entire transaction.” (Emphasis added.)

I am so confused!

 

*Order 2020-05-01-01, South Carolina Supreme Court.

**Boone v. Quicken Loans, Inc., 420 S.C. 452, 803 S.E.2d707 (2017).

Disrupted Disrupters

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COVID-19 is causing the iBuyers’ business model to stall

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With COVID-19 spreading, the iBuying frenzy seems to be fading fast. Commerce is slowing and even closing in some locations, especially major cities, making it difficult for iBuyers to determine fair prices for homes. Zillow, Redfin, Opendoor and Offerpad have all withdrawn from the iBuying market for the time being.

The only company not putting on the brakes seems to be HomeVestors, the “We Buy Ugly Houses” company that was in the iBuying space before that term became cool. The companies recently occupying this space never made it to South Carolina, but we saw “We Buy Ugly Houses” signs on telephone poles throughout the state, even in the most rural areas.

Some economists are speculating that COVID-19 may put a nail in the coffin of the “institutional fix-and flip” business model of those companies recently entering the market. The model was considered risky in the best of times. In times of economic uncertainty, it becomes even riskier. Safely buying a home at 95% of the market value requires confidence that the market won’t drop substantially.

HomeVestors, on the other hand, is attempting to grow by selling franchises and advertising that it remains in the market that others are leaving.

Other economists and some of the companies themselves are arguing that iBuying is a viable alternative in a market where it’s difficult to show homes and hold open houses. At this point, the correct answer is anybody’s guess.

The retreat of Zillow, Redfin, Opendoor and Offerpad before they even reach South Carolina is good news to South Carolina closing attorneys and real estate agents who view the iBuying phenomenon as another disruption to our business model as well as another possible means of dilution of control over residential closings by attorneys.

It sounds as if, for now, truly ugly houses may be the only ones subject to iBuying in South Carolina. The disrupters have been disrupted by economic uncertainty.

Tips for doing business … when we can’t do business as usual

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Our company has a remarkable network of intelligent, creative, caring agents in South Carolina. I asked our staff to pass along to me the innovative methods they are hearing that our residential closing attorneys are using as they continue to do business in this world infected by COVID-19, a world where business as usual is impossible.

I’m sharing this list with you to pass along some new ideas for your business and request that you share your innovative ideas with me. Let’s talk and continue to figure out ways to keep our clients, our staff and ourselves safe and well.

Some have asked why real estate closing services are considered to be “essential”. The technical explanation is that closings are an ancillary service of financial institutions, and financial services are essential. A better explanation may be that our industry allows access by our customers to the equity in their homes. If consumers are unable to sell or refinance their properties in a time of financial difficulty, then they are denied an avenue to prevent or delay financial difficulties. The same concept can be applied to commercial clients. They need access to their properties during difficult financial times more than ever. Never doubt that our closing services are essential in this environment.

Here are some ideas that our agents are using to conduct safe closings:

Communicate, communicate, communicate!

We have heard that clients are often surprised by the changes to closing procedures. Don’t let that happen. The new rules you establish should be clearly communicated with clients. You can’t control this unusual situation if you don’t clearly communicate the innovative methods you are using

  • Add the new rules to your email signatures.
  • Add the new rules to your engagement letters.
  • Use attractive signs inside and outside your office.
  • Make telephone calls!
  • Add video chatting to your website, Facebook pages and other social media venues.
  • Make sure your real estate agents and lenders understand the new procedures. They deserve extra communication during this time, too!
  • Let clients, real estate agents, lenders and other real estate professionals know about county office closures and other inconveniences that may affect closings.

Move closings to different locations:

  • Close at the client’s car. Allow the client to remain in the vehicle. Hand the client a pen to keep. Watch the execution from a distance and witness signatures at that same distance. Some lawyers are calling these closings “curbside service” and “drive-through closings”.
  • Close on the trunk or hood of the client’s vehicle.
  • Rope off parking-lot spaces for closings. Use attractive signs to mark the designated spaces.
  • Use a tailgating tent in your parking lot or other outdoor location. Fresh air is a huge advantage!
  • Buy colorful, plastic tables and chairs for this purpose.

Limit contact with individuals who are not necessary for closings:

  • Don’t allow real estate agents, lenders and others who are not needed for signing documents into your office.
  • Don’t allow children in your office. If parents must bring children, have one parent remain outside with their children while the other parent signs, then switch.
  • Clearly communicate that extra individuals are not allowed during this difficult time.

Limit the individuals who come into your office for any reason:

  • Don’t allow walk-ins during this time.
  • Stagger closings.
  • Have clients call from their vehicles to check in. Then call them and ask them to come into your office only when they can enter without encountering other individuals.
  • Set up separate waiting rooms if you have space.
  • Separate buyers and sellers.
  • Use video conferencing for activities other than actual closings.

Keep your office de-cluttered and cleaner than usual:

  • Buy pens in bulk and allow one-time use only. Give clients the pens they use.
  • Clean all surfaces clients touch, including conference tables, chairs, doorknobs, elevator buttons, stair railings, restrooms. Cleaning should take place between closings.
  • Use effective, antibacterial cleaning products.
  • Communicate additional cleaning requirements with the individuals who clean your office after hours.
  • Keep hand sanitizer and wipes at convenient locations throughout your office.
  • Remove children’s play areas.
  • Remove magazines and other extraneous items from waiting rooms and conference tables.
  • Wear masks and gloves. Encourage visitors to wear masks and gloves. Consider providing those items to your visitors.
  • Ask visitors to clean hands at the door.
  • Encourage pre-and post-closing hand washing.
  • Pack up glasses and cups. Use only disposable items. Limit food and drink sharing.
  • Clean after visits from delivery services.
  • Increase ventilation by opening windows and adjusting HVAC systems.

Other ideas:

  • Designate drop locations for documents and checks. These locations may be on porches or lobbies. But don’t forget security! We added a new, locked drop box to the exterior of our office.
  • Mail or wire all funds. Don’t allow anyone to wait for checks in your office.
  • Sadly, don’t allow hand-shaking or hugging!
  • Advise anyone who feels sick to stay away! This includes your valuable staff members.
  • Use powers of attorney.
  • Use open spaces for meetings.
  • Use Plexiglass to separate individuals.

All of these ideas, of course, are not useful for every office. Use your best efforts! I heard a horror story about a closing office where staff members came to work despite feeling ill. The result? Individuals from twenty closings were infected. Don’t allow a horror story to occur in your office.

Please share ideas with me. I would love to add to this list to benefit everyone!

Stay safe and well out there!

What’s going on with iBuying during the COVID-19 chaos?

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This blog has discussed the spread of iBuyers, entities that make offers over the Internet to home sellers in certain residential markets. These sales take place with much less fuss and inconvenience than sales in the normal real estate market. What’s the catch? The sales price may be lower than the price that would have been obtained in the normal selling process. Sellers had to weigh convenience and price.

While we’ve seen the reach of the iBuyers (Opendoor, Offerpad, Zillow Offers and Redfin) spread to our neighboring states of Georgia and North Carolina, we have not yet seen the phenomenon reach into South Carolina.

I refer you to the April 3 article from Forbes that reports Opendoor, Offerpad, Zillow Offers and Redfin have all put their online buying on hold since the first COVID-19 shelter-in-place orders.

Interestingly, though, another company may be stepping up to fill this space. We’ve all seen the sign “We Buy Ugly Houses” posted on light poles, even in very small towns in South Carolina, for many years.

The Forbes article reports that the company behind those signs, HomeVestors, is transitioning to a virtual process and is continuing to buy houses across the nation. The article also reports that HomeVestors is opening new franchises to expand business further.

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This expansion may be good news to homeowners who are losing their jobs during this crisis and may need to sell their homes to remain financially solvent.

The article quotes the president of HomeVestors who said that nearly half of home sales traditionally occur between March and June, but the safety measures in place to prevent the spread of the virus may have significant impact on that market this year. HomeVestors is attempting to step into that market. The company hopes to provide some peace and continuity in this uncharted territory, according to the article.