CFPB issues a factsheet on title insurance disclosures

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Also updates disclosure FAQs

cfpb-logoThe Consumer Financial Protection Bureau (CFPB) has recently issued two documents that may help closing attorneys.

The first document is a factsheet on TRID title insurance disclosures. This document addresses differences between state disclosures and TRID disclosures for simultaneous issue rates. It also addresses the situation where the seller pays for title insurance.

The second document is an updated list of frequently asked questions (FAQs) on the TILA-RESPA Integrated Disclosures. The additions address seller paid costs, total payments on the closing disclosure, accounting for negative prepaid interest and whether a lender may require the consumer to sign and return the Loan Estimate and Closing Disclosure.

U. S. Supreme Court rules CFPB structure is unconstitutional

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CFPB building

The Supreme Court issued an order on Monday, June 29 holding that the structure of the Consumer Financial Protection Bureau is unconstitutional. But the agency has not been abolished.

In a 5-4 decision authored by Chief Justice John Roberts, the Court held that the agency run by a single director who can be fired by the President only for cause violates the separation of powers doctrine. The agency can be saved simply by striking the for-cause termination provision of the Dodd Frank Act.

There will be no immediate effect because the agency is currently being run by an acting director who has not been confirmed by the Senate. For this reason, the director can be fired by the President without case.

In the case, a California law firm alleged that an investigative demand issued by the CFPB is invalid on the grounds that the CFPB’s structure is unconstitutional.

SC Supreme Court disbars two lawyers

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On June 24, the South Carolina Supreme Court issued two disciplinary opinions that both resulted in disbarment. Both involved interesting fact patterns, and I invite you to read  them as cautionary tales.

In the Matter of Brooks* involved a lawyer who was sworn in on February 19, 2019. Her application had been based on the Uniform Bar Exam score from Wyoming. One day after her admission, the Office of Bar Admissions learned that the lawyer had knowingly provided false or misleading information in her application.

She failed to disclose information about 2005 and 2014 arrests for driving under the influence (DUI), a resulting license suspension, use of cocaine and marijuana during her release as well as issues with Character and Fitness Boards in bar applications in other jurisdictions.

Bottom line: do not lie or omit facts on bar applications if you seek to practice in other jurisdictions. And advise potential South Carolina lawyers in your life to tell the truth and the whole truth on their applications.

The other case** is interesting only because of an underlying criminal conviction. The lawyer stole about $440,000 from trust accounts and was sentenced to probation. Never having worked in the criminal law arena, this sentence sounds unreasonably lenient to me. The disbarment makes complete sense though.

Bottom line: do not ever touch client funds for your own use!  Don’t borrow client funds, planning to replace them. Remove from your thought processes the idea that client funds are available to you for any reason other than to protect them for your clients.

 

*South Carolina Supreme Court Opinion 27983 (June 24, 2020).

**In The Matter of Collins, South Carolina Supreme Court Opinion 27984 (June 24, 2020).

The Episcopal Church property saga continues

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We have a new circuit court order

This is my third blog about the controversy surrounding the properties of various Episcopal churches in South Carolina. I previously said I am thankful to be a real estate lawyer as I attempt to decipher these issues.

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St. Philip’s and St. Michael’s Episcopal Churches, Downtown Charleston, SC 

In August of 2017, the South Carolina Supreme Court issued a 77-page opinion in this litigation. We now have a new circuit court order, and I am confident we will hear more at a later date.

I don’t have to solve the mystery of the rights of gays in churches. I don’t have to ascertain whether the “liberal mainline” members or the “ultra-conservative breakaway” members make up the real Episcopal Church.  I don’t have to delve into the depths of neutral principles of law vs. ecclesiastical law. I don’t have to figure out who will own the name “Episcopal Diocese of South Carolina.”

The real estate issues are sufficiently thorny to occupy our collective real estate lawyer brains. The South Carolina Supreme Court seemed to indicate that the 29 breakaway churches had to return their properties to the national church under the “Dennis Canon”. But the Supreme Court left open the possibility that the lower court might clarify the position, and clarify Circuit Court Judge Edgar Dickson did.

He wrote that state law, not church law, requires the transfer of real property by deed. He said that no parish expressly acceded to the Dennis Canon. He said, “This is a property case. A decision on property ownership is usually governed by the title to real estate—the deed. In this case, all the plaintiff parishes hold title to their property in fee simple absolute.”

News articles refer to the properties as being valued at hundreds of millions of dollars. The historic value of the properties, including St. Michael’s and St. Philip’s of Charleston, is also quite significant. Future appeals are almost guaranteed. Nothing is settled at this point. Let’s not try to insure these titles anytime soon.

The controversy began more than five years ago when local parishes in eastern South Carolina left the Episcopal Church over, among other issues, the rights of gays in church. Since then, the two sides have been involved in a battle over the church’s name, leadership and real estate.

Interestingly, the national church had offered a settlement to the breakaway parishes that would have allowed them to retain their properties if they gave up the name and leadership issues. That settlement offer was apparently summarily rejected.

The South Carolina Supreme Court’s ruling upheld the Episcopal Church’s position that it is a hierarchal church rather than a congregational church in which the vote of church membership can determine the fate of real property. The new circuit court order begs to differ.

I continue to be thankful that I am a real estate lawyer!

*The Protestant Episcopal Church in the Diocese of South Carolina v. The Episcopal Church, South Carolina Supreme Court Opinion 27731, August 2, 2017.

Court of Appeals case may affect title search procedures

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I’m going to talk about this case* gingerly for reasons that will become obvious when you read the caption. I won’t express any opinions, but I want to make South Carolina lawyers aware of this South Carolina Court of Appeals case from last week that seems to create a new wrinkle for title examinations.

At issue in this case are a statute, an ordinance and an official county map.

The statute, S.C. Code §6-7-1220, says “Counties and municipalities may establish official maps to reserve future locations of any street, highway, or public utility rights-of-way, public building site or public open space for the future public acquisition and to regulate structures or changes in land use in such rights-of-way, building sites or open spaces….”

The Ordinance of Horry County, 107-98, passed in 1999, established an official county map to “show the location of existing or proposed public streets, highways and utility rights-of-way, public building sites and public open spaces”.  The ordinance provided that “no building, structure, or other improvement, shall hereinafter be erected, constructed, enlarged or placed within the reservation area…without prior exemption or exception….”

In 2002, Horry County Ordinance 88-202 amended the official map to add “the right-of-way identified as Alternative 1 for the proposed Carolina Bays Parkway…”

Both ordinances were recorded in the Register of Deeds and indexed under Horry County.

A developer purchased 131.40 acres in Horry County in 2006 to develop as a residential subdivision. Title insurance was issued to two mortgage lenders through Chicago Title. The developer defaulted in 2007 and the lenders foreclosed. In 2009, the South Carolina Department of Transportation (SCDOT) filed an eminent domain action to take 10.18 acres of the property for the Carolina Bay Parkway. The lenders submitted title insurance claims, which were denied on the basis of the exclusion for zoning restrictions or ordinances imposed by any governmental body.

Summary judgment for Chicago Title was granted at the trial court, but the Court of Appeals reversed, concluding that the ordinance constituted a defect and an encumbrance.

Title examiners do not search ordinances. Should they now? Stay tuned. I hope this case will be appealed!

*Jericho State Capital Corp. of Florida v. Chicago Title Insurance Company, South Carolina Court of appeals Opinion 5731 (June 10, 2020)

Is it ethical to buy a competitor’s name as a search engine “keyword”?

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Most South Carolina dirt lawyers don’t do much direct advertising, but some make use of Internet keyword advertising. For that reason, I wanted to make sure you noticed the recently issued Ethics Advisory Opinion 20-01, which you can read here.

South Carolina’s Ethics Advisory Committee was asked the following question:  “May a lawyer bid on and use the names of other lawyers and law firms as a part of a competitive keyword advertising strategy?” In other words, it is ethical for a lawyer to pay an internet search engine to insert his or her ads when a searcher types a competitor’s name into the search engine?

In some search engines, the resulting advertisements appear on the right side of the page. In other search engines, they may appear marked as an “ad” or “sponsored” above the organic search results.

The Committee pointed out that competitive keyword advertising is different from search engine optimization (SEO). SEO is the process of increasing the visibility of a web page by users of a search engine and is directed at optimizing unpaid placement organic results. This opinion addresses only keyword advertising.

The Committee followed the lead of New Jersey, Texas and Wisconsin and opined that a lawyer may purchase an internet competitive advertising keyword that is the name of another lawyer or law firm in order to display a “sponsored” website advertisement.

The Committee stressed that lawyers should be mindful to comply with all advertising rules and should use care to ensure that no derogatory or uncivil message is conveyed. The Committee also pointed out that surreptitious redirection from a competitor’s website to a lawyer’s own website via hyperlink is prohibited under our Rules.

What do you think?

Homeowners’ Association information at your fingertips

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The South Carolina Department of Consumer Affairs announced on May 12 the availability of its website containing a wealth of information about homeowners’ associations. Check out the website here.

The site includes frequently asked questions about homeowners’ associations as well as an outline of South Carolina law, contact information of individuals who may be able to help and other resources.

If you represent homeowners’ associations, you probably have this information at your fingertips, but if you are a dirt lawyer who infrequently gets asked questions like, “Can my homeowners’ association impose a fine or file a lien if my renter….

  • Drives a motorcycle into the neighborhood;
  • Hangs towels to dry on the deck;
  • Parks an RV in the driveway;
  • Let’s too many kids use the pool?”

Or, “can I withhold the payment of assessments to my homeowners’ association because it refuses to enforce the prohibition against the chickens my neighbor maintains?”

Or, “I want to paint my front door fuchsia. There are a variety of crazy colors in the neighborhood, but the homeowners’ association guidelines say only a set of approved colors can be used on the exterior of residences. Can they enforce that rule?”

Have you heard questions like this? I certainly have.

Use this website to be able to communicate the answers to your clients in a succinct way, without a lot of legal research.

iBuyers are jumping back into the water: does that mean the market is safe?

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In March, the disruptive iBuyers announced that they were no longer buying homes in the midst of the pandemic. They said they were unable to pinpoint house values to the extent to make them comfortable in proceeding with their market model. And they said they were unable to insure the health and safety of their employees, partners and customers.

Some economists projected these companies would completely go out of business after losing such substantial momentum in the midst of the various shelter-in-place orders.

But now, just weeks later, the iBuyers say they’re back!

Offerpad, Redfin, Zillow, Opendoor and others have announced plans to resume operations after verifying health safety procedures. More of the processes will be handled remotely, and, as we are all doing, there will be more sanitizing, mask and glove wearing, and hand washing. They will likely offer digital methods for appraisals and for home viewing by potential buyers. Some will offer self-service listings.

One of the companies has discussed a safe, on-demand, and fully digital experience to buy and sell homes. They believe the experience is needed now more than ever.

As this blog has discussed previously, although these market disrupters have made it to markets in Georgia and North Carolina, we have not seen them announce operations in The Palmetto State. But my colleague, Martha McConnell, said she saw a Redfin “for sale” sign in her neighborhood in southeast Columbia last week.

So the iBuyers may be closer to us than we think!

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).

 

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.