Will 2023 be a “normal” year in real estate?

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The “Greenville Business Magazine” published an article on January 27 that should interest all dirt lawyers. The article, written by David Caraviello, is entitled, “Leaving the Frenzy Behind: Could 2023 Be a More ‘Normal’ Year in South Carolina’s Real Estate Market?” You can read the article in its entirety here.

The article outlines the frenzy of the 2022 real estate market in South Carolina which culminated in an acute inventory shortage. While industry leaders budgeted for 2023, they wondered whether home prices would plummet because of rising interest rates. The national picture may be bleak because of these factors, but the article points out that experts do not foresee a gloom-and-doom scenario for South Carolina.

I’ve seen several news sources recently, including this one, pointing out that South Carolina is a primary destination for consumers looking for milder winters and following jobs at BMW, Volvo, and other companies. The market does not look dismal for us.

Please take a minute to read the article. To some real estate professionals, it says, the scenario entering 2023 sounds “refreshingly normal,” although we may have forgotten what normal is.

Perhaps 2023 will return to the ordinary seasonal ebbs and flows to which law firms can adapt from a staffing and other cost standpoint. Maybe everyone will be able to take a vacation this year. Let’s hope so! Good luck out there!

MV Realty sued by Florida Attorney General

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This blog has previously discussed MV Realty PBC, LLC. South Carolina title examiners report they are discovering “Homeowner Benefit Agreements” or “Exclusive Listing Agreements” filed in the public records as mortgages or memoranda of agreement. The duration of the agreements purport to be forty years, and quick search revealed hundreds of these unusual documents filed in several South Carolina counties. The documents indicate that they create liens against the real estate in question.

The company behind these documents is MV Realty PBC, LLC which appears to be doing business in the Palmetto State as MV Realty of South Carolina, LLC. The company’s website indicates the company will pay a homeowner between $300 and $5,000 in connection with its Homeowner Benefit Program. In return for the payment, the homeowner agrees to use the company’s services as listing agent if the decision is made to sell the property during the term of the agreement. The agreements typically provide that the homeowner may elect to pay an early termination fee to avoid listing the property in question with MV Realty.

In response to numerous underwriting questions on the topic, Chicago Title sent an underwriting memorandum to its agents entitled “Exclusive Listing Agreements”. Chicago Title’s position on the topic was set out in its memorandum as follows: “Pending further guidance, Chicago Title requires that you treat recordings of this kind like any other lien or mortgage. You should obtain a release or satisfaction of the recording as part of the closing or take an exception to the recorded document in your commitments and final policies.”

Googling MV Realty results in a great deal of information. Real estate lawyers should familiarize themselves with this company and its program to advise clients who may question whether the program makes sense from a financial and legal perspective.

In December, Florida’s Attorney General sued the company calling the venture a “deceptive scheme”. The lawsuit seeks an injunction, preventing enforcement of the contracts with consumers, preventing future deceptive and unfair trade practices, and returning funds to consumers.

News sources report that the company is active in 23 states, including South Carolina, and that Attorneys General in several other states are investigating the activities of this company. News sources also report numerous lawsuits against consumers seeking to enforce these contracts. U.S. Senator Sharrod Brown (D-Ohio) has indicated the company could face scrutiny from the Senate Committee on Banking, Housing and Urban Development.

Dirt lawyers, pay attention to this situation. We will certainly see updates.

Cybersecurity Breach affects SC county offices

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Chicago Title’s South Carolina state office sent out a memorandum on December 29 announcing that Cott Systems, Inc. has suffered a cybersecurity breach. I wanted to make sure the readers of this blog have access to this important information.

Cott Systems provides many services to county offices, including electronic recording, record storage, online searching, and court case management. Chicago Title has been told that Cott Systems provides services to at least the following counties: Darlington, Florence, Marlboro, Oconee, and Union. Other counties may be involved.

Apparently, this company took its services offline upon discovery of the breach. As of December 29, the company was unable to estimate when service may be restored but reported that it is working diligently to address the problem. As of mid-day on January 4, we were told that at least two counties were back online. I hope all of them are up and running at this point.  

If title abstracting and recording services are ever unavailable in the counties where you do business, please contact your title insurance company for assistance. Your friendly underwriters should be able to talk with you to resolve your issues, depending on the dates of your prior title work, dates of closings, etc.  Please be careful out there!

Happy New Year!

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Let’s make 2023 a great year!

2022 has been a difficult year for lots of dirt lawyers and their staff members. Everyone has been way too busy! 2023 promises to be a little slower. I remember my first slow-down in private practice many years ago. I was panicking a little, and my senior partner advised me to take a breath, clean up my desk and old files, and by the time I was through, the economy would have improved. He was right! And I have given that same advice to many people, including my now adult children, many times through the years.

Abraham Lincoln said, “Most folks are as happy as they make up their minds to be.”  My guess is that he used the qualifier “most” because he recognized that outside forces might lead to unhappiness for some people, but I couldn’t agree more with our 16th president that happiness is usually a matter of choice.

Here in the Bible belt of the South, some may believe that faith leads to happiness, but experience suggests that people of faith don’t always choose happiness. Experience also suggests that affluence does not create happiness. In fact, it seems that the opposite may be true in many instances.

I write this blog* for South Carolina real estate lawyers and their staff members, and my goal is to keep us all up to date on real estate issues that may affect our practices.

Early in my career, I decided to focus on real estate law because I chose happiness. I found real estate law to be a happier choice than litigation, especially the domestic litigation I tried for about five minutes. If the economy is good, then everyone should be satisfied at the end of the closing process. The seller should walk away with funds. The buyer should have a new piece of real estate to inhabit, rent or develop. The lender should have a nice income stream. And the players in the marketplace should be paid fairly for their services in connection with the closing.

Those of us who weathered the recent real estate peak are well aware that practicing real estate law does not lead to similar happiness when things are moving too quickly and fraud is so prevalent that it is hard to catch our collective breath. Kudos to all who have survived this challenging season.

Another realization I made early in my career is that to make money, lawyers must work very hard, often at a speed and pressure that do not benefit their health and happiness. And if lawyers have to work under those circumstances, then their staff members do as well.

So how do we choose happiness in a pressure-filled real estate practice that is dependent on the economy?

I offer Jon Gordon’s “20 Tips for a Positive New Year” as a suggestion. Jon Gordon is a motivational business speaker I enjoy following. Many of his tips for a positive 2023 focus on choosing to be happy. (But I particularly like his tip #8, “Get More Sleep”) You can download this excellent advice in poster format to keep at your desk or post in your workroom.

I am going to try to follow Abraham Lincoln’s and Jon Gordon’s advice in 2023. And I invite you to join me!

* Thanks to the readers of this blog! I began writing weekly very late in 2014. Readership has increased from just under 2,000 in 2014 to just over 40,000 in 2022. I’d like to take the opportunity of a new year to thank Martha McConnell and Jennifer Rubin, excellent lawyers, who help me with ideas, redirect my thinking, keep me out of trouble and proofread my work. And I’d like to thank Cris Hudson, IT guru extraordinaire, who handles technical issues. It is a team effort, and I am blessed with a great team!

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.

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.