This blog recently discussed the Missouri class action by residential real estate sellers against the National Association of Realtors (NAR), a real estate agent trade association, and several real estate agent entities, which resulted in a judgment of $1.8 billion. The plaintiffs argued that commissions are rarely negotiable and that the seller is required to pay commissions for both sides of transactions
A South Carolina lawyer posted on a listserv I read on the subject that litigation like this wouldn’t happen in South Carolina because standard residential contracts leave a blank for the percentage of the buyer’s agent’s commission. This poster was, sadly, wrong.
Housingwire reported on November 10 that Shauntell Burton has filed a lawsuit in the U.S. District Court for South Carolina alleging that the NAR and Keller Williams colluded to artificially inflate agent commission rates. You can read the story here.
The plaintiff is seeking class action status for all home sellers in South Carolina who have sold a home on the MLS with a Keller Williams agent since November of 2019. The 107-page complaint states that NAR’s “clear cooperation” policy leads to the commission problem because that policy requires agents to provide a blanket offer of compensation to the buyer’s agent to list a property on the MLS.
Apparently, similar suits are being brought in multiple states.
Dirt lawyers, what do you think about this? Is Keller Williams the only broker involved in the practice, or will other brokers be named in the future? Is it your experience that commissions paid by sellers to buyers’ agents are negotiated, as the poster mentioned above suggested? I’d love to hear your thoughts and learn from your experience.
Halloween brought a scary judgment in a Missouri class action by residential real estate sellers against the National Association of Realtors (NAR), a real estate agent trade association, and several real estate agent entities. The judgment of $1.8 billion will surely be appealed all the way to the Supreme Court. Appeals may take several years to be completed.
The sellers argued that commissions are rarely negotiable, and that the seller is required to pay commissions for both sides of transactions. I heard a seller interviewed by Lester Holt on NBC Nightly News on November 1. He said that he must pay commission to a real estate agent he never met, will never meet and who did no work for him.
The plaintiffs also argued that this commission structure keeps home prices artificially high.
At least two real estate agent entities settled for large sums prior to the judgment. And similar lawsuits are pending in other jurisdictions.
Dirt lawyers, how do you project this suit may ultimately affect our industry? I wonder if any type of injunction will be put into place pending appeal. I wonder whether the Department of Justice will see the necessity to become involved. I wonder whether commissions will ultimately become negotiable and whether buyers will be required to pay their agents up front or at closing. If that happens, I can imagine extensive negotiations with sellers to pay more of their buyer’s closing costs than customary. I even wonder whether buyer agents may become obsolete.
I hate to report that any South Carolina law firm has fallen victim to fraud, but my friend and successor at Chicago Title, Jennifer Rubin, tells me that fraud is a daily challenge for closing attorneys in South Carolina. I am going to discuss this case delicately, because I believe this might happen to anyone who handles closings. I have sympathy for each closing law firm because they remain under constant pressure. But I also believe that everyone needs all the warnings we can collectively muster! This blog is yet another warning.
First, let me thank my friend, Bill Booth, Columbia attorney who keeps me posted on cases he follows. I appreciate being kept informed. This is an unpublished South Carolina Court of Appeals case* Bill brought to my attention. Bill said, “The fraudster was very clever in how he changed the seller’s email by a single letter.” Clever indeed! I stared at the real email address and the fraudulent email address for several minutes and failed to find the discrepancy. I handed the opinion to my husband and asked him to see if he could find it. He did, but it took him awhile.
Here are the two email addresses: mail4marvin@gmail.com vs. mail4rnarvin@gmail.com. Do you see it? The “m” in marvin was changed to “rn”. The Court of Appeals called this discrepancy “cunning”. I’ll say!
At trial, the seller was awarded a $10,306 verdict against the law firm, and the Court of Appeals affirmed. I assume the law firm will appeal to the South Carolina Supreme Court, and we may get further guidance.
Here are the facts. In 2016, Marvin Gipson contracted to sell his property to Clyde and Betty Williamson for $12,000. Gipson lived in Texas, and his local real estate agent recommended the closing firm, which represented both sides. Gipson testified that his only contact with the law firm was by mail, telephone, and email, mostly with an assistant.
Prior to closing, according to Gipson, the assistant told Gipson that she had received wiring instructions. Gipson testified he told her that he had never sent wiring instructions and expected to receive a check. He said he never received a phone call informing him that the closing had been completed and never received the check. He waited eleven days before contacting the law firm to report that he hadn’t received his seller’s proceeds.
Investigation revealed that the assistant had emailed the fraudulent address that the closing had taken place. By return email, she received fraudulent wiring instructions.
At trial, the law firm presented expert witness testimony to the effect that the law firm’s server was not hacked, and that the theft was facilitated by a “man in the middle attack”, wherein the thief was privy to information possibly obtained through a breach of Gipson’s or the real estate agent’s systems or by overhearing information. But the law firm was held liable at the trial level and by the Court of Appeals.
Lawyers, here is my advice. Please give your closing paralegals time. They need time to discover issues. They need time to investigate discrepancies. Please also give them training, not just once but weekly or even daily. They need to know about this case! No amount of training is too much. Talk to your title company. They have resources to assist! Use those resources! Stay up to date yourself! We spent three years in law school learning to spot issues. Apply those skills to your closing practices to spot those difficult issues.
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 purports to be forty years, and a 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 last year 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.”
Several states have sued this company or passed legislation making the contracts unenforceable. South Carolina is not one of those states. On September 6, United States Senators Casey, Brown and Wyden (Chairmen of Special Committee on Aging, Committee on Banking, Housing, and Urban Affairs and Committee on Finance, respectively) wrote a comprehensive letter setting out the legal concerns and seeking information. You can read the letter in its entirety here.
Now, MV Realty of South Carolina has filed for Chapter 11 Bankruptcy reporting assets of $1 – $10 million and debts of $1-$50 million.
Dirt lawyers, pay attention to this situation. We will certainly see updates. If you see these contracts in your chains of title in the meantime, contact your underwriting counsel for guidance.
This blog has discussed the new Corporate Transparency Act twice recently. If you missed the discussion of the Small Entity Compliance Guide FinCEN issued in September, here is the link.
I wanted to share an additional piece of information. On September 30, FinCEN issued a Notice of Proposed Rulemaking to extend the deadline for filing beneficial ownership information reports. You can read the notice here.
This notice proposes to change the reporting deadline for new entities formed beginning in 2024 from 30 to 90 days. The press release indicates this extension is intended to reporting companies created or registered in 2024 additional time to understand their regulatory obligations under the new reporting rule. I think this change will be helpful, if implemented.
Please refer to the excellent September 2023 article in SC Lawyer entitled, “The Basic Ins and Outs of the Corporate Transparency Act” by Matthew B. Edwards and D. Parker Baker III.
This article provides an analysis of the basics of the Act, which is intended to help prevent money laundering, terrorist financing, corruption, tax fraud and other illicit activities. Many entities will be required to report information concerning beneficial owners to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), identifying their beneficial owners and providing certain information about them.
The act may apply to virtually every commercial real estate transaction because of the use of multi-tier entity structures to achieve business objectives. Lawyers will need to review clients’ organizational structure charts to determine entity by entity whether an exemption is applicable. If not, organizational documents, stockholder agreements, operating agreements will have to be reviewed to determine beneficial ownership.
Reporting information will include the name, address, state of jurisdiction and taxpayer identification number of every beneficial owner. Other information may be required, such as passports and driver’s licenses. Penalties for failure to comply will include civil penalties of no more than $500 per day, fines of no more than $10,000 and imprisonment for no more than two years. A safe harbor is included for voluntarily and promptly correcting an inaccurate report within 90 days. FinCEN will issue rules prior the effective date.
Don’t panic. We have time. The effective date is January 1, 2024. For companies formed prior to the effective date, the initial report is due January 1, 2025. For companies formed on or after the effective date, the first report is due 30 days following formation. This new rule, if implemented, will change that time-frame to 90 days.
I think everyone’s initial advice as to new entities will be to refrain from forming those entities until the effects of the Act are analyzed. Existing entities will need to be analyzed pursuant to FinCEN’s rules.
Everyone will get through this together, and it’s likely that experts will emerge to help. This blog will keep you posted on new developments.
The new Corporate Transparency Act will apply to you and your clients!
This blog recently discussed the new Corporate Transparency Act. I’m repeating that blog in order to provide you with extra piece of information that should be helpful as you work to get ready for this new obligation of many clients. FinCen has recently published a compliance guide that you can read here.
Please refer to the excellent September 2023 article in SC Lawyer entitled, “The Basic Ins and Outs of the Corporate Transparency Act” by Matthew B. Edwards and D. Parker Baker III.
This article provides an analysis of the basics of the Act, which is intended to help prevent money laundering, terrorist financing, corruption, tax fraud and other illicit activities. Many entities will be required to report information concerning beneficial owners to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), identifying their beneficial owners and providing certain information about them.
The act may apply to virtually every commercial real estate transaction because of the use of multi-tier entity structures to achieve business objectives. Lawyers will need to review clients’ organizational structure charts to determine entity by entity whether an exemption is applicable. If not, organizational documents, stockholder agreements, operating agreements will have to be reviewed to determine beneficial ownership.
Reporting information will include the name, address, state of jurisdiction and taxpayer identification number of every beneficial owner. Other information may be required, such as passports and driver’s licenses. Penalties for failure to comply will include civil penalties of no more than $500 per day, fines of no more than $10,000 and imprisonment for no more than two years. A safe harbor is included for voluntarily and promptly correcting an inaccurate report within 90 days. FinCEN will issue rules prior the effective date.
Don’t panic. We have time. The effective date is January 1, 2024. For companies formed prior to the effective date, the initial report is due January 1, 2025. For companies formed on or after the effective date, the first report is due thirty days following formation.
I think everyone’s initial advice as to new entities will be to refrain from forming those entities until the effects of the Act are analyzed. Existing entities will need to be analyzed pursuant to FinCEN’s rules during 2024.
Everyone will get through this together, and it’s likely that experts will emerge to help.
CFPB imposes $1.75 million fine for giving “things of value” in return for referrals
This blog often recommends the DIRT Listserv and today is no exception. Professor Dale Whitman reported on August 22 that the CFPB issued an order against Freedom Mortgage Corporation, a residential mortgage loan originator and servicer headquartered in Boca Raton, Florida, for providing things of value—including subscription services, events, and monthly marketing services agreement payments—in exchange for referrals of mortgage loans in violation of the Real Estate Settlement Procedures Act and its implementing Regulation X. The order requires Freedom to stop its unlawful activities and pay a $1.75 million civil money penalty.
Professor Whitman noted that since RESPA Section 8 has been around for 50 years, one might think that such practices are a thing of the past.
These specific violations were noted:
Freedom entered into agreements with local real estate agents for the agents to provide marketing services for Freedom’s mortgage activities. CFPB said the payments were really referral fees for the agents to refer mortgage loan customers to Freedom. Apparently, no “marketing services” were provided.
Freedom gave the agents free access to valuable industry subscription services, which provided information concerning property reports, comparable sales, and foreclosure data. These subscriptions, which were worth thousands of dollars per month, were provided in return for the agents referring mortgage loan customers to Freedom.
Freedom provided entertainment, food, and drinks at parties and other events to the agents that were referring loan customers to it. They also provided free tickets to sporting and charity events. They didn’t make similar distributions to agents who were not referring customers.
Professor Whitman questions whether a lender really cannot throw a pregame party or provide a skybox at a game for real estate agents. He suggests that there must be a de minimus exception. But the order doesn’t give much guidance on the boundaries of Section 8.
I agree with the Professor. If you represent clients that provide settlement services and rely on referrals, you should advise them to be very cautious about providing free services and entertainment persons who make the referrals.
The new Corporate Transparency Act will apply to you and your clients!
Please refer to the excellent September 2023 article in SC Lawyer entitled, “The Basic Ins and Outs of the Corporate Transparency Act” by Matthew B. Edwards and D. Parker Baker III.
This article provides an analysis of the basics of the Act, which is intended to help prevent money laundering, terrorist financing, corruption, tax fraud and other illicit activities. Many entities will be required to report information concerning beneficial owners to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), identifying their beneficial owners and providing certain information about them.
The act may apply to virtually every commercial real estate transaction because of the use of multi-tier entity structures to achieve business objectives. Lawyers will need to review clients’ organizational structure charts to determine entity by entity whether an exemption is applicable. If not, organizational documents, stockholder agreements, operating agreements will have to be reviewed to determine beneficial ownership.
Reporting information will include the name, address, state of jurisdiction and taxpayer identification number of every beneficial owner. Other information may be required, such as passports and driver’s licenses. Penalties for failure to comply will include civil penalties of no more than $500 per day, fines of no more than $10,000 and imprisonment for no more than two years. A safe harbor is included for voluntarily and promptly correcting an inaccurate report within 90 days. FinCEN will issue rules prior the effective date.
Don’t panic. We have time. The effective date is January 1, 2024. For companies formed prior to the effective date, the initial report is due January 1, 2025. For companies formed on or after the effective date, the first report is due thirty days following formation.
I think everyone’s initial advice as to new entities will be to refrain from forming those entities until the effects of the Act are analyzed. Existing entities will need to be analyzed pursuant to FinCEN’s rules during 2024.
Everyone will get through this together, and it’s likely that experts will emerge to help.
Refer to the excellent article in July’s issue of SC Lawyer
I’d like to recommend that South Carolina dirt lawyers read and pay attention to an article in the July issue of the SC Lawyer. Rachel E. Carr and Danielle Bennett authored an interesting article entitled, “The Lady Bird Deed: Has the Remainderman Interest Nested or Vested?”
Cutting to the chase, your title insurance company in South Carolina will require the signatures of remaindermen if the life estate owner sells or mortgages property. But let’s look at the background this article sets out.
The Lady Bird Deed derives its name from Lady Bird Johnson, Lyndon Johnson’s first lady. Anecdotally, President Johnson went to great lengths to avoid probate by transferring his assets to his wife. South Carolina’s statutes and case law do not recognize this type of deed.
The Lady Bird Deed attempts to retain more power over the real estate in the life tenant than the typical life estate deed. This “enhancement” language is typically included:
“Grantor reserves unto himself, for and during his lifetime, exclusive possession, use, and enjoyment , right to income of the property, and Grantor further reserves the right to sell, lease, encumber by mortgage or deed of trust, pledge, lien or otherwise maintain and dispose of, in whole or in part, or grant any interest thereon, of the property by gift, sale, or otherwise without consent or joinder of the Grantee, which may terminate the interest of Grantee. Grantee shall be a remainderman in the property described herein and upon the death of Grantor, if the property described herein has not been previously disposed of prior to the death of Grantor, all right and title to the property, then remaining, shall fully vest in Grantee as fee simple subject to such liens and encumbrances which may exist at the time of Grantor’s death.”
What would you do if you saw this language in a deed for property your client intends to purchase? You would likely call your friendly title insurance company underwriter, and that person would most likely ask you to obtain the signature of the remainderman.
As the article points out, South Carolina cases have recognized a life estate coupled with a power of sale. Blackmon v. Weaver* was a 2005 Court of Appeals case involves a life estate and remainder interest established in a will. The will left property to testator’s wife, including this language:
“Second: I give, devise and bequeath all of my property whether real, personal or mixed, whatsoever and wheresoever situation, whether now owned by me or to me or hereafter acquired by me, to my wife, Lana Odom Blackmon for and during her natural life or until such time as she no longer desires the property.
Sixth: That if the desire of my wife to sell any or all of my property and assets then my wife, Mary B. Heath, J.B. Blackmon, III and Jennifer B. Weather, shall share equally in the sale of such assets.”
When a dispute arose between the wife and children, the wife attempted to sell the property. The trial court held that the wife could not sell the property because she was not the fee simple owner. But the Court of Appeals relied on the intention of the testator as expressed in the will and held that the wife had the power to sell the property.
In an earlier case** the will devised to the testator’s wife “complete perfect ownership” during her life. At her death, the property would pass to the testator’s sisters. The Court held that the widow had the power to sell the real estate because the testator’s intent was clear.
But what we don’t have in South Carolina is a case that allows life tenant to sell the property when the life estate is established in favor of the grantor in a deed. So, we do not have authority for the sale of property by the grantor of a Lady Bird Deed.
As I often suggest, please call your title insurance underwriter if you have questions about any unusual language you find in a deed.
Last week, this blog discussed a real estate dispute between a developer and a 93-year-old great-great-grandmother in Hilton Head who said her husband’s family has owned the property since the Civil War. This week, we turn to a similar story in St. Helena Island.
NPR reported on August 3 that residents of St. Helena Island have banded together to protect the culture of the Gullah Geechee people from a golf course development. You can read NPR’s story here.
The story reports that St. Helena Island has a decade’s old zoning ordinance that bans golf courses, resorts and gated communities, which the Gullah Geechee people say threaten their existence. Direct descendants of slaves have farmed and fished St. Helena Island for nearly 200 years, using their own language, culture and traditions.
NPR reports that developer Elvio Tropeano purchased 500 acres and wants to build a golf course despite the zoning ordinance. He contends the golf course would benefit the community by allowing public access and attracting visitors who would become educated about the Gullah Geechee people and spend funds that would support their culture. If he is unable to build the golf course, he threatens to build more than 160 luxury homes. According to the NPR story, some locals believe the subdivision would be worse than the golf course. They prefer to have the land sustained the way it is, unspoiled and resilient.
These stories are certainly not the first South Carolina tales we have heard about disputes between locals and developers and pressures on “heirs property” and other undeveloped, pristine real estate. The pressures seem to be building!
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