NC title agent fakes title insurance policies and gets fourteen month sentence

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insurance fraud binder scales

A North Carolina title agent was sentenced this month for selling fake title insurance policies. Ginger Lynn Cunningham owned Blue Ridge Title Company, a title insurance agency located in Buncombe County, North Carolina.

The title insurance company that had done business with Cunningham had canceled the agency in March of 2016, but Cunningham continued through October of 2017 to represent herself as being a title insurance agent. During this time, she purportedly sold falsified title insurance policies, retaining 100% of the premium.

The court records reflect that at least 973 counterfeit title insurance policies were sold to the tune of around $400,000 in bogus premiums. Cunningham pleaded guilty to wire fraud on October 28, 2019.

Cunningham was sentenced to fourteen months in prison and three years of court supervision. She was also ordered to pay restitution.

I would love to say this is a novel case and that these facts don’t make my skin crawl, but former attorney, Brian Davis, was disbarred in South Carolina in 2015 for the same activity.*

By way of background, the vast majority of real estate lawyers in South Carolina are also licensed as title insurance company agents.  In other parts of the country, lenders receive title insurance documents directly from title companies’ direct operations.  In South Carolina, title companies run agency operations, supporting their networks of agents, almost all of whom are South Carolina licensed attorneys.

Lenders require closing protection letters for closings involving agents.  Stated simply, these letters inform lenders that the insurer may be responsible in the event a closing is handled improperly by the closing attorney.

Title insurance company agents also produce title insurance policies and commitments, following the guidelines of their insurance underwriters, and using software programs designed to support the production of these documents.

Some closing attorneys are not agents but instead act as approved attorneys for title insurance companies. Approved attorneys can obtain closing protection letters from their title companies, but they are not able to issue their own title insurance documents. Instead, they certify title to a title insurance company or to a title company’s agent.

If an attorney cannot provide lenders with closing protection letters, that attorney generally cannot close mortgage loans in South Carolina.

In 2007, Mr. Davis was canceled as an agent by his title insurance company**.  After that cancellation, he was able to legitimately obtain title insurance commitments and policies through an agent. In 2011, however, Mr. Davis was canceled as an approved attorney.  He didn’t let that fact stop him though. He began to fraudulently produce title insurance documents, making it appear that the title insurance company was issuing closing protection letters, commitments and policies for his closings.  He also collected funds designated as title insurance premiums, but he never paid those premiums to the title insurance company.  He continued to handle closings using fraudulent title insurance documents until his actions were discovered and he was suspended from the practice of law by the South Carolina Supreme Court in 2013. In 2015, Mr. Davis was disbarred.

I supposed I should close by saying don’t do this!  Please!

 

* In the Matter of Davis, S.C. Supreme Court Opinion 27480 (January 21, 2015)

** In the interest of full disclosure, I work for that company.

ProPublica publishes interesting heirs’ property story

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Check out the July 15, 2019 story by Lizzie Presser

NC oceanfront property

Image courtesy of ProPublica.org

Several of our staff members stay well informed about current events, and Cris Hudson, our IT professional, is no exception. Cris pointed me to this story published by ProPublica on July 15 entitled “Their Family Bought Land One Generation After Slavery”. The subtitle is “The Reels Brothers Spent Eight Years in Jail for Refusing to Leave it.” Cris told me I should blog about this story, so here goes.

ProPublica calls itself a “nonprofit newsroom that investigates abuses of power”. The story is about brothers, Melvin Davis and Licurtis Reels, who lived in Carteret County, on the central coast of North Carolina, on land they considered to be owned by dozens of their family members. The property consists of 65 marshy acres. Melvin Reels ran a club on the property and lived in an apartment above the club. He also had established a career shrimping in the river that bordered the land. Licurtis had spent years building a house near the river’s edge, just steps from his mother’s house.

Mr. Davis’ and Mr. Reels’ great grandfather, Mitchell Reels, bought the land just one generation removed from slavery. The land was said to contain the only beach in the county that welcomed black families. Mitchell didn’t trust the courts and didn’t leave a will, so, when he died in 1970, the property became heirs’ property.

In 2011, the brothers appeared before a judge to argue that they owned the waterfront portion of their property, which had purportedly been sold, without their knowledge or consent, to a developer. They were not allowed to argue their case that day. Instead, the judge sent them to jail for civil contempt. They were never charged with a crime nor given a jury trial, but they spent the next eight years fighting their case from jail.

As any practitioner who has handled quiet title suits for heirs’ property can attest, the suits can be expensive and complex. Nonprofit organizations, like The Center for Heirs’ Property Preservation, in South Carolina, assist in litigating these matters.

The story quotes Josh Walden of the Center who said that organization has worked to clear more than 200 titles in South Carolina the past decade, protecting land valued at nearly $14 million. Mr. Walden told the reporter that the center has mapped out a hundred thousand acres of heirs’ property in South Carolina and is careful to protect the maps from potential developers.

Back to the North Carolina story, a great uncle of Mitchell and Licurtis apparently obtained the waterfront property through an adverse possession action and began sending trespass notices to the brothers in 1982. The brothers could not believe the adverse possession action could have been “legal” since they had lived on the land their entire lives. Soon afterward, the great uncle sold the waterfront portion of the land to developers.

The family members knew that if the waterfront was developed, the tax values of their adjacent properties would skyrocket, and they would have difficulty paying the taxes and maintaining their properties. Tax sales have historically been the cause of the loss of many heirs’ properties.

(I got confused in one part of the story when the author talked about “nearby” Hilton Head. We drove from Hilton Head to Outer Banks once, and I promise you, the two locations are not “nearby”. We could have driven to Disney World in the same time frame.)

Like tax sales, partition actions have been a tool used to separate heirs from their properties. A developer can buy the share of one heir and then force a partition of the entire property. While South Carolina has passed partition legislation to protect against this danger, North Carolina has held out against this reform, according to the story.

The brothers continued to rot in jail after the judge indicated there was no time limit on civil conspiracy, and that the brothers had to move their houses from the properties to be released. The brothers refused and were locked in a hopeless clash with the law, according to the story.

Eight years later, the brothers appeared before a judge who agreed to release them but warned them that if they returned to their homes, they would return to jail. They have still not been able to return to the waterfront property.

I invite you to read the entire story for a history of heirs’ property in the South. It is indeed a sad tale of greed and legal wrangling to remove properties from heirs. The Reels’ story is just one example.

Will Biltmore Estate’s Owners Get Their Fairytale Ending When IRS Is Done With Them?

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Biltmore EstateOne piece of real estate that fascinates most Carolinians is the picturesque Biltmore Estate in Asheville surrounded by the natural beauty of the Appalachian Mountains. According to articles in Law360*, a trial is scheduled for February 24 in the U.S. Tax Court that may determine whether the property continues to be privately owned and operated or whether portions of the real estate must be sold to developers to pay taxes.

The estate consists of 8,000 acres, 75 acres of formal gardens, and the largest privately owned house in the United States. The 255-room mansion was built between 1889 and 1895, in the Gilded Age, by George Washington Vanderbilt. Mr. Vanderbilt intended for the estate to be self-supporting, so he established a forestry program, poultry farms, cattle farms, hog farms, a dairy and a furniture business.

IMG_3884[1]George Vanderbilt had one child, Cornelia, who married British diplomat John Francis Amherst Cecil. Mr. and Mrs. Cecil worked with the City of Asheville to open the estate to the public in 1930 to spur tourism in the area during the Depression and to generate revenue to support the estate. The Cecil family turned the aging estate into a thriving tourist attraction, now including an inn, a farm, restaurants, gift shops and a winery, among other money-making ventures.

Most national treasures are operated by governmental agencies. According to the Law360 articles, the Cecils believe The Biltmore should be given special consideration because it operates as a business venture causing no drain on federal or state governments.

At issue now is a stock gift to the Cecils’ five grandchildren reported on 2010 tax returns at $20.88 million. The IRS claims the stock is worth $95 million. The family believes the stock should be valued as minority interests in a going concern.  But the IRS argues that the asset value is worth more than the value of the going concern, so a liquidation value should be used.

Lovers of this historic landmark will need to follow this story to determine whether the preferred destination of more than a million visitors per year will remain available as a vacation destination.

*Biltmore Owners Say IRS Is Stonewalling $95M Gift Row, 1/11/2016; Biltmore Owners Battle IRS over $95M Stock Gift, 7/7/2014.

(The Estate’s website is the source for many of the facts in this blog.)