South Carolina Law

Collaboration is King!

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ALTA’s CFPB webinar emphasizes that the exchange of data will be the biggest challenge to the closing process after August 1, 2015.

American Land Title Association’s value to closing attorneys grows each day as August 1, 2015 approaches. Closing forms will change dramatically later this year, and ALTA is valiantly attempting to keep those of us who plan to remain in this game ahead of the learning curve.

pawns king crown - small featheredSouth Carolina has strong representation in ALTA! Cynthia Blair, a real estate attorney in Columbia, sits on ALTA’s board and participated in this webinar. Each time Cynthia said, “In my state” we knew we were about to receive information specific to us. This local support at this critical time is invaluable, and I strongly encourage South Carolina closing attorneys to join ALTA.

Yesterday, ALTA hosted an excellent webinar entitled “5 Key Areas to Prime Your Operation for the New Closing Process”. The webinar was attended by more than 1,100 of us! The strong message was “Collaboration is King”.

Closing attorneys and lenders will work more closely together than ever to manage and share information. Some lenders have indicated they will deliver the Closing Disclosure to the borrower, but others will require the closing attorney to deliver it. The seller’s form will be prepared by the closing attorney, and a copy of it must be provided to the lender.

The underlying information for the closing documents will be located in two systems: (1) the lenders’ loan origination systems (LOS) will contain the loan-centric information; and (2) the closing attorney’s systems (sometimes referred to as the “title platform”) will contain the property-centric information. Large lenders are likely to utilize entirely electronic systems that will avoid rekeying of information to reduce the possibility of errors. The two systems will talk to each other via platforms that are now being developed.

Attorney Fakes Title Insurance Documents and Gets Disbarred

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Think you’ve heard it all? Listen to this!

The South Carolina Supreme Court disbarred a lawyer last month for fraudulently producing title insurance commitments and policies.*

By way of background, the vast majority of real disciplinary actionestate 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.

 red card - suitIn 2007, Mr. Davis was canceled as an agent by his title insurance company.**  After that cancelation, 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 suppose 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.

Need to Foreclose a Mortgage Securing an eNote?

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Indiana case may provide guidance

South Carolina has no reported opinions concerning mortgage foreclosures involving eNotes, and little authority exists elsewhere on what a holder must prove to successfully foreclose a mortgage secured by an electronic note in a judicial state. Until we see opinions closer to home, an Indiana case may provide the best guidance. Solid evidence of control of the note seems to be the key factor, according to this case.

In Good v. Wells Fargo Bank, 18 N.E.3d 618court money 4 (Ind. App. 2014), Wells Fargo acted as servicer for Fannie Mae, the owner of an eNote that was registered with MERS. The original lender had been Synergy Mortgage Group, Inc.  MERS, as nominee for Synergy, had assigned the mortgage to Wells Fargo.

An officer of Wells Fargo executed an affidavit in support of summary  judgment stating that Wells was the servicer, that it maintained a copy of the note, that its systems provided controls to assure that each note was maintained accurately and protected against alteration, and that the paper copy of the note attached to the affidavit was a true and correct copy.

The affidavit was bolstered by testimony at the bench trial that Wells Fargo controlled the note and was entitled to enforce it as the holder pursuant to 15 U.S.C §7021 (a section of the eSign legislation).  Wells’ underlying position appeared to be that the normal requirements of the UCC-3 governing negotiable instruments (delivery, possession and an endorsement), were not required in the case of an electronic note.

15 U.S.C. §7021 creates the concept of a note as a “transferable record”, a single authoritative copy, which is unique, identifiable, and unalterable. The legislation establishes that the holder must have control of the note in the sense that the system for tracking it must reliably establish that the person seeking to enforce it is the person to whom the record was transferred. Also, the authoritative copy of the record itself must indicate the identity of the most recent transferee.

The Indiana appellate court found Wells’ affidavit insufficient to support a grant of summary judgment on the issue of Wells’ holder status and its evidence on the matter at trial “conclusory”. 

The court said it was unclear from the affidavit whether Wells was claiming to have possession of an endorsed paper copy or the electronic note itself. The affidavit was also found lacking because it did not assert that Wells had control of the record (the eNote), either by maintaining the single authoritative copy in its own system, or by being identified as having control of the single authoritative copy in the MERS system.

The court indicated the eSign statutes require the party enforcing the note to provide reasonable proof of its control of the note through detailed evidence, not merely “conclusory statement”. The court specifically pointed to the lack of evidence in the Wells’ affidavit as it related to a transfer or assignment to Wells Fargo or Fannie Mae of the note from the original lender.

We are likely to see similar cases from other jurisdictions, including South Carolina, with the increasing use of eNotes. Stay tuned!stay tuned

SCDOR Issues Revenue Rulings On Same-Sex Marriage Tax Issues

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rainbow stateOn December 31, 2014, the South Carolina Department of Revenue issued two Revenue Rulings (14-8 and 14-9) addressing same-sex marriage tax issues. These Revenue Rulings were necessary because South Carolina’s ban on same sex marriage was held unconstitutional in November of 2014.

Revenue Ruling 14-8 states that same-sex couples who are legally married in any state must file their South Carolina income tax returns, beginning with tax year 2014, using a married filing status, either “married filing jointly” or “married filing separately”.  Same-sex couples legally married before 2014 may amend their South Carolina income tax returns for any taxable year within the statutory time limitations to a married filing status, but they are not required to take this action.

Revenue Ruling 14-9 has more impact for real estate practitioners. It states that same-sex couples who are legally married under any state law will now be treated as married and as “spouses” for all South Carolina tax purposes.

Revenue Ruling 14-9 provided examples:

Ad valorem property taxes:

  • A same-sex legally married couple may be able to qualify their home for the 4% assessment ratio.
  • If each member of a same-sex legally married couple owns a residence, only one of those residences may qualify for the 4% assessment ratio since as a married couple they may have only one legal residence.
  • Same-sex legally married couples may now qualify for the homestead exemption.
  • A person in a same-sex marriage now qualifies as a “spouse” for purposes of exemptions for the homes of certain disabled veterans, law enforcement officers and firefighters.
  • A person in a same-sex marriage now qualifies as a “spouse” for the purposes of exemptions for the home of a paraplegic or hemiplegic person.
  • Transfers of real property between spouses of a same-sex couple may now be exempted from the assessable transfer of interest rules.

Deed recording fee

  • Transfers of real property from one same-sex spouse to the other will now be exempted from the deed recording fee.
  • Transfers of real estate to a former same-sex spouse pursuant to the terms of a divorce decree or settlement will now be exempted from the deed recording fee.
  • Deeds from a family partnership (one in which all partners are members of the same family) to one of the partners are exempt from the deed recording fee as long as no consideration is paid for the transfer other than a reduction in the grantee’s interest in the partnership. Since the definition of “family” in this exemption includes a “spouse”, the exemption now applies to family partnerships that include same-sex spouses.

Refunds

The recognition in South Carolina of same-sex marriages may allow a same-sex couple, or a same-sex spouse or surviving spouse, to be eligible for a refund of previously paid property taxes or deed recording fees if the same-sex couple was considered legally married under any state law for the period for which the refund is requested and the refund request is made within the applicable statutory time limitation.

SC’s Mortgage Satisfaction Law Was Amended in 2014

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South Carolina’s mortgage satisfaction law changed last year, mostly for the better, but with a few snags. Effective June 2, 2014, Section 29-3-330 of the South Carolina Code was amended to remove the requirement for a “lost mortgage affidavit”, a document that mostly mystified out-of-state lenders and practitioners.

While most states allow a mortgage to be satisfied by a simple document stating, in effect, that the loan is paid in full and the mortgage is satisfied, our statute required either satisfaction by writing on the face of the original mortgage, satisfaction by affidavit of a closing attorney who paid off the mortgage, or satisfaction by a document accompanied by an affidavit from the lender stating that the mortgage was lost.

In most commercial closings, the lender being paid off did not want to deface the original mortgage for fear that the new transaction might fall apart. The attorney handling the closing did not want to sign an affidavit. And nobody wanted to swear that a mortgage in hand was lost.  Closing attorneys and title companies were asked to take mortgage satisfaction documents that clearly did not comply with our statute, but clearly made more sense than our law.

After the amendment, mortgages in South Carolina can be satisfied by four methods:

  1. On the face of the original mortgage in the  presence of the ROD. This is one of the snags. Mortgagees are finding it cumbersome to actually appear before the ROD to satisfy their mortgages.
  2. Onsignature 2 the face of the original mortgage in the presence of two witnesses. This is another snag. The number of witnesses has been increased from one to two, a requirement that some are finding difficult;
  3. By a document in “substantially” the form set out in the statute (that does not require an affidavit that the mortgage is lost); or
  4. By affidavit of a South Carolina licensed attorney who can provide proof of payment and (under penalty of perjury) certifies that he or she was given written payoff information, made the payoff and is in possession of the canceled check or wire confirmation.

Another concern is the mention of the term “deed of trust” in the statute, despite the fact that South Carolina is clearly a mortgage state.

Palmetto Land Title Association is working on some technical amendments. But, generally, the fact that a lost mortgage affidavit is no longer required has made transactions across state lines easier.

Mobile Home Claims Continue

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What do a hurricane, a tornado and a redneck divorce have in common?
Somebody’s fixin’ to lose a mobile home!

Trailer Park Treehouse

That joke may be attributable to Jeff Foxworthy, Lewis Grizzard or some other Southern comedian.  Regardless, a large number of South Carolinians lost mobile homes during the economic downturn, most often as a result of foreclosures rather than the disasters in the joke. Foreclosures uncover title issues that lead to title insurance policy claims. Because our office continues to see mobile home claims on almost a weekly basis, this reminder might be in order for residential real estate practitioners.

When sales and mortgages of real estate including mobile homes are closed, titles to the mobile homes should be retired, and ALTA 7 series endorsements should be issued.

If a title examination reveals a recorded Manufactured Home Affidavit for Retirement of Title Certificate, it is advisable to request from the Department of Motor Vehicles a letter confirming that the title has been placed on the DMV’s list of retired vehicles.

If no Manufactured Home Affidavit has been filed locally, then follow our statutory process to retire the title. The Affidavit requires the owner to:

  • install the home on the real property;
  • remove the wheels, axles and towing hitch;
  • attach proof of ownership (the deed);
  • attach a copy of the certificate of occupancy; and
  • pay the recording fee.

Surrendering the certificate of title to the DMV requires:

  • a filed copy of the Manufactured Home Affidavit from the ROD;trailer duck
  • the original certificate of title with either releases of liens or consents of secured parties;
  • a copy of the most recent tax receipt for the manufactured home; and
  • payment of the DMV fee.

When the title is retired, it is safe to issue an ALTA 7 series endorsement. Your title company will appreciate compliance with these guidelines.

And here’s a practice tip. Our former boss, Nancy Booco, always said, “If it looks like a mobile home, it probably is one.”

The Keys to the Parsonage

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Ever handled a church closing? Oy vey! Never assume church properties make for simple closings. I grew up Baptist, where the congregation votes on real estate matters, but happily married a Methodist preacher’s kid and attend churches where real estate matters are usually handled more methodically.

churchMany transactional lawyers across the country were asked to handle closings of the Episcopal Church while those properties were in dispute, beginning in 2006 when Anglicans left the fold and sought title to church properties. The resulting litigation brought global attention and wound its way through the courts, until the Supreme Court ended the controversy in March of 2014 by declining to take up an appeal by the last remaining plaintiff. We had a dramatic case of our own in South Carolina involving All Saints Parish, Waccamaw in Georgetown County.* And I understand from talking to some lawyers in Myrtle Beach this week, that at least one of these cases is pending in lower court in South Carolina.

When handling church transactions in South Carolina, the first step is to determine the church’s form of governance. South Carolina has cases on point* which discuss two general forms of religious organization. The congregational church is an independent organization, governed solely within itself, either by a majority of members or by another local organism. The hierarchical church is organized as a body with other churches having similar faith and doctrine with a common ruling convocation or ecclesiastical head. The Baptist churches of my youth are congregational churches. The Methodist churches of my adult life are hierarchical.

Sales and mortgages of church properties must be properly authorized. A congregational church authorizes its own transactions, following its own formalities. The level of formality varies greatly. Some churches are incorporated and governed like a business corporation. The closing attorney will typically request a resolution passed in a business meeting, held pursuant to the bylaws of the corporation, authorizing the transaction and designating the appropriate church officers to sign the documents. Congregational churches may have other governing organizations. The closing attorney should pay careful attention to the governing documents and obtain written authorization.

If an independent church has no documented form of government, the closing attorney should assume the entire congregation must act. The typical title insurance old sheldoncommitment will require a resolution by the congregation passed at a special meeting convened after reasonable notice from the pulpit, authorizing the sale or mortgage. The documents will typically be signed by the trustees and the pastor pursuant to the resolution.

A transaction involving a hierarchical church will require written authorization from the ruling convocation. The United Methodist church must receive consent from the District Superintendent and the Conference.

Title insurance companies are familiar with most churches and will be able to assist in these transactions.

Be skeptical of anyone (pastor included) who says he or she can act alone in any church transaction. We have seen numerous claims where church transactions are not properly authorized.

*I’ll be glad to e-mail the citations to anyone who asks.

Who Will Get On the Wells Fargo Wagon?

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Wells Fargo announces it will generate and deliver the Closing Disclosure

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Wells Fargo announced on September 24, 2014 that it will generate and deliver the borrower’s Closing Disclosure when the TILA-RESPA Integrated Disclosure Rule becomes effective on August 1, 2015.

Software companies, title insurance companies and closing attorneys have been speculating about this for many months. Now we have an answer, at least as to this mega-lender. Whether other lenders will fall in line remains to be seen.  The stated rationale is that the process will allow Wells Fargo to consistently meet compliance and regulator expectations.

The announcement stated that Wells will continue to collaborate with closing attorneys to determine fees and other content required for the Closing Disclosure and to ensure that the lender has accurate information.

For purchase transactions, the closing attorney will continue to be responsible for the seller’s information and will prepare and deliver the seller’s Closing Disclosure. A copy must be provided to Wells Fargo.

The Closing Disclosure must be delivered three business days prior to the closing, and Wells Fargo anticipates this requirement will require that all the parties work together more than ever on scheduling closings.

Conducting closings will continue to be the responsibility of closing attorneys, but with increasing focus on compliance with the lender’s closing instructions, according to this announcement.

This announcement has a huge impact on the closing process. The closing attorney will continue to be responsible for gathering information required to generate the document that replaces the HUD-1 Settlement Statement, but Wells Fargo, not the closing attorney’s office, will actually generate and deliver the form.

Please recall that Wells Fargo is the lender that endorsed ALTA’s Best Practices. My best advice for residential closing attorneys in South Carolina who want to remain in the game after August, 2015?  Get your office in compliance with Best Practices now so you will be prepared to implement the hardware/software changes this announced “collaborating” with lenders will require.

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Embrace ALTA’s Best Practices

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 BestPractices2Some real estate practitioners are furiously bringing themselves into compliance with ALTA’s Best Practices, while others are furiously ignoring the entire topic or, at best, waiting until they hear marching orders from lenders. I propose that we all step to the plate and embrace Best Practices.

Residential practitioners can and should use compliance as a marketing tool. Some commercial practitioners are assuming that when lenders become educated and begin demanding compliance from residential practitioners, they will naturally ask for the same or similar compliance from commercial practitioners. Striving for compliance is an opportunity for all practitioners to demonstrate to their clients, to real estate agents and to lenders their value in real estate transactions.

ALTA is now encouraging practitioners to conduct a self-assessment of their adoption of Best Practices by September of 2014. Time may be of the essence because a practitioner may first hear marching orders from a lender in connection with a specific real estate closing. If it is impossible to demonstrate compliance quickly, that closing will likely be lost to someone who is better prepared.Best-Practice-processes

I am convinced that the numbers of residential real estate practitioners in South Carolina will be drastically reduced in the next year or two. Attorneys approaching retirement age may decide to retire rather than to learn how to use the new forms. Large law firms  who handle commercial transactions may decide that residential transactions are no longer worth the effort. Left standing will be the practitioners who embrace this change and tackle it now. There is opportunity for growth for those who act wisely in the face of change.

Title insurance companies are willing and able to help and have resources that can ease the pain. But no outsider can do the actual work. Each pillar requires careful consideration from a management standpoint, and only the closing attorneys themselves can make the necessary decisions for implementation. Each pillar will require on-going demonstration of compliance. Files must be papered. Calendars must be tickled. Software and hardware must be kept current. Compliance will not be a matter of establishing written procedures and continuing business as usual. We should establish a culture of compliance and make it the responsibility of all employees.

I can’t say this strongly enough: At some point, practitioners will either have to embrace compliance or get out of the game. The time to act is now.

If you want to continue to handle residential real estate transactions, call your title insurance company today and ask for assistance in nailing down each pillar.

A Life Well Lived …

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Hugh Dave WhitenerHugh Dave Whitener, Jr.
September 14, 1944 – September 14, 2014

It is with great sadness, but with immense respect and admiration that South Carolina real estate lawyers, in conjunction with a host others, prepare to say farewell to Dave Whitener, who died this week after a long battle with cancer.

Dave was the consummate lawyer-educator who taught, mentored, nurtured and molded many of us in the practice of transactional law. He was a University of South Carolina School of Law Platinum Compleat Lawyer as well as an Adjunct Professor at that treasured school for 24 years. He was the ideal professor in that his love for the law was only exceeded by his love for students. He never taught from a theoretical ivory tower, but from a concrete point of view, grounded in decades of practical experience. As a result, he was awarded the school’s Excellence in Teaching and Distinguished Service Award.

Dave was an entertaining and engaging seminar speaker. A group of real estate lawyers can recite many of his best stories that were told well and often and always with a sense of humor.

He was a protector of our practice. Many of us remember the seminar several years ago when he first began speaking about “The Palmetto Logs”, a list of authorities beginning with the South Carolina Constitution and meandering through State v. Buyers Service Co., Inc., and its progeny. He encouraged us to use The Palmetto Logs to protect our practice from those who participate in the unauthorized practice of law, those who demean our practice, and those who seek to take it away from us.

We extend our condolences to our friend and Dave’s wife and law partner, Trisha Wharton Whitener, and to all of Dave’s family. And we send to them a word of appreciation for sharing him with us.