By: Joseph E. Seagle, Esq. President of PCS Title
February 17, 2022
February is the month of love so we’re sending a big red heart out to all our customers, vendors, referral sources, and employees this month and all year long.
1670 words…Est. Reading Time: 10 mins. 24 secs.
1 Big Thing: First U.S. Home Sold via NFT with Cryptocurrency in Florida
The BFD: Last week, a home in Gulfport sold in an online auction for $655,000.00. This is the first time in US history that an online real estate auction was held and paid for with cryptocurrency. A “technical issue” caused the auction to remain open for an hour longer than intended, allowing additional bidders to increase the price beyond what was originally thought was the winning bid. Over 2,000 bidders participated in the auction.
The fine print:
- For the auction, bidders were provided access to review a title search, seller’s disclosure, and other typical property disclosure documents.
- Before the auction, the seller conveyed the property into a new LLC that only held the property as its only asset.
- The LLC membership interest was converted into an NFT (non-fungible token) and registered on the blockchain.
- The successful bidder actually bought the LLC membership interest; not the real estate. No new deed will be recorded on the Official Records into the successful bidder’s name.
- The successful bidder’s identity will only be known to those few people intimately involved in the auction, and the county property appraiser who should receive a form that confidentially reports the sale of the LLC membership interest.
- Documentary tax is not paid on sale of LLC membership interests as it is on deeds and assignments of a land trust’s beneficial interests.
- The prior title policy that insured the LLC’s ownership only provides insurance coverage up to the amount that the LLC previously paid for the property that was auctioned. The insurance does not cover the bidder’s presumably higher price paid to buy the LLC membership interest.
- The LLC will still need to record a deed out to the new owner on the Official Records if that owner wants to move into the property and get the benefits of the Florida Homestead laws. If that’s done within three years of the NFT auction, documentary tax will be paid at that time.
State of Play: Real estate agents and investors are being approached more often by buyers who want to buy properties with Cryptocurrency directly rather than converting it to US dollars first. Currently, title insurers will only insure transactions where the purchase price is paid in US dollars passing through the closing agent’s escrow account. They do not insure purchases made using stocks, cryptocurrency, foreign currencies, Cabbage Patch Dolls, Beanie Babies, NFT’s, or artwork. Also, Official Records – where deeds and mortgages are recorded in each county – have only been available for viewing and searching on the Internet since the mid-1990’s. Real estate records are part of the “automatic nervous system” of the US economy. To make big changes in how those records are maintained, searched, recorded, and insured is a process that moves at a glacial pace to avoid polluting the data with technology or processes that may just be fleeting. The records must be searchable and viewable in 100 years as they are today. They have moved from handwritten copies, stored in large bound books, to microfilm, to microfiche, to TIF, to PDF/A – the latest most-accepted digital format for such records.
Where we’re headed: Real estate practitioners and records keepers are wary of new technologies that purport to change the centuries-old practices of using written paper records to document real estate conveyances. Meanwhile, consumers and tech engineers are impatient with these archaic and slow systems. Eventually, the old systems will evolve. But it will take a long time and thousands of successful NFT transactions that are acceptable to buyers, lenders, and Wall Street (where loans secured by those NFT’s will eventually be sold) before title insurers are ready to insure these transactions.
2: Fair Debt Collection Act Changes in Effect
State of Play: Professional property managers and association management companies are often our referral sources, so we think it is important that they be aware that the FDCPA changed recently, and it may affect landlords and property or association managers who are trying to collect rents and association assessments from tenants and owners. The FDCPA has traditionally governed how “debt collectors” collect debts on behalf of creditors. Those collecting their own debts are exempt from the law. But some recent changes affect those who are collecting even their own debts.
- Prior case law notes that landlords and homeowners’ associations are not debt collectors under the FDCPA, because they are direct creditors seeking to collect their own debt. However, Regulation F now makes it clear that these entities can be considered debt-collectors if they use any name other than its own when collecting a debt.
The bottom lines:
- Emails and Text Messages: for a debt collector to use email or text messages to collect a debt, they must first obtain consent directly from the consumer. However, there is required language for creditors to use to inform consumers that they intend to share their email address with a debt collector, and the debt collector must use reasonable means to confirm that the creditor has followed all required procedures before utilizing a consumer’s email address.
- Time Barred Debt: Regulation F strictly prohibits debt collectors from threatening to sue – or from actually bringing – any legal action against a consumer where the debt collector either knows (or should know) that the statute of limitations to collect the debt has expired. This appears to be a significant change in the law that creates strict liability against the debt collector for pursuing time-barred debts. Creditors and their debt collector should have a system to discuss the debtor’s potential defenses in detail before sending any initial communications to the debtor – to ensure that the debt is not time barred and there is no improper threat of legal action.
- Itemization Date. The Rule now requires the debt collector to include in the validation notice an itemization of the account balance from a specified “itemization date” through the date of the validation notice. This allows debt collectors to choose as their “itemization date” one of five specified reference dates:
i. the date of the last periodic statement or written account statement or invoice provided to the consumer by the creditor;
ii. the charge-off date;
iii. the last payment date
iv. the transaction date; or
v. the judgment date. Because of the nature of the “itemization date,” that information will most likely come from the creditor. Creditors will need to coordinate with their third-party debt collectors to provide the requisite documentation to support the itemization date the debt collector is using, the amount of the debt as of that date, and an itemization of any charges and fees accruing after the itemization date.
The take-away: Consumers raise FDCPA violations as defenses to collection of the debt and can even use it to obtain damages and attorneys’ fees from the creditor and their debt collectors. Reviewing the latest changes to this important law is a must for anyone who collects debts as part of their business.
A Word from TRSTE – Sponsor’s Message
Land trusts are a fast and cost-effective way to separate your real estate holdings away from each other and away from your other assets. Using a third-party trustee also ensures that your ownership of the property is not published in the Official Records or on the county tax appraiser’s website.
You, your company, or even your retirement account can be the beneficiary of the land trust, directing the trustee in what to do with the property whether it is to sign a lease, a construction permit application, a deed, or other legal document to lease, sell, encumber, or convey the trust’s property.
Land trusts are not “testamentary” trusts, in that they are not used to pass property directly to beneficiaries outside of a court-supervised probate action. But can still help probate move along faster than if the court is dealing directly with the real estate rather than the trust interest only.
3: New PCS Year; New PCS Closing Platform
State of Play: Since 2004, we have used the same server-based software platform to collect and disburse closing funds, create settlement statements, obtain title information, clear title requirements, and prepare closing documents. With the pandemic forcing us to work remotely in early 2020, we realized that the system was unable to accommodate employees and communications occurring outside the physical office. In Q4 2021 we set out on a mission to evaluate and test other closing and escrow production systems on the market. We drew up our wish list of features and tested several of the market leaders, including our current system, against the list. In December 2021, we made the final decision on the replacement and set to work implementing and training. Today, we’re going live with the new system, and all orders will now be processed in the new web-based system.
What it means for buyers, sellers, and agents:
- Access a dashboard with any web browser or an app on your phone or tablet to check the status of your file at any time.
- Receive and send files and messages, sign documents, and enter information about your order through the same dashboard or app to cut down on e-mails and phone calls.
- See all of your pending and past closings in the same dashboard, whether we are closing it or another title agency (using the same platform) is closing your order.
We are always searching for ways to add transparency and convenience to the closing process. Communication and capacity are just two ways we can do this. Based on our initial training and testing of the new platform so far, we are confident it will improve the closing experience greatly for all our fans. On your next new order, you will receive an initial e-mail that will initiate the new processes with you. We think you’ll be pleased with the experience.
In addition to the new software platform, we have implemented plans and processes to make 2022 the best year ever. We are aggressively hiring experienced closers, processors, and assistants, and investing heavily in training and technology tools. We look forward to seeing you in the office or online again soon.