COVID forbearance extended

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The U.S. Department of Housing and Urban Development has extended COVID-19 foreclosure and forbearance moratoriums through June 30, 2021. It also extended the deadline for the first legal action and the reasonable diligence time frame to 180 days.

COVID-19 forbearance was also extended to allow up to two forbearance extensions of up to three months each for homeowners who requested a forbearance on or before June 30, 2020. These extensions are intended to provide relief to homeowners who will be nearing the end of their maximum 12-month forbearance period and have not yet stabilized their financial situation.

FHA’s streamlined COVID-19 loss mitigation home retention and home disposition options were extended to all homeowners who are behind on their mortgage payments by at least 90 days.

Diana Hoffman, Corporate Escrow Administrator with Fidelity recently wrote an excellent article about mortgage forbearance that I previously shared on this blog and am now sharing again with South Carolina closing attorneys in its entirety:

“Forbearance does not erase what the borrower owes. The borrower will have to repay any missed or reduced payments in the future. Borrowers able to keep up with their payments should continue to make payments. The types of forbearance available varies by loan type.

At the end of the forbearance, the borrower’s options can include paying their missed payments:

  • At one time
  • Spread out over a period of months
  • Added as additional payments, or
  • Added as a lump sum at the end of their mortgage

The CARES Act requires servicers to grant forbearance up to 180 days, with a one–time extension of 180 days for borrowers experiencing a hardship due to COVID–19 issues, such as, loss of income, unemployment, illness or caring for a sick relative.*

The CARES Act also provides protection against derogatory marks against the borrower’s credit. However, the servicer can report notes to the credit bureau that can be seen by any future creditor that could prevent the borrower from obtaining any type of new financing for a 12–month period.

When the Federal Housing Finance Agency reports servicers who collect payments on mortgages backed by Fannie Mae and Freddie Mac, they will only be required to cover four months of missed payments on loans in forbearance.

The big question is what happens when that four–month period is over? As it turns out, the Government Sponsored Entities (GSEs) themselves are preparing to cover any remaining advances for as long as those loans remain in forbearance.

What does this mean to the title industry? To prevent payoff losses due to deferred payments, settlement agents should:

  • Ask borrowers if they have entered into a forbearance or loan modification agreement with their lender at the opening of the transaction
  • Review the preliminary report or commitment for title insurance for junior liens, securing the deferred payments
  • Ensure the payoff request includes the following language:
    • Please furnish to us a statement of the amount necessary to pay in full including any amounts deferred due to a forbearance or modification agreement.
      If the borrower entered into a forbearance agreement and you are not the entity servicing any deferred amounts, please provide the contact information for the entity who is.
  • Review the payoff statement for deferred principal balance amounts

The last item is important. If the deferred amounts are not contained in the payoff statements, it is likely the amounts are being serviced by another loan servicer and a separate payoff statement will need to be requested”

*See above in the main article. Two extensions are now allowed.

Lawyers: Tell your clients, friends and family members!

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South Carolina launched a funded rental and mortgage assistance program

South Carolina’s Housing Authority announced last week a new funded program to assist residents who face financial difficulty in housing as a result of the pandemic.

The program, called SC Stay, has $25 million to be provided on a first-come, first-serve basis to qualified residents for rent and mortgage deficits dating back to February of 2020. Residents may receive up to a total of $7,500 for prior and/or future mortgage or rent payments. The funding is provided through the U.S. Department of Housing and Urban Development’s Community Development Block Grant Program for Coronavirus and is a part of the CARES Act.

To qualify, individuals and families must:

  • Certify that their income is at or below 80% of county medium income adjusted by family size. (A chart reflecting the requirement for each county is attached);
  • Demonstrate that they are unable to make all or part of their rent or mortgage payments or are behind on those payments because of circumstances stemming from COVID. Those circumstances may include layoffs, reduced work hours as well as the inability to work because of infection and quarantine.
  • Have landlord or lender confirmation of their past-due payments and willingness to accept payments on behalf of the tenant or borrower.

The application process can be started here or by calling (833) 985-2929.

Court of Appeals decides Hilton Head easement case

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Real estate cases involving property in Hilton Head Island are almost always interesting, and this one* is no exception. I’m sure my friend, Dick Unger, will be discussing it fully in his upcoming revised treatise on easements for the South Carolina Bar. In the meantime, here’s enough of a description to get this case on your radar.

The case involves a welcome center, a gas station and a shopping complex on Palmetto Bay Road near Sea Pines Circle. Enmark owns the gas station which is adjacent to the welcome center. The shopping complex is located behind the gas station and adjacent to the welcome center. The roadway in question covers a portion of the welcome center property and connects the station to the parking lot on the shopping center property.

The roadway initially forked around a small vegetative island located on the shopping center property and had two connections to the parking lot. The shopping center removed the island and placed a trash dumpster in its place. (That doesn’t sound like something that would have been well received in Hilton Head!) The station’s customers use the roadway as an alternative entrance and exit for the station, and the general public uses it to bypass Sea Pines Circle and access the shopping center.

The case outlines the chains of title for the welcome center and gas station properties. When a dispute about the roadway arose, the property owners entered into a tolling agreement in mid-2013, in which they agreed the owner of the welcome center would file a complaint seeking a declaratory judgment to determine each party’s rights as to the roadway.

The welcome center owner then involved the Town of Hilton Head, which wrote a letter stating the roadway violated Hilton Head’s Land Management Ordinances. The town ordered the road to be removed and replaced with a vegetative buffer.  The gas station owner informed the Hilton Head official about the existence of the tolling agreement and of the importance of the roadway to its business and the public. The town stated that its letter was premature and subsequently decided the roadway was grandfathered into the Land Management Ordinances.

The welcome center owner filed a complaint in August of 2013 seeking an order that the gas station owner had neither an express nor a prescriptive easement. The Master-In-Equity found the existence of a prescriptive easement, and this appeal followed.

The Court of Appeals first eliminated the involvement of the town as a determinative factor in its decision, holding that the 2013 letter was not a final decision.

The Court next outlined the elements of a prescriptive easement: (1) continued and uninterrupted use or enjoyment of the right for a period of twenty years; (2) the identity of the thing enjoyed; and (3) the use or enjoyment which is either adverse or under claim of right.

Citing an earlier case, the Court of Appeals said our Supreme Court had clarified the third element, holding “adverse” and “claim of right” are in effect the same thing. The Supreme Court had simplified the elements stating the claimant must identify the thing enjoyed and show his use has been open, notorious, continuous, uninterrupted, and contrary to the burdened property owner’s rights for a period of twenty years.

The welcome center owner argued that the identity of the thing enjoyed was not established because the roadway is an “easement to nowhere”, not terminating on a public road. The Court held that termination on a public road was not required.

Continuous use was established through tacking the periods of use by prior owners in the gas station’s chain of title. The welcome center argued the use was interrupted by three threatening letters (dated 1994, 2008 and 2012, respectively), plus the placement by the shopping center of the garbage bin. The Court held that the letters were too late to interrupt the required twenty-year period, and the placement of the garbage bin was irrelevant because it was not placed by the owner of the burdened estate.

The owner of the welcome center raised multiple arguments as to the lack of adverse use, but it conceded in its post-trial brief that the existence of the easement would not be presumed “only if the use of the (roadway) during the entire prescriptive period was uninterrupted”, an issue upon which the Court had previously ruled.

I give you this case as an interesting discussion of prescriptive easement law in South Carolina and wait with you to hear Dick Unger’s words of wisdom!

 

*Carolina Center Building Corp. v. Enmark Stations, Inc., South Carolina Court of Appeals Opinion 5804 (February 10, 2021).

ALTA/NSPS Survey Standards have been revised

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Changes will take effect February 23, 2021

Almost every commercial transaction requires an ALTA/NSPS survey, so commercial practitioners are familiar with the most recent 2016 guidelines. Those guidelines are reviewed every five years, and a new version will be in effect beginning February 23, 2021.

You can review the new standards in their entirety, including a red-lined version, here.

The changes were made primarily to make the standards easier to understand and to correct a few inconsistencies. One change was made as a result of the 1995 U.S. Supreme Court case, Gutierrez de Martinez v. Lamagno, which held the word “shall” is a false imperative that actually means “may”. As a result, the word “shall” in the standards was changed to the word “must” to indicate an obligation or imperative.

Section 5.E was revised to clarify that the surveyor must only note observed evidence of easements, servitudes and other uses which are “on or across” the surveyed property instead of those which affect the surveyed property. This section also changes the necessity to locate utility poles within ten feet of the surveyed property from the prior requirement of five feet.

A change to Section 6.C states that if the surveyor becomes aware of a recorded easement not listed in the title evidence, the surveyor must advise the title company (in our case, the closing attorney) of the easement. If evidence of the easement isn’t provided to the surveyor, the easement must be shown or explained. This section was also revised to allow the surveyor to omit matters of record that are not survey related from the summary of title matters.

The introductory paragraph of Table A optional items has been revised to clarify that the wording of a Table A item may be negotiated. Item 6 of Table A was modified to clarify that zoning information must be provided to the surveyor. Item 11 regarding underground utilities has been simplified to two choices: (a) plans and/or reports provided by the client; or (b) markings coordinated by the surveyor pursuant to a private utility request. Item 18 (wetlands) was deleted. If a wetlands delineation is required, it must now be negotiated as an additional Table A, item 20. Item 19 was revised to allow for off-site easements appurtenant to be surveyed in their entirety.

We have a couple of weeks to become fully familiar with the new standards.

South Carolina REALTORS® announces record year

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South Carolina real estate practitioners, if you thought 2020 was outrageously busy, there was an excellent reason for that. In the middle of a global pandemic, our state had a record year in home sales.

South Carolina REALTORS® (SCR) recently issued a press release reflecting the market data as of the close of 2020, stating that the number of sales closed in South Carolina in 2020 was 101,500, representing a 20% increase in closed sales, an increase in median price sales of 13% and a decrease in inventory of 40%.

SCR’s press release touted its efforts in fighting for real estate to be deemed an “essential service”. We want you to be aware that Chicago Title fought for that designation, too.

Despite these phenomenal numbers, it was clear that inventory was an issue through 2020 and remains an issue in early 2021. SCR’s press release states that as of the end of December, there were only 16,480 active home listings in our entire state, compared to 118,667 at the end of 2019.

And we all know that home prices were up. It was indeed a seller’s market! SCR reports that the overall median sales price increased in South Carolina by 12% to $245,000, and that sellers received, on average, 98% of their original list price. This represents a year-over-year improvement of 0.6%.

As we prepare for 2021, it appears to us that the trends of low inventory and higher prices in housing will continue at least through mid-year.

We’re hoping for continued good news in our marketplace as our population gets vaccinated and we are all able to move around more freely.

Here’s wishing for each of you a healthy, happy and prosperous 2021. And here’s wishing for the end of COVID for all of us sooner rather than later!

Some news from the transition that may affect dirt lawyers

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While we don’t all agree on politics, something we can all embrace from last week were the hilarious Bernie Sanders’ mitten memes. I saw friends from both sides of the aisle post one funny version after another. I even saw an interview that had Bernie himself laughing about them. He appears to be a good sport!  As a South Carolinian, my two favorites involved the Coburg cow and Cocky. I, for one, needed the comic relief.

There were a couple of real news items for real estate practitioners to consider.

First, the CFPB Director, Kathy Kraninger, stepped down at the request of the new administration. This blog has discussed several cases that have argued the CFPB was unconstitutionally organized as violating the separation of powers doctrine because it had a single director that could only be removed for cause. Last year, the Supreme Court held in Seila Law v. CFPB that the director can be removed at will by the president.

An interim director was named to take control until a permanent director can be confirmed. Rohit Chopra, a commissioner of the Federal Trade Association, is the choice to be the permanent CFPB Director. Stay tuned for changes that may be implemented under the new leadership. Speculation is that the bureau’s enforcement and oversight activities will be beefed up with an emphasis on COVID-related consumer relief.

Speaking of COVID relief, the Federal Housing Finance Agency has announced that Fannie Mae and Freddie Mac will extend their moratoriums on single-family foreclosures and real estate owned (REO) evictions through February 28. The moratoriums were set to expire at the end of this month.

The administration would also like to ease the current housing market pain of high home prices and low inventories by proposing a $15,000 first-time homebuyer tax credit which would serve as down payment assistance. There is also speculation that mortgage insurance premiums may be reduced.

On the other hand, mortgage rates appear to be on the rise, so it remains to be seen whether the new administration’s efforts to encourage development and home ownership will be successful.  As always, real estate practitioners will need to keep an eye on the news to assist them in predicting how 2021 will sort out on the housing front and in their businesses.

One-day error invalidates mechanic’s lien

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South Carolina’s Court of Appeals has made it crystal clear that our mechanics’ lien statutes must be strictly construed. In a case* refiled December 2, the Court affirmed the Circuit Court’s award of summary judgment because the lien was filed 91 days after the last work was performed, not 90 days, as the statute requires.

The case involved a kitchen remodel job in Columbia. The contractor was a kitchen designer who was paid not by the hour, but by the difference in the wholesale and retail cost of the products she purchased and installed. In this case, she was hired because she was the only dealer for Crystal Cabinets in the Columbia area.

The homeowner’s quote was slightly less than $50,000 plus about $3,000 for cabinet installation, payable in three installments. The homeowners paid two-thirds of the contract price but refused to pay the final installment because they were dissatisfied with the cabinets. The parties and the manufacturer were unable to come to terms. The contractor’s last work, according to its own pleadings, was performed on August 18, 2015, and the mechanic’s lien was served on November 17, 2015, a difference of 91 days. The Circuit Court granted the homeowner’s motion for summary judgment and awarded attorney’s fees, based on the one-day discrepancy.

On appeal, the contractor argued that the work actually extended beyond August 18, but the Court of Appeals held the contractor was bound by the pleadings. The contractor then argued that an amendment to the pleadings could easily cure the “slight discrepancy” between the date alleged in the lien and the actual date of the last work, but the Court held that this issue could not properly be raised on appeal. The contractor should have requested leave of the lower court to amend its pleadings.

The bottom line is that counting correctly is crucial in mechanics’ lien litigation! Be careful out there, lawyers!

* The Kitchen Planners, LLC v. Friedman, South Carolina Court of Appeals Opinion 5738, Refiled December 2, 2020.

Court of Appeals refiles order setting a timing rule on ATI exemption

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The new rule favors the taxpayer

A case* from the South Carolina Court of Appeals on August 26 concerns South Carolina Code Section 12-17-3135 which allows a 25% property tax exemption when there is an “Assessable Transfer of Interest” of real estate. The issue was one of timing, whether a property owner must claim this exemption during the first year of eligibility.

The order was withdrawn by the Court of Appeals, and a new order with the same result was refiled on December 23, 2020**. In comparing the two orders, I could find only one change, the deletion of a sentence that didn’t appear to affect the result. Perhaps someone involved in the case can point out the reason for withdrawing and refiling the order. Regardless, the Court of Appeals lets the result of its prior decision stand.

The Administrative Law Judge had consolidated two cases. In both cases, the property owner had purchased property during the closing months of 2012. Neither taxpayer claimed the ATI Exemption in 2013, but both claimed it in January of 2014. The Dorchester County Assessor denied the requests, but the ALJ decided the exemptions had been timely claimed.

The statutory language in question provides that the county assessor must be notified before January 31 for the tax year for which the owner first claims eligibility. The taxpayers argued that the plain meaning of this language allows them to choose when to claim the exemption. The Assessor argued that the exemption must be claimed by January 31 of the year following the transfers.

The Court looked at taxation of real property as a whole and held that the legislature intended that all purchasers would have a meaningful opportunity to claim the exemption. Under the Assessor’s interpretation, there would be a much less meaningful opportunity for taxpayers who purchase property later in the calendar year.

The Court also stated that the ATI Exemption is not allowed to override the appraised value set in the statutorily required five-year reassessment scheme, so there would be a built-in time limit for claiming the exemption.

* Fairfield Waverly, LLC v. Dorchester County Assessor, Opinion 5769 (August 26, 2020)

** Fairfield Waverly, LLC v. Dorchester County Assessor, Opinion 5769 (August 26, 2020); Withdrawn, Substituted and Refiled December 23, 2020.

Holiday wishes for you….

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The holidays make us thankful, and we have so much to be grateful for even in this incredibly difficult year!

We are enormously thankful for the smart, selfless and dedicated workers who put their own lives and health at risk again and again to fight this pandemic that plagues us, the doctors and nurses who have manned the hospitals and other facilities that have cared for the sick.

We are thankful for others who have been at risk during this scary year, first responders, food industry employees, retail employees and others who met the public and kept us as safe as possible and kept our economy running to the extent possible.

We are thankful for the scientists who have worked tirelessly to give us guidelines for protecting ourselves and others. We are unquestionably thankful for the brilliant scientists, doctors and their support systems who worked at record speed to develop vaccines that give us much needed light at the end of the tunnel.

We are thankful for teachers who have worked courageously and at their own peril to educate our children.

And I am personally thankful for you! I am thankful for the hard, dedicated and creative work performed this year by the talented group of individuals who handle real estate closings in South Carolina and elsewhere. You have handled record levels of work this year in masks, in your parking lots, behind Plexiglas, from your home computers. You have established methods to deliver documents and funds without contact. You have sanitized between closings. You have given away pens to avoid sharing germs. You have allowed staff to work remotely. You have implemented new technology. In short, you have done great, creative work this year, and you deserve these holiday wishes.

HOPE: I wish for each of you the hope that 2021 will be a much better year; that the pandemic will be controlled; and that we will be able to celebrate with family and friends everything we were unable to celebrate in 2020. I wish for the hope of good health for you and your loved ones.

PEACE: Sometimes the most difficult times seem to give us peace. When we are able to admit that we don’t have control of our daily situations, we can somehow relax and find peace. This pandemic has definitely taken away a certain amount of control! For those of us who believe in a higher power, we can give our higher power control and find peace that passes understanding. I wish that kind of peace for you.

JOY: Although 2020 has provided us with plenty of reasons to be less than joyful, I wish for you and your family the kind of joy little children find during the holidays.

LOVE: I wish for you and your family members the kind of love that only the holidays can bring.

I’m typing this in front of the Christmas tree on the cold and rainy Sunday before Christmas. My dog is at my feet and my husband is nearby watching the Falcons vs. the Bucs. We are sad that we won’t have our usual loud, crazy and fun holiday celebrations, but we are thankful! And I am thankful for you!

Rollback tax law in SC changes effective January 1, 2021

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South Carolina real estate lawyers who represent developers or clients who sell land to developers deal with the issue of rollback taxes routinely. But lawyers who don’t deal with this issue on a regular basis should be aware of it to avoid stepping into what can amount to a very expensive trap.

Rollback taxes are assessed when the use of property that has been taxed as agricultural rate changes. Under prior law, rollback taxes were accessed for a five-year period. South Carolina Code Section 12-43-220 was amended in this year’s shortened legislative session to reduce the lookback period to three years. The amendment is effective January 1, 2021. In the year the use of the property changes, the difference between the tax paid under the agricultural use classification and the amount that would have been paid (typically under a commercial designation) is charged at full fair market value.

How expensive can the difference be? Agricultural use valuation is based upon crop yield and was frozen in 1991. For coastal and many other counties the difference between the agricultural use fair market value and the commercial fair market value can be enormous. In addition, many, but not all, agricultural use properties are taxed at a four percent assessment ratio versus the commercial designation’s six percent assessment ratio, and the millage is different.  This alone can contribute to a large rollback tax. Rollback taxes can easily amount to thousands if not tens of thousands of dollars.

When agricultural property is sold, the rollback tax issue comes into play. There is no norm in South Carolina as to who pays the rollback taxes. If the parties and their lawyers are aware of the issue, payment of the additional tax should be covered by contract. I’ve seen the issue arise for the first time at closing, however, and the typical tax proration contract provisions just don’t do the job to cover this issue. The buyer will argue that the decision to change the use of the property was not the buyer’s concern, and the seller will argue that the buyer had the advantage of the lower tax rate. Negotiations can get heated quickly.

When agricultural property is sold, the purchaser is required to sign an affidavit within thirty days of the sale stating under penalties or perjury that the property continues to qualify as agricultural. If that affidavit is not filed, the assessor will automatically apply rollback taxes. Note that if the issue is not handled at closing, the purchaser will have the ultimate responsibility, and you do not want to be the lawyer who failed to notify your purchaser client of this trap.

Fee-in-lieu completely eliminates rollback taxes and this should be a consideration for any large commercial project. A minimum investment of $2.5 million is required for a fee-in-lieu but many urban counties will not approve a fee-in-lieu for the statutory minimum. As always, contact a tax expert for assistance with these sticky matters.