DOR issues new Revenue Ruling on Deed Recording Fees

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The South Carolina Department of Revenue issued Revenue Ruling #17-5 concerning Deed Recording Fees on August 28, 2017. This advisory ruling supersedes Revenue Ruling #15-3.

The new ruling is 39 pages long and covers the topic comprehensively in a question and answer format. This document is an excellent tool for lawyers with unusual transactions and for lawyers and paralegals who are new to the topic. The statutory scheme is set out in full, and the remainder of the document is stated to “summarize longstanding Department opinion concerning the taxability of these transactions.”

One question addressed how the deed recording fee should be paid when the real estate is located in more than one county. The answer cited Code §12-24-50 which requires an affidavit addressing the proportionate value in each county. The answer contained an example:

“For example, ABC Corporation sells realty, approximately 10 acres, to XYZ Corporation for $1,000,000. The realty is located in two counties, with 3 acres in County A and 7 acres in County B, However, because of the location of the 3 acres in County A (e.g., located at a major intersection, of the waterfront, etc.), the value of the 3 acres in County A is $700,000 while the value of the 7 acres in County B is $300,000.

Based on these values, 70% of the value is assigned to County A and both the state and county portions of the deed recording fee are paid in County A based on $700,000 consideration paid. (Total Fee Paid in County A: $2,590 ($1,820 State Fee and $770 County A Fee)). The remaining 30% of the value is assigned to County B and both the state and county portions of the deed recording fee are paid in County B based on $300,000 consideration paid (Total Fee Paid in County B: $1,110 ($780 State Fee and $330 County B Fee)).”

Another interesting* question addressed the method for correcting the mistake of recording a deed in the wrong county. (No one I know personally has ever had that problem.) Here’s the answer:

“Since the deed recording fee is actually a single fee composed of a state portion and a county portion, the entire fee must be paid when any deed is recorded with the county clerk of court or register of deeds.

Therefore, if a deed is recorded in the wrong county (e.g., a deed for realty in Lexington County is incorrectly recorded in Richland County), then the deed should be recorded in the correct county. The entire fee of “one dollar eighty-five cents for each five hundred dollars, or fractional part of five hundred dollars, of the realty’s value as determined by Section §12-24-30” should be paid in the correct county.

After recording the deed in the correct county, the person legally liable for the deed recording fee should then file a claim for the fee paid in the wrong county in accordance with the refund procedures for the deed recording fee established in SC Revenue Procedure #15-1. In addition to the information and documentation required in SC Revenue Procedure #15-1, the person filing the claim for refund should also provide the Department documentation that the deed has been recorded in the correct county. The Department will refund the state portion and order the county to refund the county portion.”**

Transfers to a spouse are exempt regardless of whether consideration is paid. Transfers to a former spouse are not exempt unless the transfers are made pursuant to the terms of a divorce decree or settlement. Query, why would anyone transfer real estate to a former spouse unless required to do so by a divorce decree or settlement?

This detail is provided to make the point of how comprehensive this document is and how helpful it might be in your practice. Take advantage of this guidance, particularly for lawyers and paralegals you need to train.

*You can measure how much of a dirt law nerd you are by how interesting you find this.

**They didn’t promise to make it easy.

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Blogging in the holiday spirit

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Be excellent to each other!

Bill and Ted christmas

The purpose of this blog is to, in a very small way, assist South Carolina real estate lawyers in their constant quest to stay out of trouble. And there are so many ways we can get ourselves into trouble!  Trust accounting, cyber-security, legislative changes, case law changes and rule revisions are just a few examples. But I’m in the holiday spirit, and it occurred to me that one of the easiest ways to get into trouble is to simply fail to be nice.

Some lawyers had developed such terrible habits of failing to be courteous to each other and to opposing parties that our Supreme Court added a “Civility Oath” in 2003, which reads:  “To opposing parties and their counsel, I pledge fairness, integrity, and civility, not only in court, but also in all written and oral communications…”  New lawyers now take this oath when they are sworn in, and the rest of us had to attend seminars or functions that included the new oath as a component. We have all now pledged to be civil.

South Carolina lawyers have been disciplined for being uncivil and unprofessional. One lawyer wrote a letter questioning whether the officials of a municipality had brains and souls. He was suspended for 90 days and required to complete the Bar’s legal ethics and professionalism program. Another lawyer was suspended for 90 days for slapping an opposing party during a deposition.

The Office of Disciplinary Counsel has requested a sanction for bringing the profession into disrepute through a blog. Because the lawyer didn’t identify himself as a lawyer in his blog, the Supreme Court said the profession was not harmed. (I promise to be careful!)

Some authorities on the subject of attorney civility have speculated that technology and social media have exacerbated this problem. It’s easy to be rude while hiding behind a computer screen. Another factor has been the economy. When young lawyers are forced to hang out shingles without the careful mentorship of seasoned lawyers, they often fail to obtain the requisite training on how lawyers should behave.

Litigation lawyers are in the business of fighting for a living, so they often walk a tight rope between vigorously representing their clients and mowing over their opponents in an uncivil manner. I remember, however, attending a trial early in my career to witness two excellent, seasoned, respected Columbia lawyers attempt to out-polite each other. It was an impressive display of civility and effective representation that has remained vividly in my memory for many years. If we were all as civil as those two litigators were, no civility oath would have been necessary.

Unlike trial lawyers, transactional lawyers are in the business of providing solutions, solving problems, arriving at consensus and properly documenting all of the above. Transactional lawyers should, in theory, have fewer problems getting along with each other than trial lawyers have. That is definitely not always the case.

Sitting here in Columbia and listening to title problems from lawyers across South Carolina all day long, the lawyers in our office hear fights between real estate lawyers on a routine basis. It seems to us that an inability to communicate civilly can have a direct dollar impact on business through lost time and productivity.

Books and articles on business ethics stress the value of being nice. I believe that being nice is particularly valuable to transactional lawyers. Being nice can, for example, go a long way toward keeping a lawyer from being sued.

I was taught as a young lawyer to be courteous to the most annoying real estate agents and the most exasperating clients. We should all own up to and fix our mistakes, even when fixing a mistake requires writing a check. Our written and oral communications should demonstrate that we are not only effective lawyers, but also courteous, caring, sympathetic individuals. Being a meticulous and effective lawyer is the best method to eliminate being a defendant in litigation, but being nice is probably the second best method.

I am now stepping off of my soap box and wishing each of you happy holidays and a healthy, happy and prosperous 2018!

Airbnb in Sea Pines?

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Court of Appeals says “yes” under some circumstances

I wouldn’t have predicted it, based on the history of exclusive Sea Pines Plantation in Hilton Head, its extensive set of restrictive covenants and the aggressive efforts to enforce those restrictive covenants over the years. But our Court of Appeals approved an owner’s rental through Airbnb of a portion of a residence in a December 6, 2017 case*.

Mr. and Mrs. Wall bought their residence at 48 Planters Wood Drive in 1998. The second story of the home consists of a guest suite that is accessible only by an outside staircase. In 2012, the Walls began renting a room through Airbnb, an online rental broker. The Airbnb listing was titled “Hilton Head Organic B&B, Sea Pines”. The Walls cooked breakfast for their renters.

AirBnB

Community Services Associates, Inc. (CSA), the property owners’ association in power to enforce Sea Pines’ restrictive covenants, expressed concern about the Airbnb listing, and the Walls changed the listing to the “Whole House” category and began renting out the entire first floor of their home while living in the second-story guest suite. They also dropped the “Hilton Head Organic B&B, Sea Pines” title and stopped cooking breakfast for their renters.

CSA filed suit seeking temporary and permanent injunctions against the Walls because of their alleged operation of a “bed and breakfast” in their home and the rental of less than the entire residence.

Here are the operative provisions of the restrictions:

  1. All lots in said Residential Areas shall be used for residential purposes exclusively, No structure, except as hereinafter provided, shall be erected, altered, placed or permitted to remain on any lot other than one (1) detached single dwelling not to exceed two (2) stories in height and one small one-story building that may include a detached private garage and/or servant’s quarters, provided the use of such dwelling or accessory building does not overcrowd the site and provided further that such building is not used for any activity normally conducted as a business. Such assessor building may not be constructed prior to the main building.

  2. A guest suite or like facility without a kitchen may be included as part of the main dwelling or accessory building, but such suite may not be rented or leased except as part of the entire premises, including the main dwelling, and provided, however, that such guest suite would not result in over-crowding of the site.

CSA took the position that the restrictions authorized the short-term rental of the entire residence but not part of the residence, that the Walls were operating an offending bed and breakfast, and that the guest suite included a second kitchen.

At a hearing before the master-in-equity, Mr. Wall testified that the couple kept an induction plate, a toaster oven, and a mini-refrigerator in the guest suite, and they occasionally prepared their food and washed their dishes in the suite.

The master denied the motion for injunctive relief and dismissed CSA’s complaint.

The Court of Appeals affirmed, stating that the dorm-style portable appliances used by the Walls did not create a kitchen. The Court held that the express terms of paragraph 6 require a residence with a guest suite to be rented in its entirety when the guest suite is rented out, but paragraphs 5 and 6 do not, by their express terms or by plain and unmistakable implication, require a residence with a guest suite to be rented in its entirety in every circumstance.

At best, according to the Court, paragraphs 5 and 6 are capable of two reasonable interpretations: (1) a residence with a guest suite must be rented in its entirety in every circumstance, or (2) the owners of a single family dwelling with a guest suite may stay in the guest suite themselves while renting out the remaining space. Because the latter interpretation least restrict the use of the property, the Court adopted that interpretation.

Understanding a little about the culture of Sea Pines, I will be surprised if we don’t hear more about this Airbnb issue in the future.

Criminal defense lawyer’s advertising debacle may be instructive for us

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Title insurance companies in South Carolina persistently encourage attorney agents to market their firms. We offer seminars on social media marketing. We invite experts to the table to explain the latest and greatest marketing tactics. I trust all the title companies also explain the professional responsibility rules that relate to marketing and bring in professionals to assist with compliance. The rules are detailed and specific, and any South Carolina lawyer who dips a toe into that arena should get the education needed to stay out of trouble. The South Carolina Supreme Court and the Office of Disciplinary Counsel (ODC) are serious about the rules.

The criminal defense lawyer who received a public reprimand in last month’s disciplinary case, In the Matter of Lord,* apparently did not take the safe approach.

fingers crossed realtor

To market his legal services, Lord sent direct mail solicitation letters to potential clients who received traffic tickets. One of those clients filed a complaint with the ODC. Lord made several mistakes in those letters. He used the tagline “attorneys at law” in his letterhead although he was a solo practitioner.

He touted “28 years’ experience both as a lawyer and former law enforcement officer” although he had been a lawyer and former law enforcement officer for only 16 years. His telephone number was (844) FIXTICKET, which may have created unjustified expectations or an implication that he can receive results by unethical means. Further, the Court held that the phoneword is also an improper moniker that implies an ability to obtain a certain result.

The letter also referred to the lawyer’s website which claimed he has “unique insight into the South Carolina traffic laws that many other lawyers simply do not have.” Lord admitted that this claim cannot be factually substantiated. Finally, the letter indicated Lord learned of the traffic tickets from “court records”. The court held that this source identification as not sufficiently specific.

The letter also referred to the lawyer’s profile on www.avvo.com (“AVVO”), a legal marketing website. AVVO, according to the Court, creates profiles for attorneys without their consent, knowledge or participation, then invites them to “claim” their profiles and participate in a variety of AVVO marketing activities, including “ratings”, peer endorsements, client testimonials and online contact with prospective clients.  Lord claimed his AVVO profile and used the website to market his legal services, making him responsible for the content.

A prior disciplinary investigation revealed a negative review on AVVO to which respondent replied. In the response, Lord revealed information relating to the representation of the complaining client and said: “Do me a favor. The next time you are arrested, call a public defender and see what happens after you sit in jail for 3 months they might get around to sending you a form letter. Good luck.” He was issued a confidential admonition in 2013 as a result of this exchange. Lord failed to remove the offending post after receiving the admonition.

He was also required to add a “clear and conspicuous” disclosure regarding endorsements, testimonials and reports of past results. He added this disclosure, but the terms “clear and conspicuous” were not defined in the rules until 2014, and Lord failed to revise the disclosure when that rule changed.

The lawyer advertising rules are not always intuitive. But they are always taken seriously by the ODC and the Supreme Court. If dirt lawyers choose to market their services, as the title companies believe they should, they should make every effort to follow the rules. Your title insurance company will help. Ask!

* South Carolina Supreme Court Opinion 27741 (November 15, 2017)