Drafting survivorship deeds continues to be a concern

Standard

Pay attention to tricky South Carolina law!

This blog has addressed the issue of drafting survivorship deeds previously. This issue comes back up today because the South Carolina Bar’s Real Estate Practices Section’s listserv discussed this issue, in part, last week.

The thread began with a question about whether a tenancy in common with a right of survivorship is a recognized estate in South Carolina. I believe that the concern arose from some drafting liberties taken by attorneys with these deeds. In my opinion, to create a survivorship deed in South Carolina, the drafter should follow the case or the statute exactly. And it is my opinion that if the drafter follows the case or statute exactly, then a valid survivorship estate is created, and that estate will avoid probate for the property in question at the first death.

Let’s take a look at the case and the statute.

dee house

More than a decade has elapsed since our Supreme Court surprised dirt lawyers with Smith v. Cutler,* the case that told us there were already in place two survivorship forms of ownership in South Carolina. We apparently missed that day in law school! These two forms of ownership are joint tenancy (which we knew and loved) and tenancy in common with an indestructible right of survivorship (which slipped by us somehow). This is a mini-history lesson about how we got to this state of the law and a reminder for dirt lawyers to carefully draft deeds.

Under the common law in South Carolina, tenancy in common is the favored form of ownership. A deed to George Clooney and Amal Clooney (whether George and Amal are married or not) will result in a tenancy in common. At the death of George or Amal, the deceased’s fifty percent interest in the property will pass by will or intestacy laws. Joint tenancy was not favored in South Carolina, and there was no tenancy by the entirety that would have saved the property from probate (and creditors) for a married couple.

A rather convoluted 1953 case** interpreted a deed that intended to create a tenancy by the entirety as creating a shared interest in property between husband and wife referred to as a tenancy in common with an indestructible right of ownership. This is the case that the Smith v. Cutler Court referred to as creating the form of ownership we missed.

It’s not technically true that all of us missed this form of ownership. Some practitioners did use the language from the 1953 case to create a survivorship form of ownership. The magic language is “to George Clooney and Amal Clooney for and during their joint lives and upon the death of either of them, then to the survivor of them, his or her heirs and assigns forever in fee simple.”  Other practitioners routinely used the common law language: “to George Clooney and Amal Clooney as joint tenants with rights of survivorship and not as tenants in common.”

Conveying title from a person to himself and another person establishing survivorship was not possible in South Carolina prior to 1996 because the old common law requirement of unities of title could not be met. To create a survivorship form of ownership, the property owner conveyed to a straw party, who would then convey to the husband and wife, complying with the unities of title requirement and establishing survivorship.

A 1996 statutory amendment to §62-2-804 rectified this problem by providing that a deed can create a right of survivorship where one party conveys to himself and another person. The straw party is no longer needed. This statute was given retroactive effect.

In 2000, our legislature added §27-7-40, which provides that a joint tenancy may be created, “in addition to any other method which may exist by law” by the familiar words “as joint tenants with rights of survivorship and not as tenants in common”.  The statute addresses methods for severing joint tenancies which typically results in a tenancy in common. For example, unless the family court decides otherwise, a divorce severs a joint tenancy held by husband and wife, vesting title in them as tenants in common.  A deed from a joint tenant to another severs the joint tenancy. A conveyance of the interest of a joint tenant by a court severs the joint tenancy.

Following the enactment of §27-7-40, most practitioners used the language set out in the statute to create a joint tenancy, “as joint tenants with rights of survivorship and not as tenants in common.” Five years later, Smith v. Cutler required us to examine our drafting practices with fresh eyes. The court held that a joint tenancy with a right of survivorship is capable of being defeated by the unilateral act of one tenant, but a tenancy in common with an indestructible right of survivorship is not capable of being severed by a unilateral act and is also not subject to partition.

Real estate lawyers in the resort areas in our state are often asked to draft survivorship deeds because couples from other states are accustomed to tenancy by the entirety. Until Smith v. Cutler, most practitioners did not believe different estates were created by the different language commonly in use. We believed joint tenancy was created in both cases.

Now, clients should be advised about the different estates and should choose the form of ownership they prefer. I’ve discussed this issue with many lawyers who advise married couples to create the indestructible form of ownership under the case. Others who seek survivorship are often advised to create joint tenancy under the statute.  I see many deeds from the midlands and upstate that use the traditional tenancy in common form of ownership. I’ve heard estate planners prefer tenancy in common so the distribution at death can be directed by will. Lawyers who draft deeds for consumers need to be aware of and need to address the various forms of ownership with their clients.

One final thought on the survivorship issue in South Carolina. Do we now have a form of ownership that protects property from creditors of one of the owners? If a tenancy in common with an indestructible right of survivorship is not subject to partition, then it may not be reachable by the creditors of one of the owners. Let me know if you see a case that makes such a determination. It would be an interesting development.

If anyone on the listserv has different opinions from those stated here, I would love to hear them. The real estate bar in South Carolina would love to hear them, too!

 

 

 

*366 S.C. 546, 623 S.E.2d 644 (2005)

**Davis v. Davis, 223 S.C. 182, 75 S.E.2d 45 (1953)

Advertisements

South Carolina Dirt Lawyers: Are you as confused by the SC Supreme Court’s most recent implied easement case as I am?

Standard

I’ve never maintained a list of the South Carolina real estate cases I find mystifying, but the most recent implied easement case, which involves a gravel driveway in Lexington County, may compel me to start.* When I say mystifying, I mean I can’t figure out why the Court came to the conclusion it did, based on what I had previously understood to be the law.

lost confused.jpg

The case is Gooldy v. The Storage Center-Platt Springs, LLC **, decided March 18.  One reason I found the case puzzling was that it failed to include the plat. When that happens, I usually attempt to draw the properties based on the language in the case, but I was unable to accomplish that in this situation. So for your edification, the main plat in question is included here.

Thanks to the efforts of my friend, Bill Booth, who sent the plat along with the chains of title and aerial views for both properties, I’ve at least figured out the facts in the case.

Here’s what happened. Congaree Associates owned 500 acres in Lexington County. In the 1980s, Congaree developed a residential subdivision of thirteen lots, called Westchester Phase I. Robert Collingwood created the plat for the subdivision. The plat was dated August of 1983 and was recorded. The northernmost lot (Lot 13) bordered the property now owned by Gooldy. This plat does not show a road crossing Lot 13. Six months later, in January of 1984, Collingwood was asked to prepare a survey for Westchester Phase II. That plat included the disputed road as “50’ Road”. The plat was conditionally approved, but the developer abandoned the subdivision. We don’t know the date of this abandonment.

In December of 1985, Collingwood prepared the Loflin plat, linked above. Note the “50’ Road” bordering the 0.68 tract. In September of 1986, Congaree conveyed the 0.68 tract to Loflin by a deed that incorporated this plat but made no mention of the road. The 0.68 acre tract was conveyed four times during the next sixteen years, and each deed incorporated the Loflin plat. The final conveyance was to Gooldy in January of 2002. Gooldy used the road for access for himself and the customers of his chiropractic business. In 2007, Congaree conveyed a 7.5 acre tract to The Storage Center. The disputed road was included in the 7.5 acre tract. The Storage Center’s representatives informed Gooldy that he was no longer entitled to use the road. Gooldy filed suit seeking to establish an easement.

The master in equity held that the deed incorporated the plat and established a presumption of an implied easement which The Storage Center failed to rebut. The master found that because Collingwood surveyed Westchester Phase I and II, he knew Congaree intended to build a road, and armed with that knowledge, Collingwood included the road on the Loflin plat.  Huh?  What if another surveyor had been employed? Does the fact that a surveyor called it a road make it so?

The Court of Appeals reversed, holding the presumption did not arise because the deed only incorporated the plat to describe the metes and bounds of the 0.68 acre tract rather than to demonstrate the intent to create an easement.

The Supreme Court reversed, holding that the Loflin plat created the presumption of an implied easement as established by Blue Ridge Realty Co. v. Williamson*** and its progeny. In Blue Ridge, a developer subdivided its property into lots and streets and recorded the plat. The Court held that purchasers of lots with reference to the recorded plat acquired every easement, privilege and advantage shown on the plat, including the right to use all the streets, near or remote, shown by the plat by which the lots were purchased.

There is no question that the Loflin plat was in The Storage Center’s chain of title. And there is no question that the two properties share a common grantor, Congaree Associates. What is missing in my understanding of the Blue Ridge holding is a subdivision plat, by which conveyances from the common grantor to Loflin and The Storage Center were made. Here, the common grantor did record a subdivision plat before any out conveyances were made and it did not show the road. Years later, the surveyor, who happened to have knowledge of a proposed (but later abandoned subdivision), depicted a road that he knew would be used if the subdivision was created on a plat he made, not for the common grantor, but for the purchaser, Loflin.  And that plat and a deed referring to it created an implied easement.

If this case makes sense to you, please explain it to me!

Here are two off the top of my head:  Smith v. Cutler and Boone v. Quicken Loans, Inc. Name your favorite!

** South Carolina Supreme Court Opinion 27782, March 14, 2018.

*** 247 S.C. 112, 145 S.E.2d 922 (1965).

Another settlement agent sued for failing to protect buyer in email diversion

Standard

My first blog of 2018 discussed a novel lawsuit (at least novel to me) brought in York County against a residential closing law firm. A home purchaser had lost $50,000 in closing funds that were diverted by a third-party criminal posing as the transaction’s real estate agent. Did you hear that? The real estate agent was hacked. The law firm was not hacked and was only involved in the loss because it was the settlement agent. 

The law firm’s paralegal and the purchaser had discussed the funds necessary to close by telephone, but no mention was made in that conversation of the wiring instructions. The complaint stated causes of action in negligence and legal malpractice and listed the following breaches of duty:

  • Requiring the purchaser to wire funds without counseling the purchaser about methods by which the secure delivery of wired funds could be compromised;
  • Failing to counsel the purchaser about the risks and insecurity of email communications, particularly of private, sensitive and financial closing information; and
  • Failing to be alerted by the circumstances of the purchaser’s telephone call to the firm’s paralegal.

email fish hook

American Land Title Association’s ALTA News, dated March 9, reports on a similar lawsuit filed in Wisconsin. The original news story was written by Brian Huber and reported by gmtoday on March 8. 

In the Wisconsin lawsuit, the email of the settlement agent, Merit Title, was apparently compromised. According to the complaint, a Merit Title employee used an unsecured system to email the closing statement and wiring instructions to the purchaser. The following month, the purchaser received an email purportedly from Merit Title, but with a missing “T” in the domain name (merititle instead of merittitle). The second email provided wiring instructions that were similar in format, structure and design to the ones sent by Merit, according to the complaint. The purchaser lost $82,000 in the scam.

The lawsuit claims Merit “had knowledge or should have had knowledge of a cybercriminal epidemic whereby hackers target title companies to learn about real estate transactions occurring and the hackers then send fraudulent wire instructions to the buyers prior to the closing.” Merit Title should have known of preventive steps to protect the buyers, the complaint stated.

My guess is that we are about to see numerous suits like this, seeking payment from the deepest pockets involved in real estate transactions. As I asked in the earlier blog, would the processes established by your law firm for the protection of your clients defend against this type of fraud?  If not, get busy and make changes.

ALTA has a list of resources that can be used to provide the appropriate safeguards, and your title insurance company should be able to assist you in implementing the appropriate resources in your office. Most of the protective procedures involve making sure your own systems are secure. But these lawsuits seems to indicate that consumers must also be advised of the dangers of dealing with others involved in closings who do not use secure systems. You don’t want to be left holding the bag for a comprised email system of a real estate agent!

SC Supreme Court holds email provides sufficient written notice

Standard

….for at least one purpose

This blog is about dirt, but from time to time, dirt lawyers should review the rules our brother and sister litigators follow. Why? Sometimes those rules bleed over into our world, and sometimes, unfortunately, the transactions we handle are subject to litigation. And in this “ever changing world in which we live in”*, we should pay particular attention to changing rules involving technology. This is one of those changes.

The South Carolina Supreme Court held on February 28 that an email that provides written notice of entry of an order or judgment, if sent from the court, an attorney or record, or a party, triggers the time to serve a notice of appeal under Rule 203(b)(1) of the South Carolina Appellate Court Rules (SCACR)*.  And the Court held that this is such a novel question of law that its holding applies only prospectively, and not to the case at hand.

Here’s the background. On December 15, 2014, the master-in-equity denied the foreclosure defendants’ petition for an order of appraisal. That same day, the master’s administrative assistant emailed a signed and stamped copy of the order and Form 4 to the bank and the defendants. Three days later, the defendants received a copy of both documents in the mail.

Believing the time to appeal began on the day they received the documents in the mail, the defendants served notice of appeal on January 15, 2015, which was thirty-one days after the email and twenty-eight days after they received the documents in the mail.

The Court of Appeals held that the email triggered the time to serve notice of appeal. On appeal to the Supreme Court, the petitioners did not dispute that the email constituted written notice of entry of the order or judgment. But they argued that the time to serve notice of an intent to appeal is only triggered when written notice is received by mail or hand delivery according to Rule 5 of the South Carolina Rules of Civil Procedure (SCRCP). The Supreme Court held that the SCRCP do not apply to appellate procedure.

The Supreme Court examined Rule 203(b)(1), SCACR, which requires that a notice of appeal must be served within thirty days after receiving written notice of entry of the order or judgment and held that there is no requirement of service. All that is required, according to the Court, is that the parties receive notice. Further, there is nothing in the appellate court rules suggesting that the manner in which a party may receive notice is limited to the methods used to effectuate service.

Got it, dirt lawyers?  It’s technical, but this holding suggests that our Court is gradually accepting the technology we use every day as sufficient for notice purposes. One lesson for us is that we should be careful what we say in our emails as we handle our transactional practices! Another lesson for us is that we should all check our spam and junk email files to make sure we receive all communications that may create responsibility or liability for us.

*…with sincere apologies to Sir Paul McCartney.

**Wells Fargo Bank, N.A. v. Fallon Properties South Carolina, LLC, South Carolina Supreme Court Opinion 27773, February 28, 2018.