How does the rest of 2020 look in South Carolina housing?

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We have had an incredible year in real estate in South Carolina!

Mortgage rates are at historic lows resulting in a refinance boom. Home sales have also been strong. We have seen a steady stream of migrations to our beautiful state from less desirable locations. We have seen folks tire of being stuck inside their homes by COVID looking for larger and more modern residences. And the low interest rates have assisted in those moves, too.

And commercial real estate has remained strong for us. We’ve seen the due diligence periods of some commercial projects slowed by COVID uncertainty, but these transactions appear to be closing, even if later than expected.

Real estate closing attorneys and their staff members have worked at a frenzied pace this year! They have tried to keep up with the whirlwind of activity while sanitizing between closings, performing closings on porches, in tents and in parking lots. They’ve worn masks and given away the used pens. It has taken a great deal of innovation to run a closing law firm in this environment, and they have succeeded!

It’s almost October, and we haven’t yet seen a slowdown. I point you to this article, however, written by Warren L. Wise for Charleston’s Post and Courier newspaper. The article points to a slip in the numbers of real estate sales in August as compared to August of 2019. Sales seem to have been slowed by inventory. We are still experiencing a desire for new and improved housing, but the houses aren’t available. It’s a true seller’s market.

I doubt these numbers will result in a huge slow-down between now and the end of the year. Perhaps we will see something akin to the seasonal slowdowns we have historically seen toward year-end. And if things go well, spring will give us the typical increase we are accustomed to in housing sales. Hang on for the ride!

Newberry land-transaction dispute replete with equitable issues

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We don’t often see current land-transaction dispute cases among South Carolina’s appellate court decisions, but the Court of Appeals handed down an opinion on September 16 that covers the gamut of equitable issues. Not uncommon, though, is that the facts in this equitable case involving real estate, like most, are quite interesting.

The use of the property in the case, Shirey v. Bishop*, is interesting in itself. Mr. and Mrs. Bishop operated a grave digging and burial vault business on the property for more than 30 years. Mr. Bishop died in 2010, leaving his wife to run the business by herself. Mrs. Bishop suffered from depression and anxiety and ultimately determined that she did not want to continue operating the business.

In 2012, Mrs. Bishop entered into a contract to sell the property to her niece, Cassandra Robinson. Although the bank wasn’t consulted, Robinson agreed to assume the mortgage and make the monthly payments until the mortgage was satisfied.

In 2014, however, Mrs. Bishop approached Shirey about purchasing the property, and a contract was signed in 2015 to sell the property to Shirey for $125,000. (Apparently Robinson was late on many mortgage payments.) The closing was to occur between August 3 and August 12, 2015. Time was stated to be of the essence.

On August 12, 2015, Shirey attempted to close by tendering funds to his attorney. After it became apparent that Mrs. Bishop was not going to appear, Shirey’s attorney called Bishop to ask if the closing period could be extended to August 13. Bishop agreed.

On August 13, Shirey arrived at his attorney’s office, but Bishop again failed to appear. Bishop’s doctor sent a note to Shirey’s attorney asking that Bishop be excused from the closing. (I’ve never seen a doctor’s excuse for a closing!) However, that afternoon, Bishop entered into a second contract with Robinson. This contract added a provision that Bishop would indemnify Robinson against “any and all issues of illegality or fraud concerning the transaction.” Bishop executed a deed conveying the property to Robinson, and Robinson recorded the deed the same day.

This lawsuit followed. The special referee ordered specific performance in favor of Shirey and further determined that Shirey was a bona fide purchaser who took free of any interest of Robinson, that Robinson and Bishop were in a confidential relationship, that the phone call from Shirey’s attorney to Bishop was tantamount to an extension of the contract, and that Bishop’s entering into the 2015 contract with Robinson demonstrated an intention to hold Robinson in default of the 2012 contract.

The Court of Appeals affirmed and made the following points:

  1.  Bishop and Robinson waived their statute of frauds argument by failing to plead it or argue it in the lower court.
  2.  Robinson was not entitled to the property under the 2012 contract because the 2015 contract held her in default.
  3.  The equities in the situation favored Shirey.
  4.  Bishop and Robinson were in a confidential relationship, not only because of their familial relationship, which is not sufficient standing alone, but because the facts indicated Bishop trusted Robinson and failed to seek legal advice. Additionally, Robinson drafted her second contract, and Bishop testified she didn’t understand what she was signing.
  5.  Shirey partially performed by tendering funds.
  6.  Shirey was a bona fide purchaser because he did not have notice of Robinson’s claim at the time he attempted to close. The Court held he had the “best right to” the title to the property.
  7.  Shirey was entitled to attorney’s fees because he prevailed under his contract, which provided for the award of attorney’s fees to the successful party.

All these issues are discussed in detail, and I recommend this case to any lawyer who seeks a refresher on equitable questions involving real estate under South Carolina law.

*South Carolina Court of Appeals Opinion 5718 (September 16, 2020).

What’s up with this crazy housing market during a pandemic?

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I’ve been scratching my head since late February or early March about why the housing market has been doing so well during this crazy coronavirus year. For the first time since I’ve been running our South Carolina operation, I was asked to re-do (reduce) my 2020 budget earlier this year. As it turns out, the original budget my crystal ball predicted last October is closer to reality than the reduced budget from April. In fact, we’re having a record year.

How can we be having a record year in the real estate industry when jobs are being lost and small businesses are closing? Our real estate closing offices are running at full pace, vacations are few and far between, lawyers are trying to hire closing staff members to alleviate the pressure and are finding that task next to impossible. Most lawyers and paralegals are attempting to hang on for the ride, knowing a slow-down will likely occur at some point.

One major factor attributing to the frenzy in the market, of course, would be the record low mortgage rates we’ve experienced this year. Another factor may be the legislative efforts to prop up paychecks and the economy until we have a solution for COVID. Additionally, I keep hearing tales from South Carolina law firms that clients are sick of the houses from which they’ve been working at home and either want to renovate or relocate. I get that! Finally, we hear our friends from the north want to relocate to our sunshiny, beautiful state. I get that, too!

Now, autumn is near, a time where the speed of our business typically slows. But we’re not yet seeing a slowdown. I don’t want to jinx us. That slowdown may yet hit us in 2020. But I read an interesting article from Forbes dated September 11, entitled “The Fall Real Estate Market is Abnormally Hot as Mortgage Rates Break Records.” That article is linked here for your reading pleasure.

This article quotes a Zillow economist who said demand in housing continues to be fueled by low mortgage rates. Who would have predicted the thirty-year mortgage rate would be under 3% and the fifteen-year rate would be under 2.5%? Additionally, home prices continue to increase as inventory shrinks. It’s clearly a seller’s market!

Read this article, real estate friends, to see whether you think it holds true for our fair state. If so, let’s all buckle up for the ride!

CDC announces COVID eviction moratorium through the end of 2020

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On Tuesday, September 1, the CDC announced a temporary eviction moratorium through December 31, 2020. The order applies to all rental units nationwide and goes into effect immediately. Treasury Secretary Steven Mnuchin said that the order applies to around 40 million renters.

The CDC announced the action was needed to stop the spread of the coronavirus and to avoid having renters wind up in shelters or other crowded living conditions. This order goes further than the eviction ban under the CARES Act which covered around 12.3 million renters in apartment complexes of single-family homes financed with federally backed mortgages.

The Order, entitled, “Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19, does not suspend mortgage foreclosures. To take advantage of the suspension, the tenant must sign a declaration form alleging:

  1. The individual has used best efforts to obtain all available government assistance for rent or housing;
  2. The individual either (i) expects to earn no more than $99,000 in annual income for Calendar Year 2020 (or no more than $198,000 if filing a joint tax return), (ii) was not required to report any income in 2019 to the U.S. Internal Revenue Service, or (iii) received an Economic Impact Payment (stimulus check) pursuant to Section 2201 of the CARES Act;
  3. The individual is unable to pay the full rent or make a full housing payment due to substantial loss of household income, loss of compensable hours of work or wages, a lay-off, or extraordinary out-of-pocket medical expenses;
  4. The individual is using best efforts to make timely partial payments that are as close to the full payment as the individual’s circumstances may permit, taking into account other nondiscretionary expenses; and
  5. Eviction would likely render the individual homeless— or force the individual to move into and live in close quarters in a new congregate or shared living setting— because the individual has no other available housing options.

The order specifically does not excuse rent, it just delays eviction. There is a substantial body of depression -era caselaw that holds this type of governmental action is permissible because it does not impair the contract, it only delays the remedy, and it is not a taking because the rent is still due. Lawsuits are likely to follow regardless of this old caselaw.

Many would argue that a temporary ban on eviction for non-payment burdens landlords with the cost of rental delay. Many landlords are individuals or small businesses that cannot spread the losses and cannot pay maintenance costs, mortgages and property taxes without the benefit of rental income.

Court of Appeals sets 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 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)