If affirmative coverage is needed for your closing…

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Be sure to advise your client and paper your file!

This blog recently discussed one of the biggest mistakes I made in private practice.  This edition relates a war story where I (thankfully) did the right thing.

I represented real estate developers and rarely handled residential closings.  When my clients developed residential subdivisions and residential condominium projects, I would gladly handle those cookie-cutter closings. And every now and then, another lawyer in my firm would ask for a favor: “Please close our good client’s purchase of a new home so he won’t choose another lawyer the next time he needs representation for his business….and please close it without charging an attorney’s fee.” I bet 90% of my dirt lawyer friends have fielded similar requests. Maybe you were smart enough to say “no”.

The client in this tale was a doctor. I’ll call him Dr. Roe. There are several doctors in my life that I hold in high esteem, but I have never liked representing doctors in legal matters. My experience is that they are too busy to listen to advice. They prefer for the magic to happen without their involvement.

This particular doctor had recently gone through a nasty divorce, and he had found a new home for himself and his four children who would be with him half of the time. This house was in the Hollywood area of Columbia, and the restrictive covenants contained a reverter clause. The clause stated that a violation of the normal residential restrictions would cause title of the lot to revert to the corporation that had developed the subdivision fifty or so years ago.

The reverter clause posed no problem if there was no violation of the covenants. I ordered a new survey and held my breath. The stars did not align for me, and the survey revealed a very slight violation of the side setback line. By very slight, I mean a couple of inches. The house was several decades old, and the violation may have been caused by settling.

I had a great relationship with my friendly title insurance company underwriter and called him to discuss my problem. He was very reasonable, and because of the minuscule violation, he authorized affirmative coverage for the lender as well as the owner. I was relieved but also concerned about relaying this information to my client. To get his attention, I had to set up an appointment at his office to explain the problem and show him the restrictions and the survey.

The bottom line was that he would obtain insurable title but not marketable title. I had seen marketability issues previously in my practice. In a commercial transaction, I saw a buyer walk away from a closing he had decided was not a good deal for him when his lawyer was able to uncover a questionable title problem that he argued defeated marketable title. I didn’t want that to happen to my client when he decided to sell his house.

He wanted the house! I gave him two pieces of advice: (1) when you decide to sell this house, please come to me, and let me help you with the listing agreement and contract. We will draft both documents to provide for insurable title instead of marketable title; and (2) please do not add onto this house in a way to increase the setback violations.

He said he understood completely. Before the closing, I drafted a letter to explain both problems. His signature at closing evidenced that I had delivered both pieces of advice.  Done deal.

Fast forward about ten years. My office phone rings, and a residential closing lawyer friend calls me and says, “Claire, how did you handle this HUGE setback violation for Dr. Roe when you closed his house?” You know the feeling, dirt lawyers, my heart fell, and I lost several years off my life between that call and the moment I could get my hands on the file to see what had happened ten years previously.

Since I had explained marketability vs. insurability to my client verbally and in writing, I was in the clear. It turns out that Dr. Roe added a pool, a very nice and very big pool house and brick fencing, all of which violated the setbacks.

And I got payback! The lawyer who had asked me to handle the closing free of charge was asked to bring the quiet title action to “fix” the title problem. Luckily, the corporation that had imposed the restrictions was defunct, and no surviving officers or directors could be located. The title was cleared with a simple action served by publication. And Dr. Roe paid attorney’s fees and costs.

Never forget that obtaining affirmative coverage does not “fix” title problems. Affirmative coverage often provides a mechanism for a closing to take place, but your client always must be advised that marketable title is unavailable. And your client must be advised of the consequences of accepting insurable title. In writing!

Court of Appeals answers novel JTROS question

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In the first Advance Sheet of 2022, our Court of Appeals answered a novel question concerning the severance of a joint tenancy with right of survivorship. The case* involved the estate of a father who owned property in Garden City with his son, one of his five children. Father and son had purchased the property together, each owning a fifty percent interest.  

The facts are simple. The property owners entered into a contract to sell the property in November of 2013, prior to the father’s death on December 20, 2013. The transaction closed on December 27, just seven days after the father’s death. The son, who was also the personal representative, treated the sale as if he was the sole owner and claimed the proceeds of the sale individually. His siblings argued that the contract severed the joint tenancy, entitling the estate to half of the proceeds.

The Probate Court and Circuit Court agreed with the siblings, relying on South Carolina Federal Savings Bank v. San-A-Bel Corporation**, which held that a purchaser under a contract has an equitable lien on the property. The Probate Court reasoned that the sales contract entered into prior to the Decedent’s death encumbered the property, entitling the purchaser possession of the property upon payment of the purchase price and entitling the estate to one-half of the proceeds. The Circuit Court found that the Probate Court had correctly interpreted the law.

Dirt lawyers understand the San-A-Bel case sets up a trap for the unwary lawyer who fails to deal with the equitable lien that case established, but we have never understood that case to affect JTROS severance. The Court of Appeals agrees with us. Since neither San-A-Bel nor the JTROS statutes address the question at hand, the Court decided to look at rulings from other states to address the novel issue of whether a contract of sale severs a joint tenancy.

The Court cited cases from the states of Washington and Florida (citations omitted) and decided to follow the Florida court which held that severance does not automatically occur upon the execution of a contract executed by all joint tenants unless there is an indication in the contract or from the circumstances that the parties intended to sever and terminate the joint tenancy.

The Court found that the contract at issue was silent on the severance issue and no extraneous circumstances indicated severance was intended by the parties, so the joint tenancy was not severed by the contract, and the son was entitled to the sales proceeds.  

Dirt lawyers tend to hold our collective breath when our Courts address a novel real estate issue. But I believe that, this time, we can agree that they got it right. Let me know if you disagree with me!

*In the Matter of the Estate of Moore, South Carolina Court of Appeals Opinion 5887, January 5, 2022.

**307 S.C. 76, 413 S.E.2d 852 (Ct. App. 1992).

Lawyers, as we begin 2022, let’s take care of our mental health!

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I was impressed once again during the holidays with the fact that some people, and especially some lawyers, don’t enjoy “the most wonderful time of the year”, and I wanted to encourage everyone especially every lawyer who needs help to get help now.

You may have heard about a fellow lawyer in Lexington who committed suicide a few weeks ago, leaving three daughters to grieve his loss. We have all heard news stories of a low country lawyer who has fallen from grace in spectacular fashion with mental health playing a major part in his saga.

My church held a “Blue Christmas” service in early December. This service brought home to me the sorrowful point that many people are unusually sad during the holidays.

Many among us are suffering from the uncertainty and isolation caused by the COVID pandemic. Just when we were beginning to think things were getting much better on that front, we are now being warned about the dangers of the Omicron variant that has created a new surge.

I don’t often recommend books in this blog and especially not works of fiction, but I recently read a novel that handled the impact of COVID so well that I highly recommend it to you. Wish You Were Here, a 2021 novel by Jodi Picoult, gives voice to medical professionals through a New York doctor who works in an emergency department. As the author said in her afterword, we will never be able to thank these professionals for what they have done for us, for what they have seen and for what they have been through.

The book also gives voice to a COVID survivor who spent time on a ventilator. Through this character, we see the importance of some lessons COVID has taught us.

These lessons are particularly important to lawyers. Specifically, the things that are significant in life are not monetary, they are not about the next case or closing. They are not about work at all. COVID has taught us to appreciate the present moment, to appreciate the beauty of nature, and to hold our loved ones close. We must understand that at the end of our lives, our work will not be important at all, but our loved ones will.

We, as lawyers, are supposed to be problem solvers. We are supposed to be strong. We are not supposed to have problems. But lawyers do have mental health problems. I read one statistic that indicated lawyers are 3.6 times more likely to suffer from depression than non-lawyers.

In order to pass our “character and fitness” check to become lawyers and in order to keep our licenses for the long haul, we tend to hide our mental health problems. Having problems and hiding the problems can create perfect storms in our lives.

I encourage any lawyer who is particularly unhappy as the year begins to get help! Therapy is a good thing! You might begin by calling South Carolina Bar’s Lawyers Helping Lawyers toll free helpline at (866) 545-9590 or contact any Lawyers Helping Lawyers member directly. But begin somewhere! The resources are available, and they are helpful.  Please, please seek help if you need it. 

And, in the meantime, I wish for all of you a wonderful 2022!