Real Estate Law

SC Legislature provides fix for MV Realty problem

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This blog has previously discussed MV Realty, as title examiners reported finding “Homeowner Benefit Agreements” or “Exclusive Listing Agreements” filed in the public records as mortgages or memoranda of agreement. The duration of the agreements purported to be forty years, and searches revealed hundreds of these unusual documents filed in South Carolina. The documents state they create liens against the real estate in question.

The company behind these documents is MV Realty PBC, LLC which appeared to be doing business in the Palmetto State as MV Realty of South Carolina, LLC. The company’s website indicated the company would pay a homeowner between $300 and $5,000 in connection with its Homeowner Benefit Program. In return for the payment, the homeowner agreed to use the company’s services as listing agent if the decision was made to sell the property during the term of the agreement. The agreements typically provided that the homeowner may elect to pay an early termination fee to avoid listing the property in question with MV Realty.

The company has been the target of litigation and legislation in many states, and, thankfully, Governor McMaster signed South Carolina Code §27-28-10, et seq., into law on May 20. This legislation effectively bans these long-term listing agreements.

The legislation defines a real estate service agreement as a “written contract between a service provider and the owner or potential buyer of residential real estate to provide services, current or future, in connection with the maintenance, purchase, or sale of residential real estate.” Under the new law, a real estate service agreement is “unfair” and void if it is intended to be effective for more than one year; 1) expressly or implicitly purports to run with the land and bind future owners of the property; 2) allows for the assignment of the services contract without notice or consent of the owner; or 3) creates a lien, encumbrance, or security interest on the property.

Under the legislation, any recorded unfair real estate services contract is no longer effective as a lien, encumbrance or security interest against property. The recording of this type of document no longer serves as constructive notice to any interested party in the real estate. And no additional filing is necessary to void the unfair agreements or to clear the public records.

Further, the property owner of the real estate may collect actual damages, costs and attorneys’ fees resulting from the filing of the contract. Such contracts are expressly stated to be in violation of the South Carolina Unfair Trade Practices Act.

Contact your friendly title insurance company underwriter if you have questions about these documents, but these documents should no longer create title problems for South Carolina dirt lawyers. Some things do work out as they should!

Department of Justice can reopen investigation of National Association of Realtors

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I was in Washington D.C. last week with one husband and four grandchildren under 12. To see as much as we could, we walked about ten miles per day. One day, we passed the Department of Justice and the National Association of Realtors. Coincidentally, on that same day, I received word from the Chicago Title office in Columbia that the D.C. Circuit Court had ruled that the DOJ’s Antitrust Division can reopen its investigation against the NAR.

This investigation dates back to a 2005 lawsuit challenging the NAR’s operation of its multiple-listing services (MLS). The suit claimed that internet competitors and their clients were blocked from having full access to listings. This practice, the lawsuit claimed, reduced competition and kept real estate agents’ commissions high.

The parties entered into a settlement in 2008, which expired in 2018. The DOJ began its investigation again and issued two subpoenas to the NAR. One subpoena sought information about the NAR’s “participation rule” which requires listing brokers to offer the same commission to all buyer brokers using the MLS. The other subpoena sought information about the NAR’s “clear cooperation policy”, which requires listing brokers to post properties on the MLS within one day of the beginning of marketing. The DOJ claimed both policies limited competition.

In 2020, the parties agreed to a Consent Judgment. This document contained a reservation-of-rights provision that allowed the DOJ to continue to investigate and bring additional litigation. The settlement documents did not mention the participation rule or the clear cooperation policy. But the DOJ sent a letter to the NAR stating it had closed its investigation into those two rules and that the NAR was not obligated to respond to the subpoenas. The letter contained a no-inference clause providing that no inference could be drawn from the closing of the investigation.

In 2021, after unsuccessfully attempting to renegotiate the reservation-of-rights clause, the DOJ withdrew the Consent Judgment. The DOJ also dismissed the complaint and issued new subpoenas. The NAR petitioned the Circuit Court to set aside one of the subpoenas on the grounds that it breached the settlement agreement. The Court agreed. A two-judge panel of the Court reversed, relying on the “unmistakability” principle, which requires courts to refrain from interpreting a contract to cede a sovereign right of the United States unless the government waives that right unmistakably. The no-inference clause, according to the court, explicitly disclaims that intent.

The Court allowed the investigation to continue but expressed no opinion about whether any laws have been violated by the NAR. This case is different from recent actions claiming the NAR’s policies on commissions are anti-competitive.  We can expect much more litigation involving the NAR.

Update on NAR broker compensation litigation

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This blog has previously discussed the March 15 proposed settlement by The National Association of Realtors (NAR) of four large antitrust suits involving buyers’ broker commissions. The monetary settlement was set at $418 million. The settlement also involves a new rule prohibiting offers of compensation to buyers’ brokers on the MLS.

There is movement in a related matter between the NAR and the U.S. Department of Justice (DOJ). Last month, a District of Columbia Circuit Court of Appeals panel of judges reversed a lower court decision to set aside a 2021 investigative subpoena from the Antitrust Division of DOJ. That subpoena had been issued in a previously closed investigation into NAR commission policies.

This ruling effectively held that a case being previously closed does not prevent its being reopened, allowing the DOJ to continue its antitrust investigation.

Several news sources are reporting that in a status hearing in a Massachusetts case, the DOJ made its first public comment since the NAR settlement this week. An attorney for the DOJ apparently stated that the DOJ believes offers of compensation to buyers’ agents should not be made anywhere, and certainly not on the MLS.

This dirt lawyer does not have the legal ability to discuss the antitrust issues involved in this litigation. The speculation about how this settlement will ultimately affect the housing industry is widely varied among experts in several professions.

The impetus for the original complaints was to lower housing costs artificially inflated by commissions which seem to be set in stone at six percent. Some experts suggest that our housing market will be completely remodeled, with the end product being lower home prices.

Other experts suggest that buyers will be crippled by having to either forego the assistance of a real estate agent or by agreeing to pay commissions out of pocket. Some of these writers suggest that home prices will increase as a result of these machinations. I’ve even heard that only wealthy buyers will have broker representation.

I’ve seen several suggestions that home buying will remain virtually the same by use of several work arounds. But I’ve seen other experts suggest that the proposed work arounds may also violate antitrust laws.

Some suggest that buyers, sellers and real estate agents will simply negotiate commissions.

One thing that is not in question is that the settlement must be approved in court. The settlement suggests that the new rules will become effective in July, but settlements in these large cases often take months to approve, so I wouldn’t be surprised to see delays beyond this summer.

The industry may be in transition as all the experts digest the settlement and as we await court approval. There is no shortage of articles on the topic. I encourage dirt lawyers to keep their fingers on the pulse of these issues as the litigation dust settles. Any activity from the DOJ will be particularly noteworthy.

Court of Appeals affirms DeBordieu’s groin permit

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Photo from DeBordieu.com

South Carolina’s Court of Appeals affirmed the permit issued by DHEC to DeBordieu Colony Community Association for the construction of anti-erosion groins on DeBordieu Beach*.

In this appeal from the Administrative Law Court, South Carolina Coastal Conservation League contended that the ALC erred in finding the groins would be placed in a high erosion area, that the erosion threatened existing structures, and that the groins would not detrimentally impact the downdrift of sand to other beaches.

The Court defined a groin in footnote 2, referring to DHEC Regulations, as “a structure designed to stabilize a beach by trapping littoral drift. Groins are usually perpendicular to the short and extend from the shoreline into the water far enough to accomplish their purpose.”

The application for the permit was around 2,600 pages, and testimony was solicited by all sides from numerous experts. The Court acknowledged that while differing sides can reasonably debate methods to prevent erosion, our statutes allow the construction of new groins under specified conditions. The Court found that the ALC’s decision, based on probative, substantial, and reliable evidence in the record, is not clearly erroneous nor is it arbitrary or capricious.

An appeal to South Carolina’s Supreme Court is certainly expected in this case.

*South Carolina Coastal Conservation League v. South Carolina Department of Health and Environmental Control, South Carolina Court of Appeals Opinion No. 6058 (May 1, 2024)

Is your insurance company spying on your house?

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This blog has discussed several times the difficulty of getting and maintaining homeowner’s insurance in some locations, especially coastal areas. This appears to be an extremely difficult issue in Florida, and I have heard similar concerns along South Carolina’s coast.

The Wall Street Journal is now reporting that insurance companies are increasingly using aerial images from drones and balloons as a tool to cancel insurance on properties deemed as higher risk. You can read the article here. Googling the topic also reveals several related stories.

Apparently, angry homeowners are reporting losing coverage because of images reflecting damaged roofs, debris in yards, and undeclared hazards such as swimming pools and trampolines.

Consumer advocates object to this tactic on privacy and other grounds. For example, the images could be outdated or otherwise inaccurate. Time frames for correcting the problems may be too short. And the secrecy of the “inspections” may be deemed to be unfair.

State law may require inspection reports to be delivered to the consumer, and some state laws may limit the reasons insurance companies may use to fail to renew coverage.

According to the articles, insurance companies find the use of aerial images is an efficient way to capturing data. The technology is sophisticated and continues to improve. The companies also claim that weeding out risky properties through visual inspections helps everyone by decreasing claims.

Of course, this issue arises as we are seeing increasing premiums in homeowner’s coverage.  Count on homeowner’s coverage continuing to be in the news.

National Association of Realtors announces $418 million settlement

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The National Association of Realtors (NAR) announced a proposed settlement on March 15 of four large antitrust suits involving buyers’ brokers commissions. The monetary settlement is set at $418 million. The settlement also involves a new rule prohibiting offers of compensation to buyers’ brokers on the MLS.

This dirt lawyer does not have the legal ability to discuss the antitrust issues involved in these lawsuits. The speculation about how this settlement will ultimately affect the housing industry is widely varied among experts in several professions.

The impetus for the original complaints was to lower housing costs artificially inflated by commissions which seem to be set in stone at six percent. Some experts suggest that our housing market will be completely remodeled, with the end product being lower home prices.

Other experts suggest that buyers will be crippled by having to either forego the assistance of a real estate agent or by agreeing to pay commissions out of pocket. Some of these writers even suggest that home prices will increase as a result of these machinations.

I’ve seen several suggestions that home buying will remain virtually the same by use of several work arounds. But I’ve seen other experts suggest that the proposed work arounds may also violate antitrust laws.

Some suggest that buyers, sellers and real estate agents will simply negotiate commissions.

One thing that is not in question is that the settlement must be approved in court. The settlement suggests that the new rules will become effective in July, but settlements in these large cases often take months to approve, so I wouldn’t be surprised to see delays beyond this summer.

This blog earlier discussed the $1.8 billion verdict in federal court in Missouri against the NAR and two brokerage firms. Other lawsuits followed this verdict, and this settlement intends to bring all the suits to a conclusion.

The industry may be in transition as all the experts digest the settlement and as we await court approval. There is no shortage of articles on the topic. I encourage dirt lawyers to keep their fingers on the pulse of these issues as the litigation dust settles.

Some IRS forms must be filed electronically as of January 1, 2024

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Chicago Title recently published an update on an IRS regulation, and I wanted to make sure readers of this blog have the most current information. Dirt lawyers know that cash payments greater than $10,000 must be reported to the IRS through form 8300.

For a primer on this requirement, review IRS Publication 1544 here. The government’s stated goal in imposing this requirement is to detect money laundering and to catch tax evaders, terrorists and those who profit from the drug trade.

Effective January 1, 2024, the IRS updated its regulations to require businesses that file 10 total information returns (such as 1099, W2 and, now 8300) to files these forms electronically unless the business requests and receives a waiver each tax year. You can view the revised regulations here.

Updates on Florida condominium legislation

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This blog has previously discussed Florida’s legislation that requires regular building inspections for condominium projects of three stores and higher and requires homeowners’ associations to maintain reserves. The act was unanimously passed by both houses, and Governor DeSantis signed the bill into law on June 9, 2023.

Under the new law, inspections are required when a condominium building reaches 30 years of age and every ten years thereafter. For buildings within three miles of the coast, the first inspection is required at 25 years of age.

In addition, mandatory structural integrity reserve studies are required every ten years under the new law, and reserves are required to be maintained based on the studies. The reserves must be fully funded. The power of the HOA to waive reserves will be removed, effective December 31, 2024.

New Jersey has passed similar legislation. These laws apparently attempt to exchange some short-term pain in maintaining reserves for long-term stability.

These laws will require higher assessments in most cases, and that will likely mean lower prices for sellers. Buyers will have to become more discerning as to the long-term financial implications. I’ve also seen the argument made that with the great number of condominium projects in Florida, there may be too few professionals available to accomplish the inspections and repair estimates.

The main downside of such legislation is that it will make condominium living more expensive and may price some retirees and lower-income individuals out of the market entirely. Insurance costs are also increasing.

But, logically, the cost of maintenance should be factored into every residential property purchase. The ability of an owners’ association to waive reserves and thereby kick the maintenance can down the road is a dangerous proposition.

Perhaps older condominium projects will be terminated, and developers will seek to take advantage of financial distress by seeking to develop new condominium projects. New construction will certainly be favored under the new laws.

Should we pass similar legislation in South Carolina? Let me know what you think.

Court of Appeals decides interesting conservation easement case

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The South Carolina Court of Appeals issued an opinion* on January 17 that interpreted a conservation easement as it affected two heirs of the original grantor.

In 2004, Benjamin Franklin Knott executed a will granting each of his daughters, Susan and Betsy, approximately one-half of a 371-acre parcel near Huger in Berkeley County. The property was subject to a conservation easement Mr. Knott had previously granted to Wetlands America Trust, Inc., a non-profit organization affiliated with Ducks Unlimited, Inc.

Conservation easements are creatures of statute in South Carolina and elsewhere. Such easements are defined as nonpossessory interests for the purposes of protecting natural, scenic, and open-space areas, ensuring the availability of property for agricultural, forest, recreation, educational or open-space use, protecting natural resources, maintaining air or water quality, and preserving historical, architectural, archeological or cultural aspects of real property. The grantor of a conservation easement receives a tax benefit.

Mr. Knott died in 2009, and his daughters received deeds of distribution to their respective parcels. The only direct road frontage was Cainhoy Road, adjacent to Betsy’s parcel. There was originally indirect access to Susan’s parcel from Charity Church Road via an easement retained when Susan sold an adjacent parcel, but Susan terminated her easement in 2015.

Three years later, Susan asked Betsy if she could use Betsy’s parcel to access Susan’s parcel. According to Susan, Betsy rejected this request. Susan brought this declaratory judgment action arguing that she had an express access easement under the terms of the conservation easement. The Circuit Court granted a partial summary judgment to Susan. Betsy appealed.

The Circuit Court had concluded that under the terms of the conservation easement, Susan, as owner of approximately half of the property, had the right to use the roads crossing over Betsy’s property to access Susan’s property for all activities permitted under the conservation easement.

Among other rights reserved in the conservation easement was the right to maintain and replace existing roads and to construct new roads.

The Court of Appeals agreed with Betsy that the reservations in the conservation easement did not create rights for Susan to access her property via roads on Betsy’s property. The easement rights granted to the Ducks Unlimited entity did not translate to easement rights in favor of Susan as against Betsy. The Court reasoned that if Susan has the rights to use the roads on Betsy’s property, it logically follows that she must have all the other owner’s rights reserved for the grantor as to Betsy’s parcel.

The Court of Appeals concluded that Susan has no rights in Betsy’s property, and the conservation easement’s language does not convey any new rights to any person who is not the owner of the property over which the conversation easement lies.

The Court of Appeals reversed the partial summary judgment and remanded the case for further action by the Circuit Court.

*Floyd v. Dross, South Carolina Court of Appeals Opinion 6044 (January 17, 2024)

Professor Whitman provides update on legislative restrictions on foreign ownership of real estate

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This blog has discussed legislation limiting the purchase of real estate by some foreigners twice. Remember the Chinese surveillance balloon the United States shot down off the coast of the Palmetto State last February?

That incident and other rising tensions between our government and China over several issues (the war in Ukraine, recognition of Taiwan, to name only two) have resulted in politicians proposing to broaden state law bans on foreign ownership of real estate.

Professor Whitman of the DIRT listserv has provided a New Year’s update on the legislation across the country. He said one of the most significant developments of 2023 in the real estate arena was the noticeable increase in restrictions on foreign acquisitions of US property.

Chicago Title published an Underwriting Memorandum on April 5 entitled “Foreign Ownership of Property in South Carolina” to advise agents of the pending legislation in our state.

For your information, here is a link to Professor Whitman’s email. He gives credit for some of the list to Womble Bond Dixon. And I, as always, recommend and give credit to the listserv. Professor Whitman and his colleagues attempt to keep all of us up to speed on real estate law and trends across the country.

If you encounter potential foreign purchasers in your transactions, consult your friendly and intelligent underwriting counsel.