ProPublica publishes interesting heirs’ property story

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Check out the July 15, 2019 story by Lizzie Presser

NC oceanfront property

Image courtesy of ProPublica.org

Several of our staff members stay well informed about current events, and Cris Hudson, our IT professional, is no exception. Cris pointed me to this story published by ProPublica on July 15 entitled “Their Family Bought Land One Generation After Slavery”. The subtitle is “The Reels Brothers Spent Eight Years in Jail for Refusing to Leave it.” Cris told me I should blog about this story, so here goes.

ProPublica calls itself a “nonprofit newsroom that investigates abuses of power”. The story is about brothers, Melvin Davis and Licurtis Reels, who lived in Carteret County, on the central coast of North Carolina, on land they considered to be owned by dozens of their family members. The property consists of 65 marshy acres. Melvin Reels ran a club on the property and lived in an apartment above the club. He also had established a career shrimping in the river that bordered the land. Licurtis had spent years building a house near the river’s edge, just steps from his mother’s house.

Mr. Davis’ and Mr. Reels’ great grandfather, Mitchell Reels, bought the land just one generation removed from slavery. The land was said to contain the only beach in the county that welcomed black families. Mitchell didn’t trust the courts and didn’t leave a will, so, when he died in 1970, the property became heirs’ property.

In 2011, the brothers appeared before a judge to argue that they owned the waterfront portion of their property, which had purportedly been sold, without their knowledge or consent, to a developer. They were not allowed to argue their case that day. Instead, the judge sent them to jail for civil contempt. They were never charged with a crime nor given a jury trial, but they spent the next eight years fighting their case from jail.

As any practitioner who has handled quiet title suits for heirs’ property can attest, the suits can be expensive and complex. Nonprofit organizations, like The Center for Heirs’ Property Preservation, in South Carolina, assist in litigating these matters.

The story quotes Josh Walden of the Center who said that organization has worked to clear more than 200 titles in South Carolina the past decade, protecting land valued at nearly $14 million. Mr. Walden told the reporter that the center has mapped out a hundred thousand acres of heirs’ property in South Carolina and is careful to protect the maps from potential developers.

Back to the North Carolina story, a great uncle of Mitchell and Licurtis apparently obtained the waterfront property through an adverse possession action and began sending trespass notices to the brothers in 1982. The brothers could not believe the adverse possession action could have been “legal” since they had lived on the land their entire lives. Soon afterward, the great uncle sold the waterfront portion of the land to developers.

The family members knew that if the waterfront was developed, the tax values of their adjacent properties would skyrocket, and they would have difficulty paying the taxes and maintaining their properties. Tax sales have historically been the cause of the loss of many heirs’ properties.

(I got confused in one part of the story when the author talked about “nearby” Hilton Head. We drove from Hilton Head to Outer Banks once, and I promise you, the two locations are not “nearby”. We could have driven to Disney World in the same time frame.)

Like tax sales, partition actions have been a tool used to separate heirs from their properties. A developer can buy the share of one heir and then force a partition of the entire property. While South Carolina has passed partition legislation to protect against this danger, North Carolina has held out against this reform, according to the story.

The brothers continued to rot in jail after the judge indicated there was no time limit on civil conspiracy, and that the brothers had to move their houses from the properties to be released. The brothers refused and were locked in a hopeless clash with the law, according to the story.

Eight years later, the brothers appeared before a judge who agreed to release them but warned them that if they returned to their homes, they would return to jail. They have still not been able to return to the waterfront property.

I invite you to read the entire story for a history of heirs’ property in the South. It is indeed a sad tale of greed and legal wrangling to remove properties from heirs. The Reels’ story is just one example.

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Connecticut codifies attorney closing requirement

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connecticut map

South Carolina licensed attorneys must close real estate transactions because our Constitution gives our Supreme Court the power to define the practice of law, and that Court, beginning with the 1987 seminal case, State v. Buyers Service, has defined the practice of law to include closing real estate transactions.

No explicit authority has required a similar result in Connecticut, but by custom, lawyers in Connecticut have routinely been involved in real estate closings. Beginning October 1, 2019, however, this long-standing practice will be required by statute as a result of the passage of Connecticut Senate Bill 320 (Public Act 99-88).

The new law defines “real estate closing” as follows:

  • a mortgage loan transaction, other than a home equity line of credit transaction or any other loan transaction that does not involve the issuance of a lender’s or mortgagee’s policy of title insurance in connection with such transaction, to be secured by real property, or
  • any transaction wherein consideration is paid by a party to such transaction to effectuate a change in the ownership of real property in Connecticut.

A violation of the new law will constitute a felony punishable by a $5,000 penalty or five years in jail.

It is interesting to me that a loan not involving title insurance does not require the involvement of an attorney. Why would a lender’s requirement of title insurance be determinative?  I can envision the argument that foregoing title insurance and thereby foregoing the requirement of the involvement of a licensed attorney would greatly decrease closing costs. Both are protective of the interest of the lender. It seems to me that either title insurance OR a closing attorney would be more desirable than neither.

It is also interesting that there is no differentiation between residential and commercial transactions in the new Connecticut statute. All the South Carolina cases in this area have involved residential facts, and at least one well-respected commercial lawyer in Columbia believes the Court may not have intended to include commercial transactions, where sophisticated parties are almost always involved. Most commercial transactional lawyers believe commercial transactions must follow the residential line of cases.  In Connecticut, it seems clear by the statutory definitions that lawyers are required for commercial closings.

Equity lines not being included under the purview of the new law seems counterintuitive. A consumer can get into as much or more trouble with an equity line as with any first or second mortgage.

And my final thought is that the statute doesn’t seem to define who the attorney must represent in the closing. The law states “no person shall conduct a real estate closing unless such person has been admitted as an attorney in this state.” South Carolina cases are clear that the protections are established for the consumer borrower.

In any event, I believe most South Carolina dirt lawyers would agree with me that we like the fact that Connecticut agrees with South Carolina and wish other states would follow suit!

Commercial lawyers: you’re not immune from fraud!

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This high-dollar scam was reported to our company

hacker mask

Our company publishes an excellent newsletter entitled “Fraud Insights”. The Editor, Lisa Tyler, National Escrow Administrator, deals mostly with residential transactions. It’s unusual for her to report on a scam involving a commercial transaction, but the edition that hit my in-box today outlines the story of a chilling scam involving a commercial transaction in New York. Fortunately, the scammers were not successful despite their best efforts.

Here are the facts. On April 10, 2019, an attorney at a large, prestigious New York City law firm sent a settlement services office in Lake Success, New York, a payoff letter for a private mortgage. The payoff letter said $1.7 million should be wired to a bank account in New Jersey.

The afternoon before the closing, the settlement office received an email purportedly from the payoff attorney’s office with revised payoff instructions for a bank in the Netherlands.

The closing was postponed for reasons not involving the loan payoff. When the closing was rescheduled, the settlement office emailed the lawyer and his assistant inquiring about the change in the wiring instructions. The responding email confirmed that the change was legitimate.

Reviewing the emails carefully, the closer noticed the domain name for the lawyer’s office contained an extra “s” beginning with emails dated April 16. The attorney’s email signature was also partially cutoff beginning April 16.

Two hours before the closing, the attorney’s assistant purportedly sent the closer an email asking if the wire had been sent. The closer did not want to alarm her that her email had been compromised, so he responded that the closing was happening shortly, and he would be in touch. The closer then searched the law firm by Internet and called the main telephone number, asking for the assistant directly. She answered the phone and said the original payoff letter was the only payoff letter, and she had not sent the recent email. She was, of course, alarmed.

She said her attorney was in court and she would relay the distressing information to him immediately. She was asked to refrain from using email for that notification because the emails were clearly being watched. Regardless, she emailed the attorney. At that point, the scammers were tipped off that their scheme had been uncovered.

While the legal assistant and the closer were discussing the situation by phone, the closer received another email purportedly from the assistant demanding that he call the lender to confirm the payoff information. Immediately following that exchange, a man called the closer office to confirm the altered wiring instructions.

At this point, everyone involved with the closing knew for sure that they were dealing with attempted fraud. The closing took place, but the payoff was accomplished via bank check.

The closer said his office tries to remain on the cutting edge of technology and industry news. His sharp eye in pinpointing the email discrepancies kept the closing from being another cybercrime news story. Commercial lawyers may feel somewhat insulated from the rampant cyber fraud that plagues residential practices, but this cautionary tale is an example of penetration into a sophisticated law firm. Be careful out there!

Paying tribute to a giant of the SC Real Estate Bar

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Dave Whitener was a friend and mentor to us all

Have you ever tried to organize your old forms, seminar materials and documents only to start waxing nostalgic and ultimately getting absolutely nothing accomplished? That happened to me today.

I am sorely behind schedule writing an update to the Handbook for South Carolina Dirt Lawyers. I’m sure my name is “Mud” with Terry Burnett and Alicia Hutto, my good friends at the South Carolina Bar who are not very patiently waiting for results. I had a plan to get the update done in 2017 and again in 2018, but that never happened. I’ve been so busy with new initiatives at work that I didn’t even attempt to develop a plan to write an update in 2019. Now, I’m shooting for the date of my death or retirement, whichever comes earlier. Wish me luck!

Hugh Dave WhitenerBut today, I began to organize ancient materials in an attempt to breathe new life into this aged project. And I kept coming across the same name, my late, great friend, Dave Whitener. Why? Because Dave wrote and taught much of the subject matter I now need to address.

Dave was 70 years old when he died in 2014 after practicing commercial real estate and teaching law school in Columbia for many years. He was married to my friend, Tricia Wharton Whitener, who continues his good work today. Dave was not only an excellent practitioner and teacher, but he was also, as his obituary quips, “renowned as a raconteur whose stories made others happy”. He loved people and he loved the law. He loved talking to law students and lawyers and telling them memorable stories in an effort to keep them out of trouble.

Since keeping my fellow South Carolina dirt lawyers out of trouble is the mission of this blog, I’m finding that many of the lessons Dave taught are appropriate on my day of waxing nostalgic.

If a law student or lawyer called Dave with a disturbing current event that the caller said “rang a bell” from one of Dave’s ethics lectures, Dave would reply, “You’re hearing the dinner bell at the federal prison.” That would get the caller’s attention!  I thought of that quote when I came across a lecture from Dave entitled “Top Ten ‘You Betters’”.  I thought I’d share that list with this audience today because this particular top ten list will never go out of style for real estate practitioners.

Dave Whitener’s Top Ten “You Betters”

    1. You better not facilitate the unauthorized practice of law.
    2. You better do what you should be doing.
    3. You better know what you should be doing.
    4. You better be on time.
    5. Everything better be shown on the closing statement.
    6. Everything on the closing statement better be correct.
    7. You better communicate with your clients.
    8. You better understand the rules on conflicts of interest.
    9. You better remember that your trust account is sacred.
    10. You better train your staff properly.

 

 

I could editorialize about each item on the list, but I believe the simplicity of this list speaks volumes for today’s purposes. But if I were to write a chapter on each item on the list, my handbook would be complete.

stay tuned

Thank you, Dave, for your example. My next blog may be about Dave’s ten-point plan for defending the rights of South Carolina licensed practitioners to handle real estate closings. Watch this space! 

SC Court of Appeals provides lis pendens primer

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Termination on the merits is required for malicious prosecution claim

gavel house

A lis pendens is a handy tool for real estate lawyers. When litigation is brought affecting title to real estate, a lis pendens gives notice to third parties that sales, loans and construction draws should, most likely, come to a screeching halt until the issues affecting title are resolved.

Back in the days when I was in private practice, malicious prosecution claims arose relatively routinely when lis pendens were filed in cases where the title to real estate was not in question. That situation is the subject of a Court of Appeals case from early this year.*

The case involved Somerset Point at Lady’s Island, a subdivision in beautiful Beaufort County. The developer, Coosaw, and River City, one of the construction companies building homes in the subdivision, became involved in a dispute about design and construction standards. River City accused Coosaw of failing to enforce the standards with other builders, and Coosaw, in turn, accused River City of failing to comply with the standards.

River City brought suit in 2011 alleging causes of action for breach of fiduciary duty, breach of contract, and unfair trade practices. Coosaw counterclaimed and crossclaimed against River City for violating the design standards and sought a temporary injunction against continued construction. Coosaw also filed a lis pendens describing one property, Lot 16, in Somerset Point.

River City moved to strike the lis pendens on the ground that title to Lot 16 was not at issue. The master-in-equity agreed and struck the notice of lis pendens. On reconsideration, the master stated, in part, that striking the lis pendens would allow River City’s construction lender to resume providing construction draws and would allow River’s City’s project to be completed. Coosaw appealed but ultimately withdrew the appeal after River City’s sale of Lot 16 rendered the issue moot.

In late 2014, River City filed the lawsuit at issue, alleging causes of action for malicious prosecution and abuse of process based on Coosaw’s filing the lis pendens in the 2011 action. River City argued the cause of action for malicious prosecution was proper because the lis pendens had been terminated in its favor.

The Court of Appeals listed the elements of malicious prosecution to include termination of the proceedings in the plaintiff’s favor. River City argued that a lis pendens is an ancillary proceeding, and termination of an ancillary proceeding will support a malicious prosecution claim. The Court of Appeals held, however, that a lis pendens is not an ancillary proceeding but is simply a notice of the proceeding.

Citing earlier cases, the Court reviewed the law of lis pendens:

  • A lis pendens is a statutory doctrine designed to inform prospective purchasers or encumbrancers that a particular piece of property is subject to litigation.
  • A properly filed lis pendens binds subsequent purchasers or encumbrancers to all proceedings evolving from the litigation.
  • Generally, the filing of a lis pendens places a cloud on title which prevents the owner from freely disposing of the property before the litigation is resolved.
  • The lis pendens mechanism is not designed to aid either side in a dispute between private parties. Rather, the lis pendens is designed to protect third parties by alerting them of pending litigation that may affect title.
  • When no real property is implicated, no lis pendens should be filed.
  • A lis pendens is merely a form of pleading that does not provide any substantive right. It is simply a notice.

The Court held that the termination of a lis pendens to support a malicious prosecution cause of action must be a victory on the merits of the litigation, not a termination based solely on technical or procedural considerations. In the case at hand, the underlying merits remained pending after the termination of the lis pendens. The Court held that the subject action is, therefore, premature.

In short, the Court held that a maliciously filed lis pendens can act as the primary basis for a malicious prosecution claim, provided the plaintiff can establish a favorable termination of the lis pendens reflective of the merits of the underlying action.

*Gecy v. Somerset Point at Lady’s Island Homeowners Association, Inc., South Carolina Court of Appeals Opinion 5622 (January 30, 2019).

Abbeville fraud litigation leads to noteworthy arbitration case

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Supreme Court finds arbitration clause unenforceable against nonsignatories

Abbeville, SC

I found it hard to believe the South Carolina Supreme Court took 21 pages to hold an arbitration provision unenforceable against nonsignatories to the contract, but it did! In an April case involving insurance fraud in Abbeville County, the Supreme Court reversed the Court of Appeals, which had relied on an equitable estoppel theory to bind individual insureds to a contract between an insurance agency and the insurance companies*.

The case arose out of numerous lawsuits brought by individual insureds against an insurance agent, Laura Willis, her broker, their agency and six insurance companies for which their offices sold policies. The suits alleged Willis engaged in fraudulent conduct including forging insurance documents and converting cash payments to her own use, resulting in the insureds having no coverage or reduced coverage. Two of the lawsuits were brought by other insurance agents, alleging Willis engaged in illegal business practices that effectively blocked them from the local market, resulting in a substantial loss of clients and revenue.

The other defendants were alleged to have failed to properly investigate, train and supervise Willis, especially after she was fined, publicly reprimanded and place on probation for dishonesty by the South Carolina Insurance Commission in 2011. Alternatively, Willis was alleged to have acted with express or implied permission of the other defendants.

A full year into the litigation, three of the insurance companies filed motions to compel arbitration and dismiss the lawsuits. The arbitration clause in question was contained in a 2010 agency contract signed by the insurance companies and the insurance agency. The theory was that the insureds were third-party beneficiaries to the contract or were equitably estopped from asserting their nonparty status. The Circuit Court denied the motion to compel arbitration, but the Court of Appeals reversed and remanded, holding equitable estoppel should be applied to enforce arbitration against the nonsignatories because the individuals sought to benefit from other provisions in the agency agreement.

The Supreme Court stated that while arbitration is viewed favorably by the courts, it is predicated on an agreement to arbitrate because parties are waiving their fundamental right to access to the courts. The Court held that whether the provision is enforceable is a state law question, and that South Carolina has recognized several theories that could bind nonsignatories to arbitration agreements under general principles of contract and agency law, including (1) incorporation by reference, (2) assumption, (3) agency, (4) veil piercing/alter ego, and (5) estoppel.

The estoppel argument is based on a direct benefits theory in South Carolina. Under that theory, a nonsignatory may be compelled to arbitrate where the nonsignatory knowingly exploits the benefits of an agreement containing an arbitration clause and receives benefits flowing directly from the agreement.

In this case, according to the Supreme Court, the plaintiffs did not allege a claim of breach of the contract, and they were not even aware of the existence of the contract until arbitration was sought a year into the litigation. In the Court’s view, the plaintiffs did not knowingly exploit and receive a direct benefit from the agency agreement. The Agreement was purely for the benefit of its parties, outlining their business relationship.

The Court also stated that equitable estoppel is ultimately a theory designed to prevent injustice, and it should be used sparingly. This litigation will continue!

And I’ve reduced the 21-page case to less than 600 words for your reading pleasure. You’re welcome!

Wilson v. Willis, South Carolina Supreme Court Opinion 27879 (April 10, 2019)

South Carolina lawyers: “Reply All” is not always your friend!

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Don’t communicate with represented parties accidentally!

business woman shocked computer

“Ruh-roh”

There are numerous ways a lawyer can get into trouble with the Supreme Court, but inadvertently communicating with another lawyer’s client can be avoided simply by thinking before hitting “Reply All” in your email system.

Ethics Advisory Opinion 18-04 addressed this concern. The situation posed to the Ethics Advisory Committee was:

Factual Background: Lawyer A sends an email to Lawyer B and copies several people, including Lawyer A’s client. Lawyer A has not previously consented to Lawyer B contacting Lawyer A’s client and does not expressly do so in the email.

Question:  If Lawyer B receives an email from Lawyer A on which Lawyer A’s client is copied, may the lawyer “reply to all” – copying Lawyer A’s client with the response – without the express consent of Lawyer A?”

The Committee discussed Rule 4.2, SCRPC, which provides that in representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter unless the lawyer has consent of the other lawyer or is authorized to do so by law or a court order.

The purpose of the rule is to ensure proper functioning of the legal system by protecting a party who is represented by counsel from overreaching by other lawyers. The rule is also aimed at preventing interference in the lawyer-client relationship.

Two previous opinions discussed whether letters can be ethically mailed to opposing parties represented by counsel. Ethics Advisory Opinion 91-02 advised prosecutors to avoid copying criminal defendants on court appearance notifications without the consent of the defense attorney. Similarly, Ethics Advisory Opinion 93-16 advised plaintiffs’ lawyers to avoid copying defendants on settlement offers to defense counsel without the consent of defense counsel.

The Committee opined that copying an opposing party on email is prohibited in the same way sending a letter is prohibited, absent consent of opposing counsel. The question then became whether consent must be express or may be implied. The Restatement (Third) of the Law Governing Lawyers indicates the consent may be implied: “An opposing lawyer may acquiesce, for example, by being present at a meeting and observing the communication. Similarly, consent may be implied rather than express, such as where such direct contact occurs routinely as a matter of custom, unless the opposing lawyer affirmatively protests.”

The North Carolina, Alaska and New York City Bar Committees had previously opined that, while this consent may be implied, the mere fact that an attorney copies a client on an email sent to opposing counsel does not, by itself, constitute implied consent to a response sent to both opposing lawyer and the opposing client. South Carolina’s Committee agreed.

The Committee stated, however, that consent to a “reply all” may sometimes be implied. The Committee indicated that whether the matter is adversarial is an important factor. Additionally consent may be implied if the email is about scheduling under circumstances whether the client’s availability is at issue along with counsels, if email conversations among counsel and sophisticated clients together are the normal course of dealing, or if the lawyer initially cc’d the client expressly invites a “reply all” response.

The Committee cautioned that the practice of copying a client by either “cc” or “bcc” when emailing opposing counsel poses the risk of revealing confidential information. The Committee said that the recipient of an email might not recognize all the names in a group email and might communicate with opposing client’s client inadvertently by using “reply all”.  For these reasons, the Committee said that it is generally unwise to “cc” a client on an email communication to opposing counsel.

The Committee summarized its opinion: “Absent consent of Lawyer A, Lawyer B may not communicate with Lawyer A’s client about the subject of the representation either directly or by copying Lawyer A’s client in an emails sent in response to Lawyer A’s email on which the client was copied. The mere fact that a lawyer copies his own client on an email does not, without more, constitute implied consent to a “reply to all” responsive email.

My advice? Use caution when hitting “reply all” in all circumstances! “Less is more” is a generally good rule to follow in email communications. I have actually heard that one lawyer may set up another lawyer by coping a client in email communications. Don’t be a victim!