A recorded power of attorney may not be necessary to establish agency where real estate is involved

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In a recent South Carolina Court of Appeals case*, a mother was held to be bound by the actions of her wheeler-dealer son who appeared to act in her behalf buying and selling properties in Laurens County.

Frank Lollis lived with and took care of his mother, Kathleen Lollis, and managed real estate transactions for the family. The attorney who handled these transactions testified that he saw Frank sign his mother’s name and that he thought he recalled Frank showing him a power of attorney.

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Lisa and Dennis Dutton, plaintiffs in this case, suing to enforce contracts Frank signed, testified that Frank had said he had a power of attorney. At trial, following Frank’s death, Mrs. Lollis denied the existence of the power of attorney.

Lisa Dutton testified that she had known Frank for nineteen years and had done a lot of real estate business with him and his family. She said that all of the locations where she had lived for the ten years prior to the trial were related to the Lollis family and every time she purchased property that was titled in Mrs. Lollis’ name, she dealt with Frank and his attorney. She said she “never had an issue” until she tried to obtain a deed to enforce a contract at issue in this case.

Frank’s attorney testified that Frank did a lot of his business in cash and always carried a lot of cash. Frank typically bought property in other individuals’ names and signed their names to documents, including not only his mother, but a former employee. The attorney signed an affidavit to the effect that Frank explained his “checkered past” required him to operate in the names of other individuals. The affidavit further stated that Mrs. Lollis knew Frank titled properties in her name.

Frank was diagnosed with cancer, and when he became increasingly ill, he asked his attorney to prepare a power of attorney for his mother naming his sister as the attorney-in-fact. After Frank’s death, the Duttons unsuccessfully attempted to obtain the deed to consummate the contract Frank had signed in his mother’s behalf. This lawsuit followed.

The case contains a detailed discussion of the law of agency in South Carolina. Real estate lawyers should know that their clients can become bound by their actions even in the absence of a recorded power of attorney because agency is a question of fact that does not necessarily depend upon an express appointment and acceptance.

An agency relationship is frequently implied or inferred from the words and conduct of the parties and the circumstances of the particular case. The Court of Appeals stated that agency may be proved circumstantially by the conduct of the purported agent exhibiting a pretense of authority with the knowledge of the principal.

The doctrine of apparent authority provides that the principal is bound by the acts of his agent when he has placed the agent in such a position that persons of ordinary prudence, reasonably knowledgeable with business usages and customs, are led to believe the agent has authority and they can deal with the agent based on that assumption.

This rule is based on public policy and convenience to provide safety for third parties.  In this case, the attorney testified that the mother was “fully aware that Frank was buying and selling property in her name” and was “transacting business in her name.” Lisa and her husband testified that Mrs. Lollis was present when they made some payments to Frank. Mrs. Lollis never objected and even retrieved the receipt book for Frank on a few occasions.

Lisa testified (1) Frank told her he had a power of attorney; (2) Lisa relied on Frank’s representation; and (3) she would not have entered into the contract and made payments had she known Mrs. Lollis would not acknowledge the existence of the contract. Dennis testified that (1) he believed Frank was acting on his mother’s behalf; (2) he relied on the course of dealing established in a number of transactions; and (3) if he had known Mrs. Lollis was not going to honor the contract, he would not have entered into it nor made payments.

The Court said that Mrs. Lollis’ knowledge that her son was buying and selling real estate in her name and her tacit acceptance of this practice placed Frank in such a position that the plaintiffs were led to believe he had the authority to act. The plaintiffs dealt with Frank based on that assumption. The preponderance of the evidence, according to the Court, shows an agency relationship between Mrs. Lollis and Frank as well as his apparent authority to sell. Frank’s actions were binding on his mother.

*Lollis v. Dutton, South Carolina Court of Appeals Opinion No. 5522 (November 1, 2017)

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Is your client in the market for timber?

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Here’s what you’ll need to know to get started

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It’s always good to start with the law. In South Carolina, the case is, believe it or not, a 1938 grand larceny case.* It turns out that stealing standing timber is not grand larceny because standing timber is considered to be a fixture. The proper charge would be trespass.

Once the timber is severed from the real estate, however, it can be the subject of a grand larceny charge. What happens, you ask, if the criminal himself severs the timber and carries it away in a continuous act? That, my friends, is grand larceny. Even the South Carolina Supreme Court suggested this distinction may be subtle and illogical.

Now that we have exhausted my knowledge of subtle and illogical criminal law, let’s look at a few things dirt lawyers can understand. We draw from this case the proposition that standing timber is real estate in South Carolina.

Timber, like all real estate, should be conveyed by a deed. A seller might also reserve timber in a deed of the real estate to a third party. This would be similar to reserving an easement or reserving mineral rights.

The definition of “land” in a title insurance policy would include the timber growing on the land because the fee simple title holder owns all the physical elements (the “bundle of rights”, as we learned in law school) of the land. To insure land where the timber has been reserved, an exception would be taken for the timber.

From time to time, a title insurance company may be asked to insure timber. Only standing timber is insurable. Downed, fallen or cut trees would become personal property and no longer insurable in a title insurance policy. It might be problematic to insure future growth, trees seeded after a conveyance and timber sold expressly as “perpetual”. Consult your title insurance company before you get down into those weeds, so to speak.

Be careful about access issues. Timber roads are notoriously tricky, so pay careful attention to the description and ownership of real estate where the road is located. Often, GPS descriptions may be used to describe timber roads. Your client must be able to access the timber legally. The deed should grant the rights to cut and transport timber as well as the right of access.

Be careful about survey issues. You will typically not insure the acreage, and you may, again, face the problem of only having a GPS description. You might be the bad guy who has to require a survey.

You will typically take exception to the rights of others to use the land, as well as the terms and conditions of the timber deed.

Finally, determine whether a separate tax bill exists for the timber in order to prorate the correct tax amount.

You will likely want to involve your friendly title insurance company underwriter early and often if you become involved in a timber transaction.

 

 * State v. Collins, 288 S.C. 338, 199 S.E. 303 (1938).

SC Supreme Court tells Kentucky lawyer what she’s NOT gonna do….

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I’ve blogged before about Mike Goodwin, the “Bow Tie Comedian” based here in Columbia, who entertained us during lunch at Chicago Title’s seminar last year. I highly recommend Mike if you need a comedian suitable for a family audience. A joke that bubbled up through his very funny presentation was a line his mother used to keep him on the straight and narrow during his childhood, “what you NOT gonna do is…..”

 

For example, she would say, what you NOT gonna do is to stand there and hold that refrigerator door open while you try to decide what you want to eat. During one lull in the laughter, Mike said to us, “what you NOT gonna do is sit there and not laugh at my jokes.” (So we laughed.)

Mike’s tag line kept coming to me as I read In the Matter of McKeever, a September 20, 2017 South Carolina disciplinary case where a Kentucky lawyer was permanently debarred from seeking any form of admission to practice law (including pro hac vice admission) in South Carolina.

The Court clearly told McKeever what she’s NOT gonna do in the Palmetto State!

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McKeever engaged in several interesting and dangerous courses of action in South Carolina. One of the most damaging to her position seemed to be failing to respond to the disciplinary charges or to participate in the disciplinary proceedings in any way. The Court held this failure to be indicative of a disinterest in the law. No lawyer should ever be found to be disinterested in the law if she wants to continue to practice in this or any state!

Other activities were equally dangerous. McKeever and her husband left Kentucky in the midst of a foreclosure of their $1 million home loan. She arrived in Charleston and came into contact with Betty McMichael who owned two properties, 991 Governors Road where she resided, and 986 Governors Road, which she rented out.

McMichael faced foreclosure on both properties, and McKeever offered her legal representation despite not being licensed in South Carolina. McMichael repeatedly declined the offer but ultimately agreed to an arrangement, after repeated phone calls and visits, that allowed McKeever and her family to live at 986 Governors Road.

I hear the Supreme Court say, “what you’re NOT gonna do is to enter into an improper fee arrangement where the scope of the legal representation and the basis of the fee are not clearly explained to the client.) I also hear the Court say, “what you’re NOT gonna do is to create a conflict of interest by taking a possessory interest in property that is the subject of litigation.”

Later McKeever induced McMichael to execute a quitclaim deed in favor of Bondson Holdings, a “fictitious entity” owned by McKeever and her husband. (I can’t even put to paper the words the Court really wanted to use for this bit of deception.)

The saga continued with delay tactics, frivolous and meritless legal positions, false statements to courts, threatened civil actions and criminal prosecutions against opposing counsel, the presiding judge and the clerk of court. The Court was not amused and, in addition to the permanent debarment, reserved the right to void the deed after other proceedings involving the property are finally resolved.

I recommend the case as interesting reading in classic hutzpah and failing to follow any rules.

Development of precarious beach properties…

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Exciting for developers; problematic for environmentalists

A quick search the Internet for stories on “Captain Sam’s Spit” in Kiawah Island will reveal a treasure trove of news, opinion and case law involving the proposed development of a gorgeous but extremely precarious tract of pristine beach property on South Carolina’s coast. This link contains a picture.

The South Carolina Bar’s Real Estate Intensive seminar in July of 2016 included a field trip to view this property, from a distance at least. (And let me put in a plug for the same seminar to be held in July of 2018. Stay tuned! It will be great!)

Real estate development is my bread and butter, but one quick look told me that property should not be developed. A fellow field tripper, however, pointed out that the south end of Pawleys Island, which has been developed for many years, is just as precarious.

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Image by www.whereverimayroamblog.com

An entity that fights these cases in our state is the South Carolina Environmental Law Project located in Pawleys Island. A recent case* fought by this entity was decided by the South Carolina Court of Appeals on September 27. This case involves a 4.62 acre tract of beachfront property on Kiawah Island, not far from Captain Sam’s Spit.

Here are greatly simplified facts in a very complicated case: the developer and the community association entered into a development agreement in 1994. That agreement covered many issues, one of which was the proposed conveyance from the developer to the community association of a ten-mile strip of beachfront property, basically, the entire length of the island. A deed consummated that conveyance in 1995. All of the property conveyed was undevelopable because of the State’s jurisdictional lines.

I didn’t learn the following fact from the case, but I learned it from one of the lawyers who was kind enough to speak with me. When the jurisdictional lines were redrawn by the State, the 4.62 acre tract became developable. The developer then took the position that the 1994 development agreement and the 1995 deed resulted from a mutual mistake, and that the parties never intended to include that tract.

The Master-in-Equity and Court of Appeals did not see it that way. Both found that the agreement and deed were unambiguous and that parole evidence of the intent of the parties was not allowable.

Simple enough, right? As the football prognosticator, Lee Corso would say, “not so fast, my friends.” If the litigation history of Captain Sam’s Spit is a barometer, litigation may continue for years over the 4.62 acre tract. Captain Sam’s Spit has been argued in the South Carolina Supreme Court four times. I understand one of the justices used the term “weary” to describe the reaction of the court to the most recent round in the battle.

Count on a petition for rehearing and an appeal in this case, at least. I’ll keep you posted!

*Kiawah Resort Associates, L.P. v. Kiawah Island Community Association, South Carolina Court of Appeals Opinion 5517 (September 27, 2016)

Reminder for dirt lawyers of a “secret lien” trap

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The sale of a majority of the assets of a business

Real estate lawyers despise unrecorded liens. I like to refer to them as secret liens. One such trap for the unwary dirt lawyer in South Carolina is the state tax lien imposed by Code §12-54-124. This statute was effective June 18, 2003, and I can vividly remember the day we first read it and scratched our heads about what it meant.

The statute reads:

“In the case of the transfer of a majority of the assets of a business, other than cash, whether through a sale, gift, devise, inheritance, liquidation, distribution, merger, consolidation, corporate reorganization, lease or otherwise, any tax generated by the business which was due on or before the date of any part of the transfer constitutes a lien against the assets in the hands of a purchaser, or any other transferee, until the taxes are paid. Whether a majority of the assets have been transferred is determined by the fair market value of the assets transferred, and not by the number of assets transferred. The department may not issue a license to continue the business to the transferee until all taxes due the State have been settled and paid and may revoke a license issued to the business in violation of this section.” (Emphasis added.)

That’s it! Very simple, but how are those terms defined?  What’s a business? Is a rental house in Pawleys Island a business?  How can a purchaser’s lawyer know whether taxes are due to South Carolina by the seller?  How can a purchaser’s lawyer know whether the sale of one Subway store is a sale of the majority of the assets of a franchisee’s business?

I had a friend and former law school professor who worked at the Department of Revenue at the time, so I called him and told him we were struggling with the meaning of the statute.  He gave me two very valuable pieces of information: (1) the terms in the statute are defined as the Internal Revenue Code defines them; and (2) the Department of Revenue (DOR) was likely to give us some guidance at some future date.

We struggled with the definitions in the Internal Revenue Code and finally decided that unless a property is an owner-occupied single family residence, the closing attorney should consider that it might be a business asset.

Thankfully, in 2004, the DOR did provide guidance in the form of Revenue Ruling 04-2. The Revenue Ruling stated that the code section does not apply if the purchaser receives a certificate of compliance from the DOR stating that all tax returns have been filed and all taxes generated by the business have been paid. The certificate of compliance is valid, according to the Revenue Ruling, if it is obtained no more than thirty days before the sale.

This Revenue Ruling also authorized attorneys to accept Transferor Affidavits, in the form promulgated by the DOR, when the transferor can state that the assets subject to the transfer are not business assets or are less than a majority of the transferor’s business assets, based on fair market value, in the current and other planned transfers.

house mousetrapThe Revenue Ruling addressed whether a vacation home is a “business” by stating that it is not a business if IRC §280A limits the deduction of vacation home rental expenses. That’s a little deep for dirt lawyers, so the safe approach is to always obtain a certificate of compliance or Transferor Affidavit when you close on that rental home in Pawleys Island.

I like to remind dirt lawyers that they are not tax lawyers (unless they ARE tax lawyers). Generally, when you represent a purchaser in a real estate transaction, do not give the seller tax advice on how to complete a Transferor Affidavit.

CFPB announces top TRID mistakes

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cfpb-logoWe’re learning for the first time what the CFPB considers the top mistakes being made by lenders in mortgage originations under TRID. CFPB’s September 2017 Supervisory Highlights reports on the Bureau’s first round of mortgage origination compliance examinations. Prior to these examinations, the Bureau refused to provide a grace period for lender compliance but stated publicly that it would be sensitive to the progress made by lenders who focused on making good faith efforts to comply with the rule.

Some of these mistakes may be attributed, at least from the viewpoint of the lenders who were pinpointed by CFPB, to settlement service providers (real estate lawyers in South Carolina), so we should pay close attention to this list. Failure to pay attention to it may place some of us squarely on lenders’ naughty lists.

This report indicates most lenders were able to effectively implement and comply with the rule changes, but the examiners did find some violations. The following list contains the most common mistakes:

  • Amounts paid by the consumers at closings exceeded the amounts disclosed on the Loan Estimates beyond the applicable tolerance thresholds;
  • The entity or entities failed to retain evidence of compliance with the requirements associated with Loan Estimates;
  • The entity or entities failed to obtain and/or document the consumers’ intent to proceed with the transactions prior to imposing fees in connection with the consumers’ applications;
  • Waivers of the three-day review period did not contain bona fide personal financial emergencies;
  • The entity or entities failed to provide consumers with a list identifying at least one available settlement service provider in cases where the lender permits consumers to shop for settlement services;
  • The entity or entities failed to disclose the amounts payable into an escrow account on the Loan Estimate and Closing Disclosure when consumers elected to escrow taxes and insurance;
  • Loan Estimates did not include dates and times at which estimated closing costs expire; and
  • The entity or entities failed to properly disclose on the Closing Disclosures fees the consumers paid prior to closing.

The report boasts that the CFPB examiners worked in a collaborative manner with one or more of the entities to identify the root causes of the violations and to determine appropriate corrective actions, including reimbursements to consumers.

The report also covered the Bureau’s supervisory activities outside the mortgage origination arena and indicated nonpublic supervisory resolutions have resulted in total restitution payments of approximately $14 million to more than 104,000 consumers during the review period (January through June, 2017). The CFPB also touted resolutions of public enforcement actions resulting in about $1.15 million in consumer remediation and an additional $1.75 million in civil penalties during the review period.

Despite the notion that the CFPB may be in disfavor in the Trump administration, it remains a powerful body in our industry. Compliance with its directives is crucial to remain in the residential closing business at this point.

Dear History, please stop repeating yourself!

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Hurricane Irma is the third disaster in two years for South Carolina

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Hurricane Irma is the third disaster to pummel our beloved state since this blog was launched in 2014. After the 1,000 year flood in October of 2015, Hurricane Matthew struck in October of 2016. Rebuilding is not complete from either catastrophe.

On my way to work this morning, I passed the remains of several businesses that were destroyed when Gills Creek flooded in 2015. Thankfully, I heard recently that Richland County is about to purchase those properties to turn them into green spaces. Other areas in and around Columbia are still in the rebuilding process or have been completely abandoned. Many homeowners have made their homes bigger, stronger and certainly taller. Others have given up and moved away.

Enter Irma. A friend joked on Facebook that we’re lucky here in South Carolina Irma passed us by. You would never know it passed us by from the many feet of water we’re seeing in pictures of Charleston, Beaufort, Hilton Head, Georgetown, Garden City and surrounding areas. And the pictures and video coming from Florida and the Caribbean, not to mention the pictures and video coming from the Hurricane Harvey disaster in Texas and Louisiana, all show unspeakable damage.

Our company’s home office is located in Jacksonville where surrounding streets are under water. Employees with power are trying to work remotely. Others are out of commission.

A wise man in our building here in Columbia said to me this morning that these disasters bring out the best and the worst in folks. There are looters, but there are many more heroes who have rescued their neighbors in boats. There are neighborhoods without power who are gathering in their streets for impromptu block parties. Chainsaws are chopping downed trees. Supplies and helping hands are being donated. Celebrities and charities are raising millions. I’d like to believe that we’re seeing much more good than bad in people.

Our hearts are breaking for those who have lost so much. Rebuilding will take time, resources and patience. Many have lost everything and are without insurance coverage. Millions are without power and water. Many are in shock.

Dirt lawyers are in an exceptional position to support clients who may not be familiar with the assistance available to them. We have all learned a lot in the last few years. I challenge each of us to continue to educate ourselves and to be available to offer the valuable advice our neighbors and others will need in the days ahead. Local, state and federal governments seem better prepared this time around and seem to be working better to coordinate efforts. Here is a link to the South Carolina Bar’s Key Assistance Numbers. South Carolinians are strong and resilient, and we are stronger and more resilient now than we were for the last disaster.

Let’s once again rise to the occasion, real estate lawyers, and provide the best advice available for our clients and friends who will need it as they sort out, clean up and rebuild.