Real estate has always been a significant investment option but shelling out the required funds may be cost prohibitive for all but the most affluent among us. Jeff Bezos and his partners may have solved this problem.
Check out the real estate investment platform Arrived Homes. Go to the site and listen to the quick explanation entitled “What is Arrive in 1 min”. Very simply, an investor can buy “shares” of rental properties and collect the rental income attributable to those shares. If the economy holds out and real estate continues to appreciate, the properties (and the shares) will increase in value over time. The company intends to hold the properties for five to seven years before selling them and distributing the equity to the investors.
The business finds, buys and manages residential rental properties and offers shares of the properties to investors. Potential investors can browse and choose among available properties. Management includes locating tenants, maintenance, repairs, improvements as well as handling accounting and taxes. A quick review reflects several properties in South Carolina.
An interesting Arrived approach is to encourage the tenants of the rental properties to become investors in the properties they occupy. The idea is to encourage the tenants to treat the properties as if they own them….because they do! The longer the lease the tenant signs, the larger the equity incentive.
Rental income is paid quarterly in the form of dividends. Investors can review their returns and potential appreciation in the user dashboard.
How does the company make its money? It charges two fees, a sourcing fee and an assets under management fee. The sourcing fee is paid up front and the assets under management fee is charged at 1% per year. Both fees as listed on each property’s “page”. Costs are deducted from the rental income.
The site launched a little over a year ago and has experienced significant growth. One report indicates properties have been purchased valued at close to $40 million already. New properties are listed every couple of weeks, and many sell out quickly.
The intent it to make investing in real estate as easy as investing in stocks with a minimum investment of only $100. It’s an interesting concept!
It goes without saying that one of the most important partnerships for a real estate lawyer is a great title insurance company. I am biased, but in my opinion, there is no better title insurance company doing business in South Carolina than Chicago Title.
This week, a warning was issued from Chicago Title about a new and very specific fraud scheme that I want to share with all South Carolina practitioners.
Chicago Title received two reports last week of fraudsters apparently operating out of Houston. The fraudsters posed as owners of South Carolina properties and listed the properties for sale on Zillow. Mail away cash closings were scheduled with local real estate lawyers. In both cases, the fraudsters provided presumably fake identification and deeds to closing attorneys.
In the first case, the closing attorney very astutely foiled the scheme when he determined the signatures on the deed appeared suspicious. He contacted the New York notary who purportedly notarized the deed. She reported her seal had been stolen and used in at least one successful fraudulent scheme. The lawyer also learned from Federal Express that the deed had been sent from Houston rather than New York, where the seller was purportedly located. The transaction was stopped.
Unfortunately, the second transaction was not stopped. This seller package also originated in Houston. The fraudster’s telephone number appears on Zillow listing for properties in multiple states. Houston law enforcement has been notified and is opening an investigation.
Any mail away closings should be particularly scrutinized. If you conduct a closing with an unfamiliar seller, you should be especially vigilant in confirming the identities of the parties. Use more than one set of eyes in your office! Anything that appears unusual should be examined carefully. Give your staff the flexibility to slow down and carefully examine each document. Tell them to bring any unusual document to you. Check behind your staff! A great real estate paralegal is invaluable, but we spent three years in law school learning to spot issues. Use those issue-spotting skills to foil these fraudsters!
Vrbo and Airbnb are two go-to websites to find interesting short-term rentals in vacation locations. Sometimes a cabin or house seems much more appropriate and fun than a hotel room for a family get-away. Having a kitchen and room for dining is often a plus. And I love a hot tub with a view!
But I’ve seen a couple of news articles about South Carolina cities questioning whether these types of short-term rentals are appropriate in residential subdivisions, and I understand the concern.
The article quotes a man who said he and his wife operate nine Airbnb locations and have been put out of business by the resolution. The article quotes the resolution: “the homes are mainly in their older neighborhoods and these transient tenants have a negative effect on the peace and perceived safety of those neighborhoods.”
An article posted on March 17 by South Carolina Public Radio entitled “Upstate cities ponder the fate of short-term rentals” discusses the Rock Hill moratorium as well as similar discussions by city officials in Spartanburg.
The city attorney in Spartanburg is quoted as saying that city’s “permissive” zoning ordinance does not address short-term rentals and that any use that is not specifically allowed is prohibited. He admitted, however, that there are “plenty” of short-term rentals—about 120 on Airbnb alone.
One councilman in Spartanburg was quoted as arguing in favor of creating rules to keep “bad actors” from causing trouble in neighborhoods.
Rules vary greatly in the cabins and houses we’ve rented, but a common theme seems to be that parties are not allowed. I’ve also seen limits on the number of cars that can be accommodated and, of course, the number of people permitted. Pets may or may not be allowed.
What do you think? Would you be comfortable with short-term rentals in your neighborhood? Could rules about groups, parties and parking make a difference?
We may see other cities in The Palmetto State considering whether to limit short-term rentals through zoning or permitting. It’s an interesting question!
But apparently not when the claimant has no interest in the property
South Carolina courts don’t respect tax sales!
For that reason, tax sales have always been problematic for title examiners and real estate closing attorneys. Any concern about service of process or naming proper parties can result in the return the property to the owner of record. Historically, we would simply not close in the face of a tax sale in the chain of title.
In recent years, title insurance companies and real estate lawyers have attempted to take a more liberal approach. A rule of thumb might be that a tax sale that is at least ten years old where one person or entity has held title for a ten-year period since the tax sale may not result in an aborted closing. The title may not be marketable, but it may be insurable.
A recent Court of Appeals case* made me laugh. (Remember I am an easily amused title nerd.) The plaintiff, Scott, was “renting to own” the property in question under a 1998 oral agreement with her uncle, McAlister. Scott took possession of the property after making an initial down payment of $4,000 and agreeing to pay the remaining $31,000 purchase price in monthly installments of $300. That’s her story, at least. McAlister testified that Scott agreed to obtain a loan to make a second payment of $31,000.
After Scott failed to make the $31,000 payment, McAlister told Scott that her monthly payments would be considered rent only, and the parties agreed to reduce the monthly payment to $200. In 2007, McAlister began eviction proceedings, but the circuit court vacated the order of ejectment when Scott asserted that she occupied the property under a land purchase agreement. McAlister moved and changed the mailing address for tax purposes. The taxes for 2011 were never paid, and the property was sold in a tax sale in 2012.
Scott claimed she was unaware of the mailing address change, the delinquent taxes, the tax sale or the opportunity to redeem the property until the purchaser’s surveyor showed up! In 2015, Scott filed a complaint alleging that tax sale technicalities were not followed because notices were never posted on the property. The tax collector claimed her office posted the property notice on the property in August of 2012.
The circuit court granted summary judgment after it determined Scott lacked standing and that the tax authorities owed her no duties because she was not the record taxpayer, property owner or grantee. The Court of Appeals cited cases for the proposition that a tax execution is issued against the defaulting taxpayer, not against the property. The summary judgment decision was upheld on the theory that while due process is owed to a property owner, it is not owed to a person who whose only interest is based on an oral agreement.
I love it when our appeals courts answer real estate questions correctly. Overturning this tax sale would have resulted in serious consequences for title examiners and closing attorneys!
*Scott v. McAlister, South Carolina Court of Appeals Opinion 5897 (March 9, 2022)
The Oregon legislature believes they should, but a Federal Court issued an injunction
Late last year, my son and daughter-in-law decided to buy a new house, mainly to move into the school district where their children attend school and to be closer to their children’s friends. My daughter-in-law is an elementary school teacher who had enrolled her children in the school where she teaches. She’s a great teacher, by the way, as evidenced by being named Richland One teacher of the year several years ago. I’m not just bragging about her, although I am very proud of her. Being a great teacher is part of the story.
They immediately sold their house in our very hot seller’s market and were looking at the daunting process of having to move twice. They got lucky when their real estate agent found the perfect house in the perfect neighborhood. The real estate agent advised them to make an offer at full price, which they did, but apparently several other real estate agents gave the same advice to their customers.
My son and daughter-in-law got lucky again when they learned that she had taught the seller’s children. She wrote a letter to the sellers to make that connection and to express how much they loved the house. They are happily living in that house today.
I learned just this week that the real estate industry has dubbed such attempts to influence sellers “love letters”. And an article published in the oregonlive.com on March 6 entitled “Federal judge blocks Oregon’s first-in-nation ban on homebuyer ‘love letters’” tells the tale of the Oregon legislature attempting to ban these letters. The news story points to a preliminary injunction* issued by the U.S. District Court for the District of Oregon.
The opinion defined “love letters” as “notes, letters, and pictures that buyers may submit along with their offer to purchase in order to create an emotional connection between sellers and buyers – especially when significant competition exists on a given property.” A practicing real estate agent who is also an Oregon legislator introduced legislation to ban these letters because they “perpetuate systemic issues of bias in real estate transactions.”
The legislation, which passed in 2021, amended a statute that enumerates the duties and obligations owed by a seller’s agent and reads:
In order to help a seller avoid selecting a buyer based on the buyer’s race, color, religion, sex, sexual orientation, national origin, married status or familial status as prohibited by the Fair Housing Act (42 U.S.C. 3601 et seq.), a seller’s agent shall reject any communication other than customary documents in a real estate transaction, including photographs, provided by a buyer.
The statute does not define “customary documents”, but Oregon’s Real Estate Commissioner offered guidance: “the Agency interprets (customary documents) to mean disclosure forms, sales agreements, counter offer(s), addenda, and reports. Love letters would not be considered customary documents.”
The plaintiff, a real estate agency, sought a preliminary injunction against Oregon’s real estate commissioner and attorney general against enforcing the statute. The Court said the purpose of the legislation is laudable, to stop discrimination in home ownership based on protected class status, but agreed to issue the preliminary injunction because the legislation “unquestionably” interferes with free speech.
The defendants presented evidence of the history and prevalence of housing discrimination in Oregon, and the Court agreed that considerable racial disparities persist in home ownership. The defendant’s expert opined that the vast majority of “love letters” disclosed the buyer’s race, color, religion, sex, sexual orientation, national origin, marital status, familial status, or disability. He said about half the letters used as evidence in the case included photographs that revealed some information about race, color, sex, and other characteristics. He opined that love letters enable intentional and unintentional discrimination in housing.
The evidence indicated love letters are powerful documents! The opinion cites a study conducted by the real estate company Redfin that found 40% of offers include love letters and that love letters increase the likelihood of having an offer accepted by 52%. A real estate agent testified that love letters allow her clients to compete with higher offers, including those submitted by investors. The evidence also indicates that real estate agents play a significant role in drafting love letters, including providing templates to their clients.
The plaintiff suggested alternatives to the legislation: (1) greater enforcement of existing fair housing laws; (2) requirement that agents redact client love letters, (3) prohibition on the inclusion of photos; (4) fair housing disclosure requirement in real estate transactions; (5) increased fair housing training for real estate agents; (6) increase the stock of affordable housing; or (7) do nothing and allow individual real estate agents to advise their clients to not send love letters.
The Court indicated the last two alternatives do not merit serious consideration. The other alternatives, however, show that the defendants’ objectives could be achieved in a manner that places less of a burden on otherwise lawful speech.
I am confident we will see more “love letter” legislation and litigation in future.
*Total Real Estate Group, LLC v. Strode, 22 WL 633670, 2022 U.S. Dist. LEXIS 38653 (D. Or., March 3, 2022)
This blog has previously discussed (here and here) the excellent lawsuit brought by The Finkel Law Firm against the Charleston County Register of Deeds seeking a writ of mandamus requiring the ROD (1) to immediately file all documents delivered to the ROD within one month of delivery; (2) to mark the documents as having been recorded on the date of delivery; and (3) to record all future documents in the order of the time delivery regardless of whether they were delivered in person or by the U.S. mail or parcel post.
The Court appointed Howard Yates, one of the most experienced real estate lawyers of the Charleston Bar, as Court Monitor. Mr. Yates issued a report dated January 31, 2022, the parties signed a Consent Order on February 10, and the Court issued a separate Order, also dated February 10. Please read all three documents here.
Mr. Yates has made numerous recommendations involving, among other matters, increasing office hours, increasing work hours for staff, and hiring employees from other ROD offices to reduce the backlog by working weekends.
The Court will maintain jurisdiction and will require frequent reports on progress. We can all applaud the efforts of The Finkel Law Firm and Howard Yates in bringing this matter to satisfactory conclusion, at least temporarily.
Advice for lawyers: paper your file when clients refuse!
On this cold, wet Monday morning, I was wondering what I could write to help my real estate lawyer friends through a February week in South Carolina. Then I remembered this news article from the U.S. Sun an excellent dirt lawyer friend from the coast sent to me. His quote was: “I wish I could get all buyers to read it when they turn down a survey.” Perhaps you can use this article to convince a client or two.
Any of us who are old enough to have practiced in the 1990s will remember a time when lenders and title insurance companies required current surveys for every closing. A current survey is a great tool for a real estate lawyer to review along with the title work. Comparing the boundary lines with the title work and checking for easements, encroachments and such horrible mishaps as sewer lines running under improvements gave the lawyer and client a great deal of comfort.
Our backdoor neighbors were once Steve and Wendy Spitz. Many real estate lawyers in South Carolina attribute our knowledge and enthusiasm for the practice to Steve’s property classes in law school. We both built in a new subdivision, and a corner of the Spitz home, as revealed by a survey, sat squarely on a City of Columbia water easement. That builder’s mistake was corrected prior to closing by negotiating with the City to move the easement. Thankfully, the water line itself was not a problem.
To hold down closing costs, at some point in the 1990s lenders began to eliminate the requirement for a survey in most residential closings if the lender could obtain title insurance survey coverage. One of the title insurance companies agreed to provide survey coverage to lenders without a new survey. There were some requirements back then, like having a survey of record showing the improvements or having an affidavit from the owner that nothing had changed since the prior survey.
Then, for competitive reasons, all the title insurance companies caved. Current surveys were no longer required. Over the years, the requirements were even softened.
My thought was that the title companies had unceremoniously hung the lawyers out to dry. Previously, the closing attorney simply told the client that a survey was required to close. With the change, the closing attorney had to convince the client of the need for a survey despite the added cost. I believe one of the biggest traps for the unwary closing attorney is failing to advise purchaser clients to obtain surveys and failing to paper files when surveys are rejected.
And don’t even mention the surveyors! They were collectively and understandably furious that they had lost a large portion of their business. I remember being the sacrificial lamb who was sent to speak to a statewide group of surveyors on behalf of the title insurance industry. It wasn’t pretty.
Here’s another story from my neighborhood. A kindly preacher friend bought a house several doors down from us. The free-standing garage had been added prior to my friend’s purchase and well after the original construction. My friend did not obtain a current survey. When he sold the house, a new survey revealed that the garage violated the side setback line by more than ten feet, and the purchaser refused to close. Keep in mind that contracts typically require sellers to give marketable title. A setback violation of this magnitude may be insured over by a title insurance company, but the title may not be marketable. This purchaser was within his rights to reject this title.
By that time, the developer, a Greenville based insurance company, had sold all the lots, and took the position that it could no longer waive violations of the restrictions even though the restrictions clearly allowed for developer waivers. The solution was that my friend went door to door to obtain the signatures of the required majority of the owners. Thankfully, my friend was a very nice guy, and the neighbors were willing to accommodate his request by signing the waiver.
Today, title insurance policies have evolved to the point that survey coverage is often given to owners without current surveys. But the example above demonstrates that title insurance coverage may not cure the underlying problem. Title insurance can never create marketable title. And title insurance claims may take time and cause aggravation that clients will not appreciate.
So let your clients read the linked article and advise them to obtain surveys. And, if they refuse, obtain informed consent confirmed in writing for your file!
The official who records our deeds should not be selected via popularity contest!
I’m all about the democratic process. But when it comes to the Register of Deeds, I believe that person should be appointed locally based on a very specific skill set. Popularity and politics should have nothing to do with choosing the appropriate person to handle the very meticulous administrative process that deals with recording public documents.
Apparently, the Executive Committee of the Charleston County Bar Association wants to take action to make sure the ROD for Charleston County is qualified. Take a look at this letter that body wrote to County Council on January 19.
If you follow this blog, you know that the Finkel Firm has brought suit against the Charleston County ROD asking for a writ of mandamus based on the horrific lag involved with recording documents in that county. This letter provides additional evidence that something is terribly wrong in the Charleston County ROD office, and action needs to be taken sooner rather than later.
As this letter points out, South Carolina is a race notice state. If our deeds, mortgages and other documents are not recorded in a timely manner and in the proper order, then the proper priorities among parties is thrown to the wind. The rights of parties relating to real property are based on when the documents establishing those rights are properly recorded.
The letter lists eighteen counties where the RODs are currently appointed. The letter also states that no constitutional provision or statutory edict requires an election in this case.
What do you think? Should the Register of Deeds be appointed by County Council?
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.
As the last blog of the year, I thought I’d tell you the story of one of my recurring dreams, or more accurately, one of my recurring nightmares, for your entertainment.
Do you have recurring dreams? I grew up in Georgetown where everyone makes routine pilgrimages to Charleston for shopping, dining, and medical appointments. My first recurring nightmare as a child involved the fright of crossing that rickety, two-lane bridge between Mt. Pleasant and Charleston. Thank goodness that monstrosity was replaced by the beautiful suspension bridge we cross today!
Later came the dreams involving college at Carolina. I dreamed I couldn’t get into the mailbox in my dorm. I have no idea why I had that dream because nothing very important was ever there. I dreamed my meal card wouldn’t work but that was also a useless dream because missing those dorm meals would have been no great loss.
Then came law school. In those dreams, it was always time for the exam for a class I had forgotten I signed up for. A more accurate dream would have involved a class I knew I signed up for but failed to attend class because I didn’t understand a word the professor said (think international law). Thank goodness my boyfriend had a great “skinny” on that topic and I somehow made it through that class. And I later married that boy.
But my most vivid recurring dreams involve my professional life, and the stories are always based in fact. I’ll tell you the factual, not the fantasy version of this dream. And I’ll avoid the names for attorney-client and other confidentiality reasons. This is the biggest professional mistake I made or, more accurately, the biggest professional mistake I made that I know about. As dirt lawyers, we plant time bombs every day, right?
I represented real estate developers. They developed malls, shopping centers, residential subdivisions, residential condominiums, outlots for McDonalds and other fast-food restaurants and other properties. The story involves a very large tract that was developed into an upscale residential subdivision, a Walmart, a movie theater, a church, and a shopping center.
The development was complicated. It involved environmental issues that could have derailed the entire project. Multiple individuals formed various entities for buying, holding and selling the real estate. The underlying property was purchased from the Federal government, which created its own set of complications. The acquisition, for example, involved a bid process that was foreign to me at the time.
It all finally fell into place, and the residences and businesses are still in place in 2021.
The problem that I thought might derail my career came to light when one of the individual developers declared bankruptcy. When that happened, every legal step I had taken for that person in the prior three years was scrutinized. The main lawyer scrutinizing my work, along with a team of associates, was a law school classmate, and, thankfully, a very kind and smart lawyer. But I spent lots of time worrying that I had missed something important.
I can remember the phone call from my friend all these years later down to the clothes I was wearing and the coffee cup in my hand.
The commercial properties required easements because of the private roads the properties shared. They also had easements for maintenance, pedestrian access, shared utilities, etc. Here’s the pitfall. When properties with these legal connections are owned and mortgaged separately, the lenders almost always must subordinate their mortgages to the easements to ensure the easements remain in place in the event of foreclosure, or in this case, bankruptcy.
I knew that!
I routinely obtained mortgage subordinations at every step of the development, except for one commercial tract. To this day, I have no idea how I missed one set of subordinations. And I think I lost several years off my life between the phone call from my kind classmate until I was able to obtain the subordinations very much after the fact. I was very lucky because the lender I had to approach (hat in hand) was a local lender. I even knew the person I had to persuade to cure my problem. And the good Lord must have smiled on me that day because it all worked out. I kept my license and my clients.
So, as I wish you a very happy, healthy, and prosperous 2022, I remind you to avoid the mistake I made. Always obtain the necessary mortgage subordinations!
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