Family squabble leads to promissory estoppel claim

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SC Court of Appeals doesn’t buy it

The facts of a recent Court of Appeals* case involve a dispute between brothers who immigrated from India. Sam Patel moved first, in 1979, and settled in Chicago. Sam’s extended family followed and lived with Sam and his wife. In 1989, Sam moved to Lynchburg, South Carolina, after he purchased a store on Willow Grove Road.

Sam’s family, along with his parents and his younger brother, Kim, followed. The family worked in and lived on the store property. The business grew, and the brothers acquired a store in Sumter. Kim Patel operated the store in Sumter, while Sam Patel continued to operate the store in Lynchburg. Over the years, Sam helped Kim financially.

grocery store country

By 2010, Sam owned three parcels in Lynchburg and operated a liquor store, a grill and a gas station. Sam, himself, faced financial difficulties at this time, and his properties were foreclosed on by First Citizens. At Sam’s request, Kim purchased the properties through the foreclosure in the name of a limited liability company. Sam continued to run businesses on the properties and placed his businesses in the name of another limited liability company.

Sam’s LLC obtained the operating, lottery and alcohol licenses for the properties and made improvements. But Kim’s LLC expended funds for gasoline purchases and property taxes. There was never a lease or written agreement between the brothers or their entities concerning rent and expenses. And when Sam failed to pay rent, Kim’s LLC brought a suit for ejectment and damages. Sam and his LLC counterclaimed, alleging Kim had promised to convey the title to him.

At trial, the brothers gave conflicting accounts of their verbal arrangement. Kim testified that he told Sam he could continue to operate the businesses for six or seven months rent-free so Sam could get back on his feet. After that time frame, Kim expected his brother to pay rent, taxes, insurance and maintenance. Sam testified that Kim purchased the properties in order to convey them back to Sam. Sam intended to repay Kim over three to five years and have title returned to him after repayment.

The special referee’s order stated that Sam owned an equitable interest in the properties and had a right to repurchase them, but that Sam owed Kim approximately $42,000 for expenses.

The Court of Appeals held that Sam’s claim of an equitable interest based on promissory estoppel failed, stating that promissory estoppel is a flexible doctrine that aims to achieve equitable results, but it, like all creatures of equity, has limitations. The court said promissory estoppel is a quasi-contract remedy with four elements:  (1) a promise unambiguous in its terms; (2) reasonable reliance upon the promise; (3) the reliance is expected and foreseeable by the party who makes the promise; and (4) the party to whom the promise is made must sustain injury in reliance on the promise. The court held that Sam’s claim failed on the first two elements.

The testimony of Sam and Kim at trial made it clear, according to the Court, that there was no meeting of the minds as to the terms of the alleged contract. In other words, there was no unambiguous promise to be enforced. And Sam’s reliance was held to be unreasonable in light of the ambiguities of the alleged promise.

The case was remanded to the special referee to conduct the eviction proceeding and to determine rent and expenses between the parties.

 

A&P Enterprises, LLC. v. SP Grocery of Lynchburg, LLC, South Carolina Court of Appeals Opinion 5545 (March 28, 2018).

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HOA foreclosures are being challenged on multiple levels in SC

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The HOA won in a recent Court of Appeals case

In January, I blogged about a Federal class action lawsuit filed in Charleston seeking to invalidate non-condo foreclosures by owners’ associations. You can read that blog here but the short version is that the suit challenges foreclosures on the grounds that these non-profit corporations don’t have the power to create liens for unpaid assessments prior to obtaining judicial judgments. Condominium associations established through the Horizontal Property Regime Act have statutory authority to create liens, but the power of non-condo projects is created by restrictive covenants. We’ll have to wait and see how that suit turns out, but if the plaintiffs there are successful, foreclosure practice will change drastically in South Carolina.

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Our Court of Appeals decided a case* on April 4th that could have made drastic changes in another way. In fact, Richland County’s Master-in-Equity, Joseph Strickland, stated in his order that “the practice of homeowners’ association foreclosures would effectively be eradicated if (the Plaintiffs’) position came to bear.”

This appeal was handled by the law office of my friend, Brian Boger, a Columbia lawyer and well-known champion of consumers’ rights. The appeal argued that the $3,036 successful bid “shocked the conscience” and violated equitable principles. The parties agreed that the home was valued at $128,000. There was a mortgage balance of $66,004, leaving equity of $61,996. The Hales did not argue that there were irregularities in foreclosure process, but instead argued that the low bid should have encouraged the Master to use his gavel to “do equity”.

Comparing the successful bid to their equity using the “Equity Method”, the Hales argued that the bid amounted to 4.8% of the fair market value of the property. The HOA argued, using the “Debt Method”, that the bid must be added to the senior mortgage balance to judge its sufficiency because the successful bidder would have to pay the senior mortgage to have good title. In this case, using the Debt Method, the bid amounted to 54.94% of the fair market value. The Court of Appeals agreed that the Debt Method was the proper method for considering a senior encumbrance in a foreclosure.

The Court found no South Carolina cases that expressly weighed the two methods of judging a bid, but pointed to prior cases that considered the amount of a senior mortgage in the determination and found a 3.15% bid sufficient. One reason the Court of Appeals prefers the Debt Method is that it will result in “fewer set asides”.  In other words, the Court of Appeals is not interested in upsetting the foreclosure practice applecart at this point.

Justice Lockemy dissented, stating that he thought it improper to give a judicial sale buyer credit for assuming a debt it is not legally required to pay. He said the Court’s decision could create a perverse circumstance where a judicial sale bidder purchases property for a de minimis amount simply to capitalize on rental revenue until the senior lienholder forecloses. The majority called this argument a solution in search of a problem because there was no evidence that the successful bidder in this case was engaged in such a scheme and because the successful bidder must satisfy the mortgage to obtain clear title.

Foreclosure practice in South Carolina remains the same…for now.

* Winrose Homeowners’ Association, Inc. v. Hale, South Carolina Court of Appeals Opinion 5549 (April 4, 2018)

Drafting survivorship deeds continues to be a concern

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Pay attention to tricky South Carolina law!

This blog has addressed the issue of drafting survivorship deeds previously. This issue comes back up today because the South Carolina Bar’s Real Estate Practices Section’s listserv discussed this issue, in part, last week.

The thread began with a question about whether a tenancy in common with a right of survivorship is a recognized estate in South Carolina. I believe that the concern arose from some drafting liberties taken by attorneys with these deeds. In my opinion, to create a survivorship deed in South Carolina, the drafter should follow the case or the statute exactly. And it is my opinion that if the drafter follows the case or statute exactly, then a valid survivorship estate is created, and that estate will avoid probate for the property in question at the first death.

Let’s take a look at the case and the statute.

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More than a decade has elapsed since our Supreme Court surprised dirt lawyers with Smith v. Cutler,* the case that told us there were already in place two survivorship forms of ownership in South Carolina. We apparently missed that day in law school! These two forms of ownership are joint tenancy (which we knew and loved) and tenancy in common with an indestructible right of survivorship (which slipped by us somehow). This is a mini-history lesson about how we got to this state of the law and a reminder for dirt lawyers to carefully draft deeds.

Under the common law in South Carolina, tenancy in common is the favored form of ownership. A deed to George Clooney and Amal Clooney (whether George and Amal are married or not) will result in a tenancy in common. At the death of George or Amal, the deceased’s fifty percent interest in the property will pass by will or intestacy laws. Joint tenancy was not favored in South Carolina, and there was no tenancy by the entirety that would have saved the property from probate (and creditors) for a married couple.

A rather convoluted 1953 case** interpreted a deed that intended to create a tenancy by the entirety as creating a shared interest in property between husband and wife referred to as a tenancy in common with an indestructible right of ownership. This is the case that the Smith v. Cutler Court referred to as creating the form of ownership we missed.

It’s not technically true that all of us missed this form of ownership. Some practitioners did use the language from the 1953 case to create a survivorship form of ownership. The magic language is “to George Clooney and Amal Clooney for and during their joint lives and upon the death of either of them, then to the survivor of them, his or her heirs and assigns forever in fee simple.”  Other practitioners routinely used the common law language: “to George Clooney and Amal Clooney as joint tenants with rights of survivorship and not as tenants in common.”

Conveying title from a person to himself and another person establishing survivorship was not possible in South Carolina prior to 1996 because the old common law requirement of unities of title could not be met. To create a survivorship form of ownership, the property owner conveyed to a straw party, who would then convey to the husband and wife, complying with the unities of title requirement and establishing survivorship.

A 1996 statutory amendment to §62-2-804 rectified this problem by providing that a deed can create a right of survivorship where one party conveys to himself and another person. The straw party is no longer needed. This statute was given retroactive effect.

In 2000, our legislature added §27-7-40, which provides that a joint tenancy may be created, “in addition to any other method which may exist by law” by the familiar words “as joint tenants with rights of survivorship and not as tenants in common”.  The statute addresses methods for severing joint tenancies which typically results in a tenancy in common. For example, unless the family court decides otherwise, a divorce severs a joint tenancy held by husband and wife, vesting title in them as tenants in common.  A deed from a joint tenant to another severs the joint tenancy. A conveyance of the interest of a joint tenant by a court severs the joint tenancy.

Following the enactment of §27-7-40, most practitioners used the language set out in the statute to create a joint tenancy, “as joint tenants with rights of survivorship and not as tenants in common.” Five years later, Smith v. Cutler required us to examine our drafting practices with fresh eyes. The court held that a joint tenancy with a right of survivorship is capable of being defeated by the unilateral act of one tenant, but a tenancy in common with an indestructible right of survivorship is not capable of being severed by a unilateral act and is also not subject to partition.

Real estate lawyers in the resort areas in our state are often asked to draft survivorship deeds because couples from other states are accustomed to tenancy by the entirety. Until Smith v. Cutler, most practitioners did not believe different estates were created by the different language commonly in use. We believed joint tenancy was created in both cases.

Now, clients should be advised about the different estates and should choose the form of ownership they prefer. I’ve discussed this issue with many lawyers who advise married couples to create the indestructible form of ownership under the case. Others who seek survivorship are often advised to create joint tenancy under the statute.  I see many deeds from the midlands and upstate that use the traditional tenancy in common form of ownership. I’ve heard estate planners prefer tenancy in common so the distribution at death can be directed by will. Lawyers who draft deeds for consumers need to be aware of and need to address the various forms of ownership with their clients.

One final thought on the survivorship issue in South Carolina. Do we now have a form of ownership that protects property from creditors of one of the owners? If a tenancy in common with an indestructible right of survivorship is not subject to partition, then it may not be reachable by the creditors of one of the owners. Let me know if you see a case that makes such a determination. It would be an interesting development.

If anyone on the listserv has different opinions from those stated here, I would love to hear them. The real estate bar in South Carolina would love to hear them, too!

 

 

 

*366 S.C. 546, 623 S.E.2d 644 (2005)

**Davis v. Davis, 223 S.C. 182, 75 S.E.2d 45 (1953)

South Carolina Dirt Lawyers: Are you as confused by the SC Supreme Court’s most recent implied easement case as I am?

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I’ve never maintained a list of the South Carolina real estate cases I find mystifying, but the most recent implied easement case, which involves a gravel driveway in Lexington County, may compel me to start.* When I say mystifying, I mean I can’t figure out why the Court came to the conclusion it did, based on what I had previously understood to be the law.

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The case is Gooldy v. The Storage Center-Platt Springs, LLC **, decided March 18.  One reason I found the case puzzling was that it failed to include the plat. When that happens, I usually attempt to draw the properties based on the language in the case, but I was unable to accomplish that in this situation. So for your edification, the main plat in question is included here.

Thanks to the efforts of my friend, Bill Booth, who sent the plat along with the chains of title and aerial views for both properties, I’ve at least figured out the facts in the case.

Here’s what happened. Congaree Associates owned 500 acres in Lexington County. In the 1980s, Congaree developed a residential subdivision of thirteen lots, called Westchester Phase I. Robert Collingwood created the plat for the subdivision. The plat was dated August of 1983 and was recorded. The northernmost lot (Lot 13) bordered the property now owned by Gooldy. This plat does not show a road crossing Lot 13. Six months later, in January of 1984, Collingwood was asked to prepare a survey for Westchester Phase II. That plat included the disputed road as “50’ Road”. The plat was conditionally approved, but the developer abandoned the subdivision. We don’t know the date of this abandonment.

In December of 1985, Collingwood prepared the Loflin plat, linked above. Note the “50’ Road” bordering the 0.68 tract. In September of 1986, Congaree conveyed the 0.68 tract to Loflin by a deed that incorporated this plat but made no mention of the road. The 0.68 acre tract was conveyed four times during the next sixteen years, and each deed incorporated the Loflin plat. The final conveyance was to Gooldy in January of 2002. Gooldy used the road for access for himself and the customers of his chiropractic business. In 2007, Congaree conveyed a 7.5 acre tract to The Storage Center. The disputed road was included in the 7.5 acre tract. The Storage Center’s representatives informed Gooldy that he was no longer entitled to use the road. Gooldy filed suit seeking to establish an easement.

The master in equity held that the deed incorporated the plat and established a presumption of an implied easement which The Storage Center failed to rebut. The master found that because Collingwood surveyed Westchester Phase I and II, he knew Congaree intended to build a road, and armed with that knowledge, Collingwood included the road on the Loflin plat.  Huh?  What if another surveyor had been employed? Does the fact that a surveyor called it a road make it so?

The Court of Appeals reversed, holding the presumption did not arise because the deed only incorporated the plat to describe the metes and bounds of the 0.68 acre tract rather than to demonstrate the intent to create an easement.

The Supreme Court reversed, holding that the Loflin plat created the presumption of an implied easement as established by Blue Ridge Realty Co. v. Williamson*** and its progeny. In Blue Ridge, a developer subdivided its property into lots and streets and recorded the plat. The Court held that purchasers of lots with reference to the recorded plat acquired every easement, privilege and advantage shown on the plat, including the right to use all the streets, near or remote, shown by the plat by which the lots were purchased.

There is no question that the Loflin plat was in The Storage Center’s chain of title. And there is no question that the two properties share a common grantor, Congaree Associates. What is missing in my understanding of the Blue Ridge holding is a subdivision plat, by which conveyances from the common grantor to Loflin and The Storage Center were made. Here, the common grantor did record a subdivision plat before any out conveyances were made and it did not show the road. Years later, the surveyor, who happened to have knowledge of a proposed (but later abandoned subdivision), depicted a road that he knew would be used if the subdivision was created on a plat he made, not for the common grantor, but for the purchaser, Loflin.  And that plat and a deed referring to it created an implied easement.

If this case makes sense to you, please explain it to me!

Here are two off the top of my head:  Smith v. Cutler and Boone v. Quicken Loans, Inc. Name your favorite!

** South Carolina Supreme Court Opinion 27782, March 14, 2018.

*** 247 S.C. 112, 145 S.E.2d 922 (1965).

SC Supreme Court holds email provides sufficient written notice

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….for at least one purpose

This blog is about dirt, but from time to time, dirt lawyers should review the rules our brother and sister litigators follow. Why? Sometimes those rules bleed over into our world, and sometimes, unfortunately, the transactions we handle are subject to litigation. And in this “ever changing world in which we live in”*, we should pay particular attention to changing rules involving technology. This is one of those changes.

The South Carolina Supreme Court held on February 28 that an email that provides written notice of entry of an order or judgment, if sent from the court, an attorney or record, or a party, triggers the time to serve a notice of appeal under Rule 203(b)(1) of the South Carolina Appellate Court Rules (SCACR)*.  And the Court held that this is such a novel question of law that its holding applies only prospectively, and not to the case at hand.

Here’s the background. On December 15, 2014, the master-in-equity denied the foreclosure defendants’ petition for an order of appraisal. That same day, the master’s administrative assistant emailed a signed and stamped copy of the order and Form 4 to the bank and the defendants. Three days later, the defendants received a copy of both documents in the mail.

Believing the time to appeal began on the day they received the documents in the mail, the defendants served notice of appeal on January 15, 2015, which was thirty-one days after the email and twenty-eight days after they received the documents in the mail.

The Court of Appeals held that the email triggered the time to serve notice of appeal. On appeal to the Supreme Court, the petitioners did not dispute that the email constituted written notice of entry of the order or judgment. But they argued that the time to serve notice of an intent to appeal is only triggered when written notice is received by mail or hand delivery according to Rule 5 of the South Carolina Rules of Civil Procedure (SCRCP). The Supreme Court held that the SCRCP do not apply to appellate procedure.

The Supreme Court examined Rule 203(b)(1), SCACR, which requires that a notice of appeal must be served within thirty days after receiving written notice of entry of the order or judgment and held that there is no requirement of service. All that is required, according to the Court, is that the parties receive notice. Further, there is nothing in the appellate court rules suggesting that the manner in which a party may receive notice is limited to the methods used to effectuate service.

Got it, dirt lawyers?  It’s technical, but this holding suggests that our Court is gradually accepting the technology we use every day as sufficient for notice purposes. One lesson for us is that we should be careful what we say in our emails as we handle our transactional practices! Another lesson for us is that we should all check our spam and junk email files to make sure we receive all communications that may create responsibility or liability for us.

*…with sincere apologies to Sir Paul McCartney.

**Wells Fargo Bank, N.A. v. Fallon Properties South Carolina, LLC, South Carolina Supreme Court Opinion 27773, February 28, 2018.

You learn something new every day!

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Question gives insight into IRS collection procedures against JTROS properties

In August of last year, an excellent South Carolina real estate lawyer raised this issue with Underwriting Counsel in our office:

The property owners are Sally Seller and Samuel Seller, as joint tenants with right of survivorship. Sally Seller died January 7, 2017. A federal tax lien was filed against Sally Single, Mrs. Seller’s maiden name, March 3, 2014. Mr. and Mrs. Seller were married in April 20, 2015. Please confirm that we should either pay off this lien at closing or obtain a release from the IRS.

Title insurance underwriting is all about pre-closing risk prevention and risk management, and I always joke that underwriting is more of an art than a science. This is true, in part, because few issues in the law are black and white. Most lawyers will confirm that a fair amount of gray area exists in most legal questions. But I digress.

The truth is that when a trusted, intelligent real estate lawyer calls her friendly South Carolina title insurance underwriter and says, in effect, “I should deal with this title problem at closing, shouldn’t I?”… that is an easy answer! Unless the Underwriter knows of a magic solution to eliminate the title issue, the friendly title insurance Underwriter will almost always respond, “Yes, please take care of that issue at closing.”  That’s exactly what our Underwriter did in this case last August.

Around Halloween, a follow-up question was raised:

The sellers’ attorney has been working on obtaining a satisfaction for the IRS lien, but the IRS has told him that the lien will not be released or satisfied because the taxpayer is deceased. IRS Agent Arnold Adams (IRS ID#10000797284)* referred me to Notice 2003-60. The IRS agent further said it will not file a release of lien for the convenience of title insurance companies and mortgage lenders**, but that the tax lien upon the death of a joint tenant is extinguished and not collectable on the basis of U.S. vs. Craft*** and its application.

The IRS notice linked above is entitled “Collection Issues Related to Entireties Property”. Every South Carolina dirt lawyer knows that we do not have a tenancy by the entirety form of ownership in South Carolina. If we don’t have that form of ownership, then does this IRS Notice have any application in South Carolina?

Married couples in South Carolina can own properties as tenants in common, joint tenants with right of survivorship or joint tenants with an indestructible right of survivorship under Smith v. Cutler.****

Several years ago, my friend and fellow South Carolina dirt lawyer, Paul Dillingham, called me to twist my arm to write an article with him for the Bar’s South Carolina Lawyer magazine, linked here, about a couple of deed drafting traps that were troubling him. In that article, we questioned whether Smith v. Cutler had created, in effect, a tenancy by the entirety form of ownership. That case dealt with property owned by couple pursuant to a deed with this language:

“for and during their joint lives and upon the death of either of them, then to the survivor of them, his or her heirs and assigns forever in fee simple”

The case held that property owned pursuant to the quoted language cannot be partitioned. If the property cannot be partitioned by the creditor of one owner, then the IRS Notice would have application in South Carolina. Apparently the IRS agent who was questioned for this closing believes the notice does apply in the Palmetto State, but please note that the question before the IRS agent didn’t deal with the Smith v. Cutler form of ownership. It dealt with a standard joint tenancy with the right of survivorship.

Did the IRS Agent give our South Carolina good advice? Would all IRS agents give the same advice? Can we ignore this IRS lien for the purposes of closing? What do you think?

This is fictitious name and number. Don’t try to contact this IRS agent!

** That wasn’t very friendly!

*** 545 U.S. 274 (2002)

**** 366 S.C. 546, 623 S.E.2d 644 (2005)

Federal class action seeks to invalidate non-condo HOA foreclosures

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Is there authority for these foreclosures under SC law…or not?

On January 9, a lawsuit was filed in the Federal Court in Charleston seeking to certify a class of plaintiffs who have faced foreclosure in situations where the Horizontal Property Regime Act was not involved. In other words, the properties are not condominiums and are not subject to the statutory scheme that establishes lien and foreclosure rights in owners’ associations. The power to foreclose these properties is supported only by restrictive covenants, that is, only by contract.

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The complaint refers to a good faith estimate that one-third of all South Carolinians own property subject to restrictive covenants establishing owners’ associations, and those associations manage more than $100 billion in assets. Many of the properties are separate lots of land in contrast to “slices of air” in condominium projects.

The defendants in this class action suit include five homeowners’ associations in various counties in South Carolina, four law firms who represent the associations in their foreclosure actions, and five management companies who manage the business of the associations in various counties in South Carolina. All are said to be representative of the associations, law firms and management companies who do business across the state.

The class intends to exclude all associations governed by the Horizontal Property Regime Act. It also excludes employees, owners, officers, partners and management of the law firm and management defendants. The law firm and management defendants are alleged to be agents of the owners’ associations.

The main issue in the suit is whether non-condominium associations have the right to file liens and prosecute foreclosures for unpaid property assessments under South Carolina law. Underlying issues include whether the defendants have violated the Fair Debt Collection Practices Act, whether they have interfered with the plaintiffs’ contracts with their mortgage holders, and whether they have the power to lawfully evict homeowners for unpaid assessments.

The owners’ associations are typically established as non-profit corporations, and the suit questions whether non-profit corporations have the power to create liens for unpaid dues or assessments prior to obtaining judicial judgments.

The suit accuses the defendants of seeking to use the equitable remedy of foreclosure in actions that seek monetary damages for contractual breaches. The inability to use equitable remedies to collect money damages is well established in South Carolina law, according to the complaint. The complaint further states that the remedy of foreclosure is used to frighten the plaintiffs to settle their claims to avoid losing their homes.

The law firm defendants were accused of violating Professional Conduct Rule 3.3 by making deceitful arguments to courts. The law firms were also accused of demanding fees that are not proportionate to the hours devoted to the files in violation of Rule 1.5.

Threatening communications and pressure tactics are allegedly used to settle claims, typically without the advice of counsel because the amounts in controversy are often so small that the homeowners are unable to obtain legal counsel on a cost-effective basis. Typically, according to the complaint, holders of first mortgages are not named in the HOA foreclosures. The homeowners continue to be obligated to make their mortgage payments despite being evicted from their homes by their owners’ associations.

The first cause of action is violation of the Fair Debt Collection Practices Act on the theory that there is no right to use pre-suit liens or the equitable remedy of foreclosure by owners’ associations to collect damages in the form of past due assessments. The use of unjustified liens and foreclosures is alleged to constitute false, deceptive or misleading representations to collect debts.

The second cause of actions seeks a declaratory judgment that the activities of the defendants are unlawful. One point raised in this cause of action is that the homeowners are denied their statutory homestead exemption rights by the defendants’ actions.

The third cause of action is for intentional interference with the contractual relationship with the homeowners’ mortgage companies. The mortgage holders have a right to be named in actions that attempt to impair their interests in the subject properties, according to the complaint.

The complaint seeks actual, compensatory and consequential damages, in addition to punitive damages and attorneys’ fees. I can’t wait to see what happens with this one!