South Carolina law

Magistrate has no jurisdiction when title is in question

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Court of Appeals reverses Circuit Court on this issue

In Rivers v. Smith*, South Carolina’s Court of Appeals reversed Orangeburg County’s Circuit Court order affirming a magistrate’s order of eviction.

Rufus Rivers and Merle Rivers have lived on property once owned by Jessie Mae Smith since 2009, although there was no record of a written lease. In 2013, Jessie Mae Smith signed a power of attorney in favor of her son, James Smith. In 2014, James Smith conveyed his mother’s property to himself by quitclaim deed using the power of attorney.

(The opinion contains no discussion of whether the conveyance of the property by the attorney in fact to himself was a valid transfer, but that would have been my first question.)

Jessie Mae Smith died in 2016. In 2018, James Smith sent the Rivers a letter demanding they vacate the property within 30 days. The Rivers refused. They asked James to cease and desist his efforts to displace them. They argued that James had an invalid power of attorney and alleged he had breached fiduciary duties. Competing lawsuits followed.

The Rivers’ lawsuit in the Circuit Court challenged James’ ownership of the property and alleged constructive fraud, unjust enrichment and other causes of action. The Rivers amended their complaint, alleging that James used an invalid power of attorney and that Jessie Mae Smith had orally given or promised the property to the Rivers.

James filed the subject case in the magistrate court, seeking eviction. The Rivers made various arguments to the magistrate opposing the eviction, including alleging that Jessie Mae Smith had promised the property to them. The Rivers also alerted the magistrate of their claims against James Smith in the circuit court.

James Smith’s main argument to the magistrate centered around the statute of limitations because the alleged gift would have occurred more than three years before the lawsuits were brought. The magistrate ruled that James Smith was the lawful owner of the property and ordered eviction.

On a motion by the Rivers to reconsider, the magistrate found that the case did not involve a question of title and that she had jurisdiction to hear the case. The circuit court affirmed, and this appeal followed.

The issue on appeal was whether South Carolina Code §22-3-20(2), which bars a magistrate from hearing a case when title to the property is in question, prohibited the magistrate from hearing this case.

The Court of Appeals acknowledged that Smith has defenses to Rivers’ claims, and that those defenses may be valid ones, but held that the magistrate’s jurisdiction ended as soon as it became clear that there was a challenge to title. The opinion further stated that the case may end in a second and successful eviction, but they refused to say that outcome is certain.

I will be curious to learn what the future holds in the litigation between these parties. I hope the property is worth the litigation, and I note with interest that the Rivers represented themselves pro se in the subject case.

*South Carolina Court of Appeals Opinion 5992 (June 21, 2023)

South Carolina United Methodists agree to separate from 113 churches

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Real estate related issues should be kept to a minimum

My husband and I just returned from the 2023 annual meeting of the South Carolina United Methodist conference. We attended as lay members from our church, but my eyes and ears were open, as always, for real estate issues.

Dirt lawyers in South Carolina witnessed the real estate issues raised by the schism in the Episcopal Church several years ago. We made lists of church properties that could be sold or mortgaged without the involvement of any entity beyond the local congregation. We made lists of properties involved in a hierarchical church structure requiring agreements and signatures of persons in distant locations. We advised real estate practitioners to work in close connection with underwriting counsel of the title insurance companies to avoid title issues.

I have no inside information on this matter, but my guess is that the Methodists were able to learn from the Episcopalians and managed to avoid the extensive litigation involved in that earlier schism.

United Methodist churches exist under a hierarchical structure. Anyone who has handled a closing involving a United Methodist property has learned that the District Superintendent must be involved in closing documents. The church properties are, in effect, owned by the conference.

When issues began to arise about LGBT members and pastors and it became apparent that there would be a separation of congregations, South Carolina’s Bishop and the administrators surrounding him negotiated with the churches who desired to leave the conference. After months of talks, the parties agreed to a payout that would free the real estate of the local church from the involvement of the conference.

Churches who wanted to leave the conference were required to pay ten percent of the value of their real properties and other assets. They were also required to pay some funds related to pastor pensions and some funds related to “apportionments” (the money paid to the conference to support the work of the conference as opposed to the work of the local congregation.)

Prior to the meetings this week, we had heard that several churches decided to leave the conference. But we were surprised to learn that there are, in fact, 113 churches who made arrangements with the conference to separate from United Methodism.  On the last day of the meetings, we were asked to vote to approve the separation. Thankfully, the meeting, although very sad, was handled in a respectful manner. We witnessed an amicable divorce.

If you are asked to handle any transaction involving a church that is or formerly was a United Methodist congregation, you should, of course, investigate the title issues as usual. You should involve the friendly underwriting counsel from your title insurance company. But, after these appropriate investigations, you should learn that there are no title issues arising from the involvement of the conference.

Never say never, though. I wouldn’t be shocked to learn that some of the 113 church congregations failed to tie up all the details of the separation. So be even more diligent than usual in examining the authority documents of the church. I assume that real estate practitioners will see numerous transactions as these churches, now separated from the administrative arm that supported them and having paid out substantial funds for the separation, will need real estate loans.

SC Supreme Court upholds Myrtle Beach’s “family friendly” zoning overlay district

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In Ani Creation, Inc. v. City of Myrtle Beach, * the South Carolina Supreme Court upheld an ordinance that imposed a zoning overlay district intended to bolster the “family friendly” nature of Myrtle Beach’s historic downtown area. The ordinance targeted smoke shops and tobacco stores and the merchandizing of tobacco paraphernalia, products containing CBD, and sexually oriented material.

The opinion begins, “The City of Myrtle Beach (the city) is a town economically driven and funded by tourism.” The facts indicate that the city received frequent criticism from tourists and residents that the proliferation of smoke shops and tobacco stores repelled families from the area. The city passed a comprehensive plan that aimed at increasing tourism and concluded that all businesses needed to encourage and support a “family beach image”.  The city passed an ordinance which created a zoning overlay district known as the Ocean Boulevard Entertainment Overlay District that encompassed the historic downtown area.

The prohibited uses in the district were declared immediately nonconforming when the ordinance was passed on August 14, 2018, but an amortization period was allowed which gave affected businesses until December 31, 2019, to cease the nonconforming portions of their businesses.

The zoning administrator issued citations to the nonconforming businesses. Nine of the 25 affected stories appealed to the Board of Zoning Appeals which found (1) it did not have jurisdiction to declare the ordinance unconstitutional; (2) it could not grant a use variance because it would allow the continuation of a use not otherwise allowed in the district; and (3) the businesses were engaged in one or more of the prohibited uses. On appeal, the circuit court affirmed the Board’s opinion, finding the appellants’ 25 grounds for challenging the ordinance meritless. The businesses appealed directly to the South Carolina Supreme Court.

The appellants raised a “host” of constitutional and procedural challenges, all of which fell on deaf ears at the Supreme Court. The Court held that the ordinance was a valid exercise of the city’s police powers. According to the Court, municipal governing bodies clothed with authority to determine residential and industrial districts are better qualified by their knowledge of the situation to act upon such matters than are the courts, and they will not be interfered with in the exercise of their police power to accomplish their desired end unless there is a pain violation of the constitutional rights of the citizens.

A comment on the Dirt Listserv said, “S. Carolina is OK with cancel culture after all.”  A store selling sexually oriented materials was removed from Garners Ferry Road in Columbia (about three miles from my house) using similar legal arguments. I was delighted to see that store torn down before I had to explain it to my grandchildren! But I do understand the “cancel culture” argument. What do you think?

*South Carolina Supreme Court Opinion 28151 (April 19, 2023)

Foreign ownership of real estate has become a political issue

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Pending legislation in South Carolina may affect your transactions

Remember the Chinese surveillance balloon the United States shot down off the coast of the Palmetto State in February? That incident and other rising tensions between our government and China over several issues (the war in Ukraine, recognition of Taiwan, to name only two) have resulted in politicians proposing to broaden state law bans on foreign ownership of real estate.

According to a New York Times article dated February 7, entitled “How U.S-China Tensions Could Affect Who Buys the House Next Door”, legislation in Texas was proposed after a Chinese billionaire with plans to create a wind farm bought more than 130,000 acres of land near a U.S. Air Force base.

Proposed legislation is also pending in Florida, California and now South Carolina to restrict ownership of real estate by “hostile nations” or “foreign adversaries.” Some have suggested that such bills may run afoul of due process and equal protection issues.

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

You may recall that we have an existing statute (S.C. Code §27-13-30) prohibiting any “alien” or corporation controlled by an “alien” from owning or controlling more than 500,000 acres of land in South Carolina. Recently, the South Carolina Senate passed Senate Bill 576 that amends the existing statute by expressly prohibiting any citizen of a foreign adversary or corporation controlled by a foreign adversary from acquiring any interest in South Carolina property.  The proposed legislation will now be considered by the House.

The term “foreign adversary” is defined in the bill as “any foreign government or nongovernment person determined by the United States Secretary of Commerce to have engaged in a long-term pattern or serious instances of conduct significantly adverse to the national security of the United States or the security and safety of United States citizens.”

And there are other bills pending along the same lines.

Senate Bill 392 would amend our existing statute to reduce the amount of property allowed to be owned by an “alien” to 1,000 acres. House Bill 3566 would add a statute to reduce to 1,000 acres the amount of land that can be owned or controlled by China, the Chinese Communist Party, or an entity whose principal place of business is located within China.  House Bill 3118 would prohibit any company owned or controlled by China or the Chinese Communist Party or that has a principal place of business in China from owning, leasing, possessing, or exercising any control over real estate located within 50 miles of a state or federal military base for the purpose of installing or erecting any type of telecommunications or broadcasting tower.

All dirt lawyers will know immediately that all versions of the proposed legislation will create uncertainty in our market. I have only two pieces of advice at this point. First, let’s all monitor the proposed legislation. And, second, let’s pay attention to guidance provided by our excellent title insurance underwriters.

Who said real estate law is boring?

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Take a look at this “Deed of Child”

My friend and self-professed “fellow title nerd”, Lacey Higginbotham, who practices in Myrtle Beach, sent to me a “Deed of Child” she found in the Horry County records. The document is dated May 10, 1930, recorded June 3. 1930, and purports to convey a child from a father to another family .

Because the document is difficult to read, I’ll squint for you and set it out here for your reading pleasure:

I can imagine Professor Spitz presenting this document to us as an exam in our first- year property law class. He might ask for us to spot all the issues concerning the enforceability of this document. Thanks, Lacey, for this diversion!

How do mail away closings work in light of In re Lester*?

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A reader posed this question to me

A recent blog about a South Carolina Supreme Court amendment to a comment following our UPL rule contained the following paragraph:

“Remember that our Supreme Court adamantly told us in In re Lester* that a lawyer must be physically present for a closing. Prior to Lester, a closing attorney might be on vacation and available by telephone to answer closing questions. Lester called a halt to that practice.”

A reader responded, “Claire, can you clarify the effects of In Re Lester on ‘mail away’ closings?” This is such a great question, and I responded that I would answer with a new blog. This is that blog!

In the South Carolina Bar’s publication, Handbook for South Carolina Dirt Lawyers, I included the following discussion of mail-away closings.

“Attorneys in resort areas have done “mail away” closings routinely for years. Titles are examined, closing packages are prepared and mailed to a remote location for signatures. Recent South Carolina Supreme Court disciplinary cases requiring attorneys to be present at closings have caused some attorneys to question whether mail away closings can be done ethically by South Carolina attorneys.

The Supreme Court has not addressed this issue specifically, so no one knows the answer to this question. However, in a seminar in 2005, a lawyer from the Office of Disciplinary Counsel was asked whether an attorney can ethically handle a closing by mail.

He responded that it was his opinion that the attorney should:

           •     Schedule a closing date, time and place;

           •     Advise the clients that they should attend the closing;

           •     Advise the clients that the attorney will be able to provide better representation if the clients attend the closing; and

           •     Require the clients to sign a document indicating they received the foregoing advice but chose not to attend the closing.

Another speaker at the seminar suggested that he would only handle mail away closings if the clients agreed to meet with a lawyer in the clients’ location to execute the documents.

On September 16, 2005, we received a more formal opinion in the form of Ethics Advisory Opinion 05-16. This opinion states that an attorney may ethically conduct a real estate closing by mail as long as it is done in a way that:  (1) ensures that the attorney is providing competent representation to the client; (2) all aspects of the closing remain under the supervision of an attorney;  and (3) the attorney complies with the duty to communicate with the client, so as to maintain the attorney-client relationship and be in a position to explain and answer any questions about the documents sent to the client for signature. To meet this test, according to the opinion, clients must have reasonable means to be in contact with the attorney, by telephone, facsimile, or electronic transmission.

The Opinion states that there is no legal requirement that a client attend the closing, but it must be the client’s decision not to attend the closing. The Opinion acknowledges today’s climate by this statement: “Given today’s technological advances in communications and funds transfer, to require a client living in one part of the country to attend a closing against the client’s own wishes is both unnecessary and punitive.” The Opinion makes the point that the duties of the attorney do not change when the closing is accomplished by mail in this statement: “The prudent attorney will conduct closings by mail in such a fashion that the client is fully informed and properly advised, that the client has a reasonable means to consult with the attorney, and that all personnel assisting the attorney are properly supervised.”

South Carolina closing attorneys are relieved to have this authority and appreciative of the efforts of the South Carolina Bar Ethics Advisory Committee.”

Of course, technology has drastically changed since these words were written, but the legal issues have not. A dirt lawyer can certainly handle mail away closings ethically. But dirt lawyers must still practice law in connection with those closings.

Please feel free to make comments and ask questions about these blogs!

*353 S.C. 246, 578 S.E. 2d 7 (2003).

SC Supreme Court amends comment to UPL rule

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The intent is to allow lawyers from other jurisdictions to work remotely here

I begin this blog by admitting that I wouldn’t have thought this Supreme Court Order was a big deal if the brilliant Teri Callen (Chicago Title lawyer and USC Law School Adjunct Professor) had not pointed out its significance.

On March 15, The South Carolina Supreme Court amended Comment 4 to Rule 5.5, South Carolina Rules of Professional Conduct, Rule 407, by adding the following sentence at the end of the comment:

“A lawyer admitted in another jurisdiction does not establish an office or other systematic presence in this jurisdiction for the practice of law by engaging in remote work in this jurisdiction, provided the lawyer’s legal services are limited to services the lawyer is authorized to perform by a jurisdiction in which the lawyer is admitted, and the lawyer does not state, imply, or hold out to the public that the lawyer is a South Carolina lawyer or is admitted to practice law in South Carolina.”

This type of remote work in South Carolina by out-of-state lawyers was formerly only allowed in the event of a state of emergency, as in a global pandemic. Now, a lawyer admitted in New York can live, permanently or temporarily, in Hilton Head and practice law from her computer and telephone. The South Carolina Bar had requested an amendment to this comment, and the Court adopted a modified version of the Bar’s proposal.

Teri has previously taught us that a South Carolina lawyer working remotely in another state might be participating in the unauthorized practice of law. A Charleston lawyer who decides to live, permanently or temporarily, in the mountains, should check the court rules of that state to determine whether remote work is considered UPL in that state. 

Remember that our Supreme Court adamantly told us in In re Lester* that a lawyer must be physically present for a closing. Prior to Lester,  a closing attorney might be on vacation and available by telephone to answer closing questions. Lester called a halt to that practice.

The Court didn’t weigh in on whether a South Carolina lawyer is allowed under our rules to work remotely in another state where he is not licensed without running afoul of our rules. Our Court probably wouldn’t touch that issue because of the implications and unintended consequences that might occur. For example, if it is permissible for a South Carolina lawyer to work remotely in another state, is it also permissible to perform a South Carolina closing there?

There are land mines everywhere, lawyers. I feel as if I end 9 out of 10 blogs with the thought that everyone needs to be careful out there. This blog falls in the “be careful” category.

* 353 S.C. 246, 578 S.E. 2d 7 (2003).

South Carolina has another builder arbitration case

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Real estate law never bores me, but our cases may seem particularly mundane considering the Murdaugh prosecution that has gripped our state for more than a month. You may want to put this blog aside until the jury returns its verdict. I’ve seen so many photos on social media of groups of lawyers watching the case together that I am confident real estate is not top of mind!

Huskins v. Mungo Homes, LLC* is a South Carolina Court of Appeals case which was originally issued June 1, 2022, then withdrawn, substituted and refiled February 15, 2023.

The Huskins signed a Purchase Agreement with Mungo in June 2015 for a home in Westcott Ridge subdivision in Irmo. The document consisted of three pages. The first page contained a statutory notice of arbitration, the second page included a paragraph entitled “LIMITED WARRANTY”, and the third page included a paragraph entitled “ARBITRATION AND CLAIMS.”

In 2017, the Huskins filed an action against Mungo alleging the Purchase Agreement violated South Carolina law by disclaiming implied warranties without providing for a price reduction or other benefit to the purchaser for relinquishing those rights. The causes of action included: (1) breach of contract and the implied covenant of good faith and fair dealing; (2) unjust enrichment; (3) violation of the South Carolina Unfair Trade Practices Act, and (4) declaratory relief regarding the validity of the waiver and release of warranty rights and the validity of Mungo’s purported transfer of all remaining warranty obligations to a third party.

Mungo filed a motion to dismiss and compel arbitration. The Huskins’ responsive memorandum argued that the arbitration clause was unconscionable and unenforceable. They asserted that the limitation of warranties provision should be considered as a part of the agreement to arbitrate. The Circuit Court issued an order granting the motion to dismiss and compelling arbitration. In ruling the arbitration clause was not one-sided and unconscionable, the Circuit Court found that (1) the limited warranty provision must be read in isolation from the arbitration clause; and (2) terms in the arbitration clause pertaining to a 90-day time limit were not one-sided and oppressive because they did not waive any rights or remedies otherwise available by law.

The Court of Appeals initially held that the Circuit Court’s order was immediately appealable, stating that our state procedural rules, rather than the Federal Arbitration Act, govern appealability of arbitration orders. While arbitration orders are not typically immediately appealable under South Carolina law, this order had granted Mungo’s Rule 12(b)(6) motion to dismiss, which is an appealable order.

The Court next held that the arbitration clause must be considered separately from the limited warranty provision, citing cases to the effect that arbitration provisions are separable from the contracts in which they are imbedded. A prior D.R. Horton South Carolina Supreme Court case** considered the arbitration and warranty provisions together, in part because the title of the paragraph, “Warranties and Dispute Resolution” signaled that the provisions should be read as a whole. Since the Mungo paragraphs were separated, the Court of Appeals said they should be read separately. In addition, the two provisions did not contain cross references.

The Court next addressed the Huskins’ argument that the limitation of claims provision restricted the statutory limitations period from three years to 90 days and was therefore not severable from the arbitration clause. The Court agreed that the provision that limited the statute of limitations is one-sided and oppressive, but held that the arbitration clause is enforceable because the unconscionable provision is severable.

After concluding that the Huskins lacked a meaningful choice in entering the arbitration clause, the Court of Appeals held that the arbitration clause’s shortening of the statute of limitations violates South Carolina law and is therefore unconscionable and unenforceable.

The Circuit Court’s order was affirmed as modified.

Now …. back to the Murdaugh trial!

*South Carolina Court of Appeals Opinion 5916 (June 1, 2022, Withdrawn, Substituted and Refiled February 15, 2023.

**Smith v. D.R. Horton, Inc., 417 S.C. 42, 790 S.E.2d 1 (2016).

Facts of HOA-Developer dispute called “not for the weary”

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On February 8, the South Carolina Supreme Court issued an opinion* in a real estate case involving the I’On development in Charleston County. Justice Hearn’s opening sentence is revealing: “This case involves promises made and broken to homeowners by a developer and its affiliated entities.” The first sentence describing the facts is equally telling: “The facts of this case are complicated, and, (in the words of a prior Supreme Court opinion, citation omitted) are “not for the weary.”

I’On is described as a high-density residential development that comprises public squares, restaurants, shops, and homes designed to imitate historic urban housing, including a replica of downtown Charleston’s Rainbow Row. The opinion recites that after the Court rejected a referendum effort to restrict multi-use zoning, construction of I’On Phase II began around 2000.

In 2010 two individual homeowners sued the developer entities and individuals for various causes of action related to the nonconveyance of certain real property and community amenities within the neighborhood. A mistrial was ordered to realign the homeowner’s association as a plaintiff. A subsequent trial resulted in a jury verdict in favor of the HOA in the amount of $1.75 million for breach of fiduciary duty and in favor of an individual owner in the amount of $20,000 for negligent misrepresentation.

The history of the development includes a 1998 Property Report filed with the U.S. Department of Housing and Urban Development to comply with the Interstate Land Sales Full Disclosure Act. The report contained a paragraph in all caps promising that “recreational facilities” would be conveyed to the HOA upon completion of construction. But the report warned that certain recreational facilities may be owned and operated by persons other than the HOA.

The Court recited that shortly after the Report was issues, the developers began a pattern of conduct altering their initial promise to convey ownership of the disputed properties to the HOA. Later, an easement agreement was executed and signed by the same person in three different roles, as manager of the I’On Club, as president of the HOA, and as general manager of the I’On Company. A property owner expressed the concern that this agreement was “sort of shaking hands with yourself.”

The Court of Appeals waffled, first upholding the lower’s court’s verdicts, then, on rehearing, practically nullifying the verdicts.

I am not going to get down into the weeds on the complex facts, but I do want to make a couple of points for your information.

First, the statute of limitations issues were thorny, and the Supreme Court upheld the Circuit Court’s submission of these issues to the jury and stated that the facts supported the jury’s determination of the question of when the statute of limitations began to run.

Second, please pay attention to footnote 7. It states that the developer conceded on appeal that one individual owner’s contract to purchase his lot was a sealed instrument and thus has a twenty-year statute of limitations under S.C. Code §15-3-520. Please pay particular attention to whether your clients signed “sealed instruments” because liability under those instruments may be much longer than anticipated.

Otherwise, the Court was adamant that the verdicts were appropriate because of the “plethora of evidence presented of the Developers’ bad faith, broken promises, and self-dealing.”

Represent your developer clients well, dirt lawyers, to avoid losing cases like this one.  Read this case carefully and share it with your developer clients as an excellent lesson of what not to do!

*Walbeck v. The I’On Company, LLC, South Carolina Supreme Court Opinion 28134 (February 8, 2023)

MV Realty sued by Florida Attorney General

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This blog has previously discussed MV Realty PBC, LLC. South Carolina title examiners report they are discovering “Homeowner Benefit Agreements” or “Exclusive Listing Agreements” filed in the public records as mortgages or memoranda of agreement. The duration of the agreements purport to be forty years, and quick search revealed hundreds of these unusual documents filed in several South Carolina counties. The documents indicate that they create liens against the real estate in question.

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

In response to numerous underwriting questions on the topic, Chicago Title sent an underwriting memorandum to its agents entitled “Exclusive Listing Agreements”. Chicago Title’s position on the topic was set out in its memorandum as follows: “Pending further guidance, Chicago Title requires that you treat recordings of this kind like any other lien or mortgage. You should obtain a release or satisfaction of the recording as part of the closing or take an exception to the recorded document in your commitments and final policies.”

Googling MV Realty results in a great deal of information. Real estate lawyers should familiarize themselves with this company and its program to advise clients who may question whether the program makes sense from a financial and legal perspective.

In December, Florida’s Attorney General sued the company calling the venture a “deceptive scheme”. The lawsuit seeks an injunction, preventing enforcement of the contracts with consumers, preventing future deceptive and unfair trade practices, and returning funds to consumers.

News sources report that the company is active in 23 states, including South Carolina, and that Attorneys General in several other states are investigating the activities of this company. News sources also report numerous lawsuits against consumers seeking to enforce these contracts. U.S. Senator Sharrod Brown (D-Ohio) has indicated the company could face scrutiny from the Senate Committee on Banking, Housing and Urban Development.

Dirt lawyers, pay attention to this situation. We will certainly see updates.