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!
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!
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.
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.
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)
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.
SC Supreme Court discards arguments of ALTA and PLTA
Real estate cases can be absent from our Advance Sheets for months, but we have seen two cases already in 2023. In ArrowPoint Federal Credit Union v. Bailey* our Supreme Court was asked to adopt a novel replacement mortgage doctrine, but the Court deflected the question, deferring to the legislature, even though American Land Title Association and Palmetto Land Title Association filed amicus briefs in favor of the doctrine.
This is a real estate mortgage priority dispute between two institutional lenders concerning a residential property in Winnsboro. Jimmy and Laura Bailey mortgaged their residence at 247 Morninglow Drive to Quicken Loans in the amount of $256,500. The mortgage was recorded on October 20, 2009. One week later, the Baileys closed an equity line of credit with ArrowPoint Federal Credit Union in the amount of $99,500. The second mortgage was recorded on November 4. ArrowPoint had record notice of the Quicken mortgage. On November 23, the Baileys refinanced the Quicken mortgage with Quicken, this time in the amount of $296,000.
In connection with the refinance, the Baileys executed an interesting document entitled “Title Company Client Acknowledgment”, which stated the only outstanding lien on the property was the prior Quicken mortgage. This statement was false. The Court stated that there was no clear explanation as to whether Quicken had the title searched at this point.
The Baileys used $257,459 from the refinance to pay off the first mortgage. On December 15, Quicken released the first mortgage and recorded the refinance mortgage. Quicken assigned the mortgage to U.S. Bank, the petitioner in this case.
(If these facts make you break out into a cold sweat, then you were around doing real estate closings at the break-neck speed we suffered during this time frame.)
The Baileys defaulted on the line of credit, and ArrowPoint filed this action seeking a declaration that its line of credit had priority over the Quicken refinance mortgage. Both lenders moved for summary judgment. U.S. Bank claimed it had priority under the replacement mortgage doctrine. The special referee and Court of Appeals agreed with ArrowPoint, and the Supreme Court affirmed. Both appeals courts concluded that adopting the replacement mortgage doctrine is a question for the General Assembly.
Dirt lawyers are intimately familiar with South Carolina’s race-notice statute (S.C. Code §30-7-10) which prioritizes liens based on notice and the recording date.
The Supreme Court recited that it had recognized the equitable subordination doctrine as an exception to the race-notice statute. The Court noted the right of subrogation is essentially a creation of the court of equity, which allows a person who is secondarily liable for a debt, upon paying the debt, to assume by law the place of the creditor whose debt is paid. Decades later, the Court declined to recognize the doctrine for a lender that refinanced its own mortgage but failed to discover an intervening mortgage. The Court said in the case at hand that it had previously warned lenders of their duty to search titles!**
The Court noted that the replacement mortgage doctrine is another exception to the race-notice statute, and many jurisdictions either recognize the doctrine or follow its logic. Cases from other jurisdictions were cited, and the Restatement (Third) of Property was quoted. According to the Restatement, the replacement mortgage doctrine provides:
If a senior mortgage is released of record and, as a part of the same transaction, is replaced with a new mortgage, the latter mortgage retains the same priority as its predecessor, except
To the extent that any change in the terms of the mortgage or the obligation it secures is materially prejudicial to the holder of a junior interest in the real estate, or
To the extent that one who is protected by the recording act acquires an interest in the real estate at a time that the senior mortgage is not of record.
The Court said that it was required to respect the authority of the legislature on public policy matters and declined to sit as a “superlegislature” to second-guess the General Assembly’s decisions. The Court differentiated the equitable subrogation doctrine from the replacement mortgage doctrine by saying that the “race” begins with the original mortgage in the equitable subrogation situation, and the intervening lender suffers no loss. Under the replacement mortgage doctrine, on the other hand, the original first mortgage is satisfied of record and replaced with a new mortgage that is recorded after the intervening mortgage.
The Court also criticized the replacement mortgage doctrine because it dilutes the importance of title examinations. Lenders who seek to refinance their own mortgages, as Quicken did in this case, can easily search the title to discover the intervening lien. The last words of the case state, “Finally, we emphasize parties must conduct diligent title searches to protect their interests under the race-notice statute.”
I, for one, will not argue with that final statement. It now appears that if ALTA and PLTA want a replacement mortgage doctrine in South Carolina, they need to approach the legislature.
*South Carolina Supreme Court Opinion 28129, January 11, 2023.
**All the citations are omitted but are set out in detail in the subject case.
2023’s first real estate case is both humorous and sexy!
If real estate lawyers weren’t easily amused, our profession might live up to the common misconception that it’s boring. But the first South Carolina real estate case of 2023 is both funny and sexy. I’ll explain the funny part shortly. Sadly, the only thing sexy about this case* is that the property is occupied by two strip clubs. But let’s agree to be entertained where we can.
This is a specific performance case involving property in Charleston County. Clarke owned a strip club located at 2015 Pittsburgh Avenue in Charleston. The defendant’s predecessor in title owned a strip club across the street at 2028 Pittsburgh Avenue. The Supreme Court called the property at 2028 Pittsburgh Avenue the subject property, so we will, too. The subject property includes buildings and a parking lot.
In 1999, Clarke entered into a lease which permitted him to share the parking spaces on the subject property with the property owner. The lease contained the following language: “Right of First Refusal: Lessor grants the Lessee the right of first refusal should it wish to sell.”
Before we discuss what the Supreme Court had to say about this language, let me throw in my two cents. Don’t use the terms “lessor” and “lessee” when you draft leases. Use the terms everyone can understand, “landlord” and “tenant”. And please pay attention to prepositions. In this language, which party is “it”? A drafter of real estate documents cannot be too precise!
Back to the case. I often read cases by starting with the dissent or concurrence. With complicated cases, the minority opinion often explains the holding quickly. This case isn’t complicated, but Justice Few really cut to the chase in his concurrence. And this is the funny part. Justice Few quips, “This instrument says nothing, does nothing, restrains nothing.” (Remember I admit to being easily amused.)
Justice James’ majority opinion goes into more detail.
When Clarke learned that his landlord had conveyed to subject property to Fine Housing for $150,000, he initiated this action for specific performance. Interestingly, the closing attorney failed to raise the lease and the right of first refusal with the purchaser, but Fine Housing admitted it had record notice of both.
The trial court ruled the right of first refusal is enforceable as to the entire property and ordered Fine Housing to convey title to Clarke upon his payment of $350,000. There is no explanation for this figure. Appraisals must have been involved. The Court of Appeals reversed, holding the right of first refusal is an unreasonable restraint on alienation and is therefore unenforceable.
The Supreme Court affirmed, stating that whether a right of first refusal is enforceable turns on whether the right unreasonably restrains alienation. The Court agreed with The Restatement (Third) of Property: Servitudes §3.4 and held that the factors to be considered include: (1) the legitimacy of the purpose of the right; (2) the price at which the right may be exercised; and (3) the procedures for exercising the right. The Court further held that these factors are not exclusive, and in this case, agreed to address another point raised by Fine Housing—the lack of clarity as to what real property the right encumbers.
Clarke argued that the lease provides the right applies to all the property, the price should be determined by the seller, and South Carolina law requires that the right should be exercised within a reasonable time.
Fine Housing argued that the lease merely identifies the location of the leased parking spaces, and the remaining language does not provide the clarity needed to identify the property intended to be encumbered by the right. The Supreme Court agreed, holding that the uncertainty as to what property is encumbered supports the conclusion that the right is an unreasonable restraint on alienation.
The Court also agreed with Fine Housing that the failure of the right to determine a price and the procedures for its exercise also created an unreasonable restraint on alienation.
The bottom line is that the Court held the language to be so imprecise as to be unenforceable. While real estate lawyers are always interested in obtaining the best deal for clients, the second most important aim of drafting real estate documents should be clarity.
Always keep in mind how Justice Few dismissed the language that says nothing, does nothing and restrains nothing! You never want language you draft to be dismissed so easily!
*Clarke v. Fine Housing, Inc., South Carolina Supreme Court Opinion 28126 (January 4, 2023)
Some of the rules we learned in our professional responsibility classes in law school were problematic because they didn’t seem intuitive. I found the advertising rules to be particularly prickly. The rules surrounding financial recordkeeping require extreme attention to detail in accounting, and we went to law school because we aren’t strong in math, right? Even the rules surrounding competency require careful study for each practice area.
But Rule 407’s requirement of honesty is identical to the directive our parents imposed and, for that reason, absolutely intuitive. As lawyers, we must be honest in our professional relationships.
One lawyer learned this lesson the hard way according to a November 23 attorney disciplinary opinion from the South Carolina Supreme Court. *
This lawyer worked as a law clerk for a firm after graduation and became an associate attorney when he was admitted to practice in November 2017. He was paid on an hourly basis. The firm used computer software to track working hours in real time, and throughout 2018, the lawyer used software to clock in and out during times when he was not in the office or otherwise working to inflate his hours and increase his pay.
Fortunately, the lawyer did not bill clients directly, so no client overpaid because of his misconduct. At tax time, though, the lawyer’s supervising attorney discovered the discrepancy and confronted the associate. The total overpayment was just short of $18,000. After confronting the lawyer, the firm allowed the associate to self-report. His report included a signed restitution agreement in which he agreed to repay the law firm in full.
The lawyer also filed an affidavit in mitigation, in which he expressed remorse and explained that his preoccupation with financial security arose from his disadvantaged upbringing. He said he was desperate to prove his personal worthiness and to achieve financial security. Those goals eclipsed his better judgment. He also stated he has worked with counselors to understand why he committed this misconduct.
He entered into an agreement for a six-month suspension, which the Court accepted. He was also required to complete the Legal Ethics and Practice Program Ethics School and to pay the costs incurred by the ODC in investigating and prosecuting the matter.
Stay honest out there, lawyers, and take the time to mentor young lawyers with regard to their ethical responsibilities.
*In the Matter of Jacob, South Carolina Supreme Court Opinion No. 28122 (November 23, 2022).
Real estate cases can be sad, and this is one of those. City of Charleston Housing Authority v. Brown* Involved the eviction of a mother from a public housing apartment because her son committed a crime.
The facts, according to the Court, are not in dispute. Katrina Brown renewed her lease with CHA in 2015. Brown’s minor son and daughter were listed as residents and members of her household. Early in 2016, Brown’s son, who was 17 at the time, was arrested a mile away from his home carrying a gun. Two weeks later, CHA sent an official 30-day notice of eviction to Brown. The notice informed Brown that her eviction was based on the lease’s prohibition against violent criminal behavior.
At the magistrate’s hearing, a Charleston detective testified that Brown’s son confessed to an attempted armed robbery that occurred two days before his arrest and approximately one mile from the housing complex. Brown testified that her son was being held in jail, and if he was able to make bond, he would live with his grandmother.
The magistrate found that evictions based on criminal activity provisions of housing lease agreements must be determined on a case-by-case basis and denied the application for eviction based on the testimony as well as factors from federal law. On appeal, the circuit court remanded the case for factual findings and analysis regarding whether Brown’s eviction was warranted under 42 U.S.C. §1437(1)(6), the federal statute governing public housing leases, which is colloquially known as the “One-Strike Rule.”
The “One-Strike Rule” requires federally-funded public housing authorities and private landlords renting their properties to tenants receiving federal housing assistance to include a provision in all leases stating that drug-related criminal activity, as well as criminal activity that threatens other tenants or nearby residents, are grounds for eviction, regardless of the tenant’s personal knowledge of the criminal activity. The strict-liability, no-fault rule was premised on the idea that public housing tenants are entitled to homes that are “decent, safe, and free from illegal drugs.
In May of 2017, the magistrate issued an order evicting Brown, finding her son’s actions created good cause for eviction. At an appeal hearing before the circuit court, Brown argued that non-drug related criminal activity can only be grounds for eviction if the activity constitutes a present threat to the residents of the public housing facility and occurred in the immediate vicinity of the facility. She also argued that CHA was required to demonstrate that they used discretion in evaluating the circumstances and alternatives to eviction of an innocent tenant before evicting the entire household. She asserted that CHA made no showing that it exercised discretion.
The circuit court affirmed Brown’s eviction. The Court of Appeals found that Brown’s son’s actions created good cause for the eviction. The Court cited a 2007 Massachusetts case that set out the policy reason for the “One-Strike Rule”: Tenants of public housing developments represent some of the most needy and vulnerable segments of our population, including low-income families, children, the elderly, and the handicapped. It should not be their fate, to the extent manifestly possible, to live in fear of their neighbors.
The Court further held that the threat need not be “ongoing” to justify eviction. Then the Court turned to an interesting aspect of federal law, holding the “One-Strike Rule” does not automatically require eviction. Rather, the housing authority must demonstrate that it exercises discretion in the decision to evict. The record must reflect that the housing authority knew it could refrain from invoking the “One-Strike Rule” under the circumstances.
The case was remanded to the magistrate for a hearing to determine whether CHA exercised discretion in deciding to pursue the eviction of Brown’s entire household for the criminal actions of her son.
I’m sure you understand what I mean about this case being sad. It is sad for the mother to be evicted for the actions of her son, and it is sad for the other residents of the facility to be subjected to such criminal activity. This is a difficult situation, and I’m encouraged to know that discretion must be exercised.
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