A scary Halloween story to keep real estate attorneys up at night!

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This South Carolina man’s criminal conviction will stop you in your tracks!

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BOO!

A South Carolina man made a name for himself this year in Washington, DC, and not in a good way. Robert McCloud, a 39-year old former resident of Warrenville, in Aiken County, was sentenced in federal court in Washington, DC, to 18 months in prison followed by three years of supervised release including six months of home confinement. He also forfeited almost $60,000 and will be required to pay restitution in an amount to be determined later. Finally, he will be required to perform 150 hours of community service.

The charges were based on wire fraud statutes and involved real estate transactions. McCloud pled guilty in June in the U.S. District Court for the District of Columbia. His sentence was imposed October 19.

McCloud and co-conspirators identified residential properties that appeared to be vacant and abandoned. They prepared and recorded fake deeds into fictitious names and later fraudulently sold the properties, using fake drivers’ licenses, to legitimate purchasers. McCloud and his co-conspirators involved unsuspecting title and escrow companies in the subsequent closings.

In his guilty plea in June, McCloud admitted to participating in two of these fraudulent transactions in 2015, which generated a total of around $580,000.  Of that total, law enforcement officials were able to seize almost $370,000 in administrative forfeiture proceedings. In both cases, the properties were unencumbered. The true owners of both properties are elderly owners and have been involved in difficult proceedings to have the properties re-titled in their names.

The harm caused to the true owners and the legitimate buyers was covered by title insurance, and the restitution represents funds owing to the title insurance companies. Dirt lawyers, when you need an example of why your clients should be protected by title insurance, you can use this story! And I have many others if you need them.

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Welcome to The Hotel California*

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You can resign; but you can never stop paying dues

 

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A recent South Carolina Supreme Court case deals with whether the governing documents of a Beaufort County development, Callawassie Island, unambiguously require equity members to continue paying expenses after resignation.** The trial court and Supreme Court found no ambiguities. The Court of Appeals and Supreme Court Justice Hearn disagreed.

In 1999, Ronnie and Jeanette Dennis purchased a home on Callawassie Island for $590,000 and joined a private club known as the Callawassie Island Club, paying $31,000 to become “equity members”. The governing documents in place at the time of the purchase provided that an equity member who resigns will be obligated to continue to pay dues and food and beverage minimums to the Club until the equity membership is reissued.

In 2010***, Mr. and Mrs. Dennis decided to resign their membership in the club but to retain ownership of their home. They sent a letter of resignation to the club and stopped making all payments. At that time, the required payments included $634 monthly as membership dues, $100 monthly in special assessments, and $1,000 yearly in food and beverage minimums.

The governing documents were amended many times over the years, and the dissent argued that the controlling documents at issue in the case could not even be identified by the Club. The Supreme Court held, however, that all versions of the documents contained the language requiring the continued payments.

Mr. and Mrs. Dennis argued, and the Court of Appeals agreed, that the Club’s interpretation violates §33-31-620 of the South Carolina Nonprofit Corporation Act which provides that a member of a nonprofit corporation may resign at any time. The Supreme Court pointed to subsection (b) of that statute, however, which states that a resignation does not relieve the member from any obligations incurred prior to the resignation. The dissent said the majority’s interpretation effectively eliminates any meaningful right of resignation.

The dissent called the majority’s result “harsh” and stated that taking the majority’s view to its “logical end”, the monetary obligations to the club would extend beyond a member’s lifetime. The majority stated that they were not deciding whether the governing documents could support perpetual liability. The emphasis was provided by the Court.

The Supreme Court suggested that Mr. and Mrs. Dennis could have eliminated their obligations to the Club by selling their home. In footnote 7, the dissent countered that the majority “blithely” suggests selling the house, which may be easier said than done.

The footnote refers to a news article included in the record that reveals the Club’s membership scheme has significantly chilled potential buyers. **** According to this article, one member failed to sell her property for more than two years, despite listing it for $1. As of July of 2016, according to the article, eight lots were listed at less than $10,000 each. The footnote asserts that these facts bely the use by the majority of the description of Callawassie Island property as “exclusive.”

The circuit court had awarded the Club summary judgment, and the Supreme Court reinstated that order. What an interesting case! I hope some of my lawyer friends from Beaufort County will let me know whether the homes in this development are selling better in 2018.

 

*Not my joke.  See footnote 4 of the case:  “Although we disagree with the court of appeals’ legal reasoning here, we do applaud the reference to the Eagles’ hit Hotel California.”  Who said justices aren’t funny?

**The Callawassie Island Members Club, Inc. v. Dennis, South Carolina Supreme Court Opinion 27835 (August 29, 2018).

***Keep in mind how dismal the economy continued to be in South Carolina in 2010.

****Kelly Meyerhofer, Callawassie Club ruling: Court sides with members, cited Eagles song, The Beaufort Gazette (August 5, 2016).

“Beachfront” homeowners don’t always consider accretion to be a blessing

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Sullivan’s Island litigants lose appeal on maritime forest maintenance

On August 1, the South Carolina Court of Appeals affirmed Master-In-Equity Mikell Scarborough’s award of summary judgment in favor of the Town of Sullivan’s Island in a case where homeowners sought maintenance of the maritime forest that separates their homes from the ocean.*

Many coastal communities would love to face the gradual accretion of more oceanfront property. But, in this case, the additional property became a maritime forest that, according to the adjacent homeowners, breeds snakes, rats, raccoons, bugs, spiders and other unwanted varmints and dangerous animals and also poses danger from fires and criminal activity.

The case cites University of South Carolina Law School Professor Josh Eagle’s explanation of accretion and erosion:  “Sand grains do not magically vanish from or appear on a beach; rather they are going to or coming from somewhere else along the coast.”** The Court stated that while most land use cases along our coast involve erosion, or loss of beachfront sediment, this case involves accretion, or the addition of sediment to the beach front.

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The unique Sullivan’s Island Lighthouse

These litigants have been involved in more than a six-year battle over what they call a “maritime jungle”. A major component of the landowner’s objection is that their properties are taxed as if they are ocean-front properties, but the value of their properties have plummeted more than a million dollars because of lack of ocean views and breezes and lack of access to the beach.

The property that separates these landowners from the ocean was conveyed by the Town to the Lowcountry Open Land Trust in 1991. Simultaneous, the Trust conveyed the land back to the town, subject to restrictions intended to preserve and conserve the natural area. The restrictions require that the property be maintained in its natural state but give the Town the authority to trim and control the growth of vegetation for the purposes of mosquito control and scenic enhancement. The Town also passed ordinances restricting the use of the property against the destruction of vegetation (except trimming, cutting and pruning).

When the 1991 deeds were executed, the ocean adjacent land was covered in sea oats and wildflowers, and the litigants’ homes had unobstructed ocean views and access to ocean breezes. The Town’s brief argued that the problem dates back to Hurricane Hugo, in 1989, which destroyed all the trees on the land. Over time, natural shrubs and trees replaced the bare, hurricane-ravaged land. At the same time, sand built up, making the houses farther from the ocean.

In the summer of 2010, the landowners applied to the Town for a permit to trim and prune the ocean adjacent property, but the Town denied the permit. This litigation followed. On appeal, the landowners argued that the deed restrictions require the Town to preserve the ocean adjacent property exactly as it existed in 1991. The Court of Appeals disagreed, finding that the deed was unambiguous and evidenced the intent that the Town would maintain the land’s natural character. The landowners’ interpretation would require the Town to continuously remove all vegetation from the beach that was not present in 1991, but the Court refused to read the deed to require such drastic management of the property.

Elizabeth Hagood, the Executive Director of the Lowcountry Open Land Trust stated in an affidavit that the Trust periodically and regularly visited the ocean adjacent land, reviewing the existing field conditions, comparing the field conditions to the deed restrictions, and finding nothing violated the deed restrictions.

As to the nuisance arguments, the Court held that those arguments sound in contract rather than tort, and nothing in the contract (the deed or the ordinances) requires the Town to clear the land.

*Bluestein v. Town of Sullivan’s Island, South Carolina Court of Appeals Opinion No. 5581 (August 1, 2018)

**Josh Eagle, Coastal Law 6 (2011)

Captain Sam’s Spit continues to be the subject of litigation

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I’ve blogged about “Captain Sam’s Spit” in Kiawah Island previously. Googling that name will reveal a treasure trove of news, opinion and case law involving the proposed development of a gorgeous but extremely precarious tract of pristine beach property on South Carolina’s coast.

The South Carolina Bar’s Real Estate Intensive seminar in July of 2016 and again in July of 2018 included field trips to view this property, from a distance at least. Professor Josh Eagle of the University School of Law is an excellent tour guide, and how many opportunities do we, as lawyers, have for field trips? South Carolina Dirt lawyers should calendar the July 2020 version of this workshop.

Real estate development is my bread and butter, but two visits to the area told me that property should not be developed. A fellow field tripper, however, pointed out that the south end of Pawleys Island, where my parents took me to the beach as a child and which has been developed for many years, is just as precarious.

Captain Sam's Spit

Aerial view of Captain Sam’s Spit from The Post & Courier

The South Carolina Environmental Law Project located in Pawleys Island fights these cases. Amy Anderson, an attorney with that entity, joined us and explained the environmental issues as well as the legal battle.

Six months ago, the South Carolina Supreme Court held that a bulkhead and retaining wall could not be built to develop the property.  Just last month, however, Administrative Law Court Judge Ralph Anderson ruled that a road can be built to support the development because the economic benefits of building homes on Captain Sam’s Spit outweigh its natural preservation.

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

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

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

In the recent Administrative Law Court case, Judge Anderson said the economic benefit of developing the property would include real property taxes of $5 million per year. This case is just the most recent in a decade of litigation.

Count on an appeal in this case and other litigation to follow. I’ll keep you posted!

Can an alley be the basis of an appurtenant easement in SC?

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The Court of Appeals says it can

Charleston houses

Two valuable downtown Charleston residential lots were the subject of an easement case decided by the South Carolina Court of Appeals on September 19.* Much to the dismay of the owners of 45 Lagare Street, the Court held that an appurtenant easement exists in the form of an alley that runs along a boundary of 45 Lagare Street for the benefit of 47 Lagare Street.

Master-in-Equity Mikell Scarborough had granted summary judgment in favor of the owner of 47 Lagare Street, finding an easement appurtenant burdened 45 Lagare Street, and the Court of Appeals affirmed.

In 1911, the properties were considered a single lot known as 47 Lagare Street owned by W.G. Hinson. That year, Hinson divided the property, creating 45 Lagare Street, and conveying that lot to his niece. The 1911 deed established an easement for the benefit of the 47 Lagare Street, which Hinson retained. This language established the easement:

Also, the full and free use and enjoyment as an easement to run with the land of the right of ingress, egress, and regress, in, over, through, and upon the alley-way eight (8) feet wide as a drive way or carriage way, situation, lying, and being immediately to the south of (47 Lagare), and being the southern boundary of said (47 Legare).

Title to both lots passed to third parties, and in 1971, a new survey was drawn,** and the owners of both properties provided verbatim descriptions of the original easement and covenanted that the no buildings or obstructions would be erected on the easement area. The documents stated that the covenants would run with the land.

The most recent deed of the benefited property recited the existence of the easement, but the most recent deed of the burdened property did not. In 2004, the owner of the benefited property added a chain-link fence and masonry wall along the border with the burdened property.

During the trial, the Appellants argued that the easement had been abandoned and stated that the only time it was used was to allow for the Respondent’s landscapers to walk down the driveway to use the gate. Respondent testified that the easement area is also used by her family members, guests, tradesmen and other permittees to access the rear of 47 Legare for large-scale appliances, equipment, and machinery and to provide access to the only suitable area for off-street parking. She also claimed that she uses the easement to access the back of her property in a golf cart.

The first issue on appeal became whether a terminus existed on 47 Legare, a requirement for an appurtenant easement. Two Supreme Court cases were discussed, Whaley v. Stevens, 21 S.C.221 (1884), which held that the terminus requirement in South Carolina only requires the dominant estate to be contiguous or adjacent to the easement. A later case, Steele v. Williams, 204 S.C. 124 (1944) held that an alleyway was an easement in gross rather than an appurtenant easement because it lacked a terminus.

The Court of Appeals found Whaley controls although no South Carolina case has explicitly defined the terminus requirement. The Court held that the terminus issue is a fact-specific inquiry and that, intuitively, the dominant estate must have access to the purported easement.

In addition, the Court stated, an appurtenant easement might be found if the purported easement (1) at least touches the dominant estate and (2) in cases where the easement is an adjacent boundary between—or runs parallel—to the dominant and servient estates, such as the case at hand, the easement does not extend beyond the dominant estate’s boundary. (At most, the easement ends at the lot line of the dominant estate.) In Steele, the alley extended beyond the appellant’s property.

The intent of the parties was held to be determinative, and the Court held that the 1911 common owner, Hinson, clearly intended that the driveway would be an easement appurtenant.

The Court next discussed the appurtenant easement requirement of necessity. 47 Legare Street obviously has direct public access on Lagare Street, but the Court held that the easement was necessary to reach the rear of the property by large-scale equipment and tools and to provide for off-street parking.

We will wait to see whether our Supreme Court has the opportunity to weigh in on this issue.

 

* Williams v. Tamsberg, S.C. Court of Appeals Opinion No. 5596 (September 19, 2018)

** Plat of Number 47 Legare Street and Easement surveyed by Cummings & McCrady, Inc., dated February 1971, is attached.

Check out Bloomberg Businessweek’s article about Greenville

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You only have to walk in downtown Greenville to see the phenomenal transformation this lovely city has made over the last two decades. The riverfront, waterfall and pedestrian bridge provide a scenic backdrop for excellent dining and cultural experiences.

My family enjoys season tickets for the Broadway series at the Peace Center which gives us a chance to enjoy top-notch shows and to check out the always-evolving restaurant scene. When we took two five-year old grandchildren to see The Lion King, we had a wonderful time enjoying the children’s fountains and mice-searching game on Main Street.

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But the city planners were not only planning for culture. They were planning for business! Bloomberg Businessweek published a flattering article about the progress of businesses in Greenville on June 21. You can read it here.

The article points to decades of political commitment to creating a community that appeals to college graduates and highly skilled workers. State-of-the-art manufacturing plants have been built in the area by Michelin ad BMW. Our company has excellent attorney agents in large and small law firms who work on Main Street and surrounding areas. They report to us that they love their Greenville home.

Greenville was once a hub for textile and apparel production, but now, in addition to the manufacturing plants, Greenville supports entrepreneurs who are locating their start-up businesses downtown. One co-working space houses about a dozen start-ups, according to the article.

The author correctly points out that Greenville has excelled at creating an appealing and walkable commercial district. While downtown may have been unappealing twenty years ago, now many new inhabitants (the population has grown by 20 percent from 2000 -2016) are able to live downtown and walk to work.  Greenville has been successful, according to this article, in creating what economists call an “innovation cluster”.

Read the article and visit Greenville! I recently blogged that Charleston is exploding, and Greenville may follow suit! And I am fortunate to live in Columbia, also a great city, and within two hours of each of our sister cities, not to mention the beach and the mountains. South Carolina has so much to offer!