South Carolina

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

Standard

In May, this blog discussed Ani Creation, Inc. v. City of Myrtle Beach,* a case where 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.

The Appellants petitioned for a rehearing and in an opinion re-filed on June 28, the court again affirmed the Court of Appeals.

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, Re-filed June 28, 2023)

Magistrate has no jurisdiction when title is in question

Standard

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)

Real estate lawyers: how are you feeling about SC’s 2023 housing market?

Standard

Earlier this year, several news sources reported that South Carolina’s 2023 housing market could return to a “normal” sales level, leaving behind the frenzy we have seen in previous years. We were anticipating the market may return to our ordinary seasonal ebbs and flows. Law firms have always had to adapt to those fluctuations from a staffing and other cost standpoint.

Redfin is reporting some interesting South Carolina statistics. Redfin’s website indicates that in May, home prices were up 2.1% year-over-year. During the same period, the number of homes sold fell 11.5% and the number of homes for sale rose 2.5%. The median sales price was $375,200, and 6,893 homes sold during that period. The median number of days on the market was 55, up 16 days year-over-year.

We all know that South Carolina is a primary destination for consumers looking for milder winters and following jobs at BMW, Volvo and other companies. We have recently learned that Scout Motors is establishing a manufacturing plant in Blythewood to build all-electric trucks and SUVs. We have heard the company is investing $2 billion and has the potential to create 4,000 permanent jobs. The future in South Carolina definitely does not appear to be dismal in the long run.

National economists seem to be predicting that home prices will continue to rise in 2023. Sales may be down and mortgage rates may be up, but home prices still seem to be rising because there are so few homes for sale. Rising prices are good news for home sellers, but not for cash-strapped home buyers. Inflation, of course, is causing major concerns for these potential home buyers. The Federal Reserve may or may not continue to raise rates to control inflation.

I never miss a chance to ask a South Carolina real estate professional about business. I’d love to know what you are seeing in your office this year and how you are thinking about what 2024 might bring.

South Carolina United Methodists agree to separate from 113 churches

Standard

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.

Owner of Folly Beach lots loses takings case in SC Supreme Court

Standard

Braden’s Folly, LLC v. City of Folly Beach* involves two small, contiguous developed residential coastal properties on the northeast end of Folly Beach. The City of Folly Beach amended an ordinance to require certain contiguous properties under common ownership, like the properties in question, to be merged into a single, larger property.

The ordinance did not impact the existing uses of the contiguous lots as vacation rental properties, but Braden’s Folly challenged the ordinance, claiming it had planned to sell one of the developed properties, and that the merger ordinance interfered with its investment-backed expectation under the Penn Central** test, which states that in regulatory takings cases, courts must examine the economic impact of the regulation on the property owner’s investment-backed expectations, as well as the character of the government action.

Folly Beach denied the claim of an unconstitutional regulatory taking, and pursuant to cross-motions for summary judgment, the circuit court agreed with Braden’s Folly. Folly Beach appealed to the South Carolina Supreme Court, which reversed and remanded the case for entry of judgment in favor of Folly Beach.

The Court stressed that underlying its applicability of the Penn Central test was the distinct fragility of Folly Beach’s coastline, which was subject to such extreme erosion that the General Assembly exempted Folly Beach from parts of the South Carolina Beachfront Management Act. The exemption empowered the City to act instead of the State in protecting the beach.

A portion of the northeast end of Folly beach has a double row of properties. The “A lots” are directly adjacent to the ocean-side of East Ashley Avenue, and the “B lots”—also known as “super-beachfront” lots—are closer to the ocean. There is no road between the A and B lots, so the B lots are accessible only through the A lots. Between beach renourishments, the B lots could be surrounded by the ocean on three sides. Braden’s Folly owns adjacent lots (Lot A and Lot B) on East Ashley Avenue. Both lots are very small.

Braden’s Folly contended that it had always intended to keep one of the lots and sell the other—whichever received the highest offer—to pay for the construction of a house on each lot. When the merger ordinance passed, the City sent a letter to Braden’s Folly requesting it stop marketing the lots separately. In response, Braden’s Folly filed the subject lawsuit.

The Supreme Court found that some facts weighed in favor of finding Braden’s Folly’s investment-backed expectation was reasonable and some facts weighed in favor of finding its expectation unreasonable. The Penn Central balancing test did not weigh in favor of either party, according to the Court.

Folly Beach and its witnesses set out the advantages to local beachfront property owners and the public at large of unwinding the super-beachfront development. The most important of the benefits to local property owners is the continued existence of federal funding for beach renourishment which in turn (1) protects A and B lots—particularly given that all the lots would be underwater if it were not for the continual renourishment; and (2) avoids property owners paying higher taxes if federal funding is extinguished.

The Court held that the merger ordinance was not a taking but responsible land use policy. Braden’s Folly retains, according to the Court, a near-full “bundle of sticks” incident to its ownership of the lots.

*South Carolina Supreme Court Opinion 28148 (April 5, 2023)

**Penn Cent. Transp. Co. v. City of N.Y., 438 U.S. 104 (1978)

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

Standard

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)

Beware the Ides of March!

Standard

We have three scary March 15 disciplinary cases

Three disciplinary cases* from March 15 of this year give us some timely reminders of activities we should avoid as lawyers.

Et tu, Brute?

The Brown case may be most on point for dirt lawyers. Attorney Brown practiced in family court. During testimony in a trial, a former client of Brown testified that her signature was not the signature reportedly sworn by a notary seal on the financial declaration filed with the court.

Here’s the scariest part of this story. After the trial, the family court judge reviewed several of Brown’s pending cases and found four documents attested to by Brown or her employee that appeared to be fraudulent. Brown self-reported to the ODC, acknowledged her misconduct, and signed an affidavit in mitigation. The affidavit stated that she had learned an important lesson, that she had attended several educational programs and had availed herself of Bar resources for new attorneys. She attested that she never intended to “mislead, misrepresent, or defraud anyone.” In other words, she was just trying to make things happen as quickly as possible for her clients.

The Court imposed a public reprimand and required Brown to pay the costs of the investigation and prosecution.

Dirt lawyers, no matter how much stress a closing creates, never, never fraudulently witness or notarize any document. You want to be able to testify in any deposition or court proceeding that you always appropriately monitored, witnessed, and notarized your clients’ documents. And it is not an excuse, as this case indicates that there was no intent to mislead, misrepresent or defraud anyone.  Take the time to handle documents appropriately every time.

The Williams case is a simple reminder to file and pay taxes. Williams failed to file and pay state income taxes for the 2015-2018 tax years. He was charged and arrested for this failure and timely self-reported his misconduct. He pled guilty, paid a fine, paid the taxes, and was sentenced to time served.

In mitigation, Williams stated that his mother’s mental and physical health began to deteriorate in 2012. He acted under  health care powers of attorney for both parents and cared for their needs as best he could while maintaining a busy law practice. He turned to alcohol “as an escape.” His mother died in 2018.  He stated he has been sober since 2019, has completed a six-week impatient treatment program, and regularly attends AA meetings. He also entered into a one-year monitoring contract with the Bar’s Lawyers Helping Lawyers program. He now serves as mentor to others in recovery.

The Court acknowledged its sympathy for Williams’ personal difficulties but imposed a definite suspension of ninety days.

Filing and paying taxes is one of those “black and white” functions that you cannot ignore. I once had a relatively wealthy real estate developer client who failed to file taxes for many years. That man, from a well-known and respected family, went to federal prison for several years. Paying taxes is not a step you can skip!

The Lynn case involved a disbarment for failure to hold unearned attorney’s fees in trust, for misappropriating client funds and for failing to keep clients informed. Read the opinion if you need a real Ides of March cautionary tale. One grave mistake Lynn made was failing to respond to the ODC’s investigation inquiries. Two things our Supreme Court takes very seriously are misappropriating funds and failing to cooperate with the ODC.

Let these sad facts be lessons to all of us! Just don’t do it!

*In the Matter of Brown, South Carolina Supreme Court Opinion 28139 (March 15, 2023), In the Matter of Lynn, South Carolina Supreme Court Opinion 28140 (March 15, 2023), In the Matter of Williams, South Carolina Supreme Court Opinion 28141 (March 15, 2023).

IRS provides safe harbor for conservation easements

Standard

Be aware of the July 24, 2023 deadline!

When I was a title insurance underwriter, I helped many South Carolina lawyers close and insure their clients’ conservation easements, so I know many of these easements are recorded in the public records in South Carolina. I wanted to make sure all dirt lawyers who represent clients with conservation easements are aware of a development in this area of the law.

The Secure 2.0 Act of 2022 authorized the IRS to issue “safe harbor” language for conservation easements to cover situations where the easement is later extinguished because of unexpected circumstances or where a boundary line adjustment is needed. Using the correct “safe harbor” language will avoid the loss of the grantor’s charitable deduction.

Here is the important news: if your client has previously granted a conservation easement, the document can now be amended to add the “safe harbor” language. But the amendment must be recorded by July 24, 2023.

You can read the Treasury Notice here.

You can read the press release here.

Foreign ownership of real estate has become a political issue

Standard

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.

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

Standard

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).