Is it time to end single-family zoning?

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Although politics are important to me, I see absolutely zero benefit in discussing politics on social media or in this blog. For that reason, I raise this topic with some apprehension and definitely without taking a political position. I raise it for educational purposes only.

I invite you to put this term in your favorite search engine: “terminating single-family zoning”. You will find articles that range in tone and opinion from, “The conservative case for ending single-family zoning” to “Dems are set to abolish the suburbs”. The arguments are all over the place! 

My purpose in raising this topic is simply to ensure South Carolina real estate practitioners have it on their respective radars. Like most extreme changes, this one is likely to be very slow to make it to The Palmetto State, but it’s important for us to be prepared to address if and when it arrives at our borders.  

One interesting perspective comes from Journal of the American Planning Association (Volume 86, 2020 – Issue 1) which argues that the privilege of single-family homes “exacerbates inequality and undermines efficiency” by making it harder for people to access high-opportunity places and contributing to shortages of housing in expensive regions. In many cities, the paper argues, single-family zoning prevents housing development where development would be most beneficial and instead pushes expansion into denser, lower income neighborhoods, onto polluted commercial corridors, and into the undeveloped land outside city boundaries. The authors have no illusion that making this change will be simple or that every city can handle the controversy the same way.

Arguments against eliminating single-family zoning include the idea that most Americans prefer detached single-family houses, that it creates more aesthetically pleasing neighborhoods, that it protects against excessive density, and that eliminating it will be impossible. Many arguments are made against constructing a housing tower next to existing detached homes. But counter arguments are made that removing single-family zoning might reduce rather than increase the prevalence of high-rise development because tall buildings are a response to scarcity of development-friendly parcels.

The conservate argument against single-family zoning is apparently that there is no greater distortion of the free market than local zoning codes, and that there are few bureaucracies doing more harm to property rights and freedom than local zoning officers.

See what I mean when I said the arguments are all over the place?

That being said, jurisdictions in California, Washington State, Oregon, Massachusetts, Minnesota, and Maryland are apparently considering loosening zoning restrictions. In one of his first actions after surviving an election seeking to oust him from office, California Governor Gavin Newsom essentially abolished single-family zoning throughout California and signaled his approval of legislation seeking to increase California’s housing production.

I doubt we will deal with this issue any time soon, but proactively becoming familiar with the arguments on all sides will only improve our ability to discuss the issues when the time comes.

Have you heard of Pacaso Second Homes?

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Dirt Lawyers: take a look at this company’s website: www.pacaso.com

(Photo by Robbi Pengelly/Index-Tribune)

I try to keep abreast of trends in the real estate market, but I missed this interesting story entirely. Luckily, my husband, Frank, a voracious purveyor of the news, pointed this article from NPR out to me. The story, dated August 24, is entitled “A Startup is Turning Houses into Corporations, And the Neighbors Are Fighting Back”. You can read the story in its entirety here.

It seems a “unicorn” (a startup corporation with a billion-dollar valuation) called Pacaso, is buying homes, slightly refurbishing them, furnishing them, and creating limited liability companies to own them. The ownership of each house is then divvied into eight fractional shares, and each share is marketed on the company’s website. Each share entitles an owner to 44 nights per year. Each visit is limited to no more than 14 days.

The corporation offers an app to handle booking, maintenance, and cleaning. The cost is 12% of the value of the property up front and monthly maintenance fees. After ownership for a year, each fractional owner is entitled to sell its interest at a gain or loss. Gifts of stays at the houses can also be made to friends or family members. The company advertises that it only buys luxury and super-luxury homes and that it is not competing with middle-class families for housing.

The news story and the company’s website indicate the corporation was founded in 2020 by two former Zillow executives. One of the founders who lives in Napa bought a second home in Lake Tahoe and immediately became inspired with making the dream of second home ownership available for more people.

This type of ownership is not new to real estate practitioners who practice on South Carolina’s coast. For sale signs for beachfront houses touting “Interval Ownership” are common. In fact, intervals in these homes seem to be perpetually for sale. 

My speculation about the frequency of these sales has always been that owning a home with multiple individuals and entities you don’t know can’t be much fun. It’s hard enough for two spouses to agree on when undertake major maintenance items. Imagine trying to decide when to spend the money on exterior painting with a large group.

 The crux of NPR’s article is the opposition being mounted by neighbors of some of the houses. It’s not surprising that owners in nice single-family neighborhoods would oppose the parade of vacationers interval ownership might create. One group of neighbors in Napa printed signs reading “No Pacaso” for homes and cars, wrote opinion pieces for local newspapers and were otherwise extremely vocal in their opposition.

Valid legal arguments might be made in these neighborhoods if restrictive covenants or zoning ordinances exclude timeshares or Airbnb-types of ownership, but Pacaso insists its model involves neither form. All real estate law is, of course, local, so various arguments will be mounted in different locations.

In response to the opposition in the Napa neighborhood, the company agreed to sell the home in question in the traditional manner. It also agreed to beef up noise provisions in its documents, to create a local liaison dedicated to assisting neighbors, to refrain from buying homes in the area valued less than $2 million and to donate funds to a local nonprofit dedicated to affordable housing.

I didn’t see any South Carolina homes in a quick review of the company’s website, but I did see homes located in Florida. I can only imagine that South Carolina’s beautiful coastline will be discovered soon. Real estate practitioners will likely be involved in both sides of this controversy.

United States Supreme Court terminates eviction moratorium

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Last Thursday, the United States Supreme Court blocked the CDC’s Covid-related eviction moratorium. The eight-page unsigned 6-3 opinion stated Congress was on notice that a further extension would require new legislation but failed to act in the weeks leading up to the moratorium’s expiration.

Congress has approved nearly $50 billion to assist renters. But estimates indicate many states have disbursed less than 5% if the available funds. More than 7 million renters are in default and subject to eviction. Bureaucratic delays at state and local levels have prevented payments that would assist landlords as well as tenants.

At the beginning of the pandemic, Congress adopted a limited, temporary moratorium on evictions. After the moratorium lapsed last July, the CDC issued a new eviction ban. The ban was extended twice more.

The three liberal justices dissented. The dissenting opinion, written by Justice Breyer said that the public interest is not supported by the court’s second-guessing of the CDC’s judgment in the fact of the spread of COVID-19.

Landlords, real estate companies and trade associations, led by the Alabama Association of Realtors, who challenged the moratorium in this case, argued that the moratorium was not authorized by the law the CDC relied on, the Public Health Service Act of 1944.

That law, the challengers said, authorized quarantines and inspections to stop the spread of disease but did not give the CDC the “the unqualified power to take any measure imaginable to stop the spread of communicable disease – whether eviction moratoria, worship limits, nationwide lockdowns, school closures or vaccine mandates.”

The CDC argued that the moratorium was authorized by the Public Health Service Act of 1944, and that evictions would accelerate the spread of the virus by forcing people to move into closer quarters in shared housing settings with friends or family or congregate in homeless shelters.

Some states and municipalities have issued their own moratoriums, and some judges have indicated they will slow-walk cases as the pandemic intensifies. We will have to watch and see how the termination of the moratorium interacts with the current backlog of cases in South Carolina. Real estate lawyers should be prepared to advise their landlord and tenant clients.

Eviction ban extended…again

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The federal block on evictions expired on July 31, but on August 3, it was extended for an additional sixty days. The new order indicates it is designed to “target specific areas of the country where cases are rapidly increasing, which likely would be exacerbated by mass evictions.” The new deadline is October 3. The money received through this program is nontaxable.

I’ve read that the targeting language only limits the extent of the moratorium to 80 percent of the country geographically and 90% of the population, so that’s not much of a restriction.  The Department of Housing and Urban Development (HUD) has indicated that 14.3% of the 44.1 million renter households are behind of rent.

There are many problems with the system. I’ve read the major concern is that the bulk of the available funds for rental assistance haven’t been distributed. Landlords seem to be faced with helping their tenants apply for the funds in order to receive the funds. And for all of us who have dealt with government, we understand that few governmental processes are efficient. This one is apparently not an exception to that general rule.  For tenants who are living on the outer edge of their ability to work and take care of their children, time and patience to deal with the inefficient process may be in short supply.

Under the new order, protected renters include:

  • Renters who have tried to obtain governmental assistance for rent or housing.
  • Renters who earned no more than $99,000 or $198,000 filing jointly in 2020 or do not expect to earn at those levels in 2021.
  • Renters who are unable to pay the full rent because of loss of household income or out-of-pocket medical expenses.
  • Renters for whom eviction would result in homelessness or force them to reside in close quarters in a shared living setting (thus increasing the risk of COVID).
  • Renters who living in a county experiencing a high rate of infection.

Because the bulk of the funds have not been claimed, the CFPB has introduced an on-line tool to help landlords and tenants locate the funds in state and local governmental agencies. The tool can be found here.

I have concerns that this program is going to take a great deal of sorting out at some point. Is it constitutional?  What will a holding of unconstitutionality mean? Will COVID require further extensions? Will funds have to be repaid by states and local governments if the funds are not properly applied? Will landlords or tenants be forced to repay such funds? Dirt lawyers will undoubtedly have to deal with of these issues in the future in representing their landlord and tenant clients.

All of us are tired of COVID. We seemed at one point to being so close to having it under control, but now we are seeing a frightening trend of rising cases and deaths, particularly among a younger population. All of us with children and grandchildren who cannot be vaccinated are concerned about what this school year will bring. At the risk of being perceived as preaching and apologizing up front who have medical reasons to resist, I strongly encourage vaccines!

City of Columbia considers short-term rental restrictions

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Several news sources are reporting that the City of Columbia, South Carolina, is considering imposing restrictions on short-term rentals such as those promoted by the online site Airbnb.

WLTX News 19 quoted City Councilman Howard Duvall last week: “To me, a non-owner-occupied residence that’s being rented out for less than 30 days is a hotel, and it needs to be in a commercial area.” Duvall told WLTX that he believes short-term rentals have a bad impact on neighborhoods because renters often come in for a few days for an event and they party, with loud music, in the middle of a residential area.

In a story on July 4, the Post and Courier reported that about 600 rentals are offered in Columbia neighborhoods, and some neighborhood representatives have complained of disruptions.

This report includes a statement that Duvall along with Councilmen Sam Davis and Will Brennan have drafted an ordinance for the Council to consider on July 20. Multiple opportunities for public input are planned.

Both stories report resistance to the idea. WLTX quoted the owner of a real estate business who said short-term rentals have become a part of life and a part of travel because millions of people like it and expect it when they come to a city.

The Post and Courier quoted Columbia Chamber of Commerce CEO Carl Blackstone who said some regulations of short-term rentals could be welcome, but an outright ban is a nonstarter in a time when we are trying to open back up from a pandemic. Blackstone said we need to be opening our arms and welcoming visitors anyway we can.

Other cities have imposed restrictions on short-term rentals. Duvall mentioned Asheville, Raleigh, Myrtle Beach, Greenville, Charleston, Beaufort and Summerville in his discussions with the Post and Courier.

In Charleston, he said, short-term rentals can only be operated as a part of the owner’s primary residence, with a maximum of four guests. Myrtle Beach doesn’t allow short-term rentals in some residential areas. Some cities have restricted special events and large gatherings.

What do you think? Should short-term residential rentals be routine in our neighborhoods or should we impose restrictions?

South Carolina legislature passes “IPEN” electronic notary law

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Don’t know what that is? Neither did I!

South Carolina rarely leads the pack when it comes to innovation, and we certainly didn’t break our streak with the early passage of an electronic notarization law. When we did pass legislation, it undoubtedly wasn’t the RON (remote on-line notary) legislation we need to move into this century. Instead, we have “IPEN” legislation—in person electronic notary, a term I had never heard. Why do we need in person electronic notarization when old fashion notarization is easier?

Doing my best to put a positive spin on this idea, perhaps we have taken baby steps.  Our legislature passed the South Carolina Electronic Notary Public Act on May 13, and Governor McMaster signed it into law on May 18. Our Code was amended to add Chapter 2 to Title 26. Chapter 1 was also amended.

At first blush, the new law does appear to be RON legislation, but buried deep inside is the requirement that signatory be in the notary’s presence. This provision defeats the whole purpose of RON legislation.

The last time I was at an in-person seminar with a roomful of South Carolina real estate lawyers where the topic of RON was discussed (and that seminar was pre-COVID, so it’s been awhile), several lawyers pushed a collective panic button and encouraged the group to lobby against this idea because they believed RON legislation may lead to electronic notaries, not South Carolina lawyers, supervising closings.

The new law specifically addresses that issue. Section 26-1-160 was amended to add Section 5, “Supervision of attorney”, which reads, “Nothing in this act contravenes the South Carolina law that requires a licensed South Carolina attorney to supervise a closing.”  Maybe this is the baby step we need. If lawyers are assured that this provision will be included in RON legislation, they may support that legislation.

Implementing the new law we do have will not be a simple process. Our Secretary of State has significant work to do to get ready to receive applications for registration of electronic notaries. The Secretary of State must create the regulations necessary to establish standards, procedures, practices, forms and records relating to electronic signatures and seals. The regulations must create a process for “unique registration numbers” for each electronic notary. The Secretary of State must approve “vendors of technology.”

Each electronic notary must secure an electronic signature, an electronic journal, a public key certificate and an electronic seal. A form called a “Certificate of Authority for an Electronic Notarial Act” must accompany every electronic notarization. I’m not sure any of this is worth the effort unless it facilitates the implementation of true RON legislation that may be passed in the future. The earliest the new legislation can be considered is January of 2022.

South Carolina dirt lawyers: let’s get behind RON legislation with the provision requiring lawyers to continue to supervise closings. We really don’t have anything to lose, and there is much to gain!

Special thanks to Teri Callen, professor and dirt lawyer extraordinaire,  who helped me figure out what is going on with this legislation!

Lexington County’s subdivision suspension stricken…and then reinstated

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This blog discussed on April 22 Lexington County Council’s move to suspend all new subdivision applications for six months. The Council indicated it planned to review its standards during the six-month moratorium. The ordinance applied to applications to develop ten or more lots for new housing, subdivisions with lots of less than half an acre, and developments with some “attached land use activities.”

There has been quite a lot of activity on this topic since the ordinance was initially passed.

In a suit brought by The Building Industry Association of Central South Carolina, Circuit Court Judge Debra McCaslin on May 4 struck down the ordinance, stating the closed-door executive session violated the Freedom of Information Act. The County argued that the ordinance was proper as an emergency measure because of the impact of new subdivisions on schools, roads and county services.

On May 6, the Council reinstated the moratorium but eliminated subdivisions of less than half an acre.

Completed applications will continue to move through the system.

We have seen other counties and municipalities impose similar freezes. Notably York County and Hilton Head Island have taken similar action in the past.

We are in the middle of a “sellers’ market”, with inventory in housing being a major impediment to residential sales. This moratorium is likely to exacerbate that situation in the midlands.

D.C. Federal Court vacates CDC’s eviction moratorium

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…. then temporarily stays its ruling

This blog reported in early April that the Centers for Disease Control and Prevention (CDC) had extended the national moratorium on residential evictions through June 30. The U.S. District Court for the District of Columbia issued an order on May 5 vacating the moratorium, but later in the day temporarily stayed its own ruling to give the Court time to consider the merits of the arguments on both sides. The result of the stay is that the eviction moratorium remains in place for the time being.

The suit* resulting in these remarkable rulings was brought on November 30 by two trade associations, the Alabama and Georgia Associations of Realtors, and by individuals who manage rental properties. The complaint raised several statutory and constitutional challenges to the CDC order. Both parties filed motions for summary judgment. The plaintiffs’ motion was granted on the grounds that the CDC had exceeded its authority by issuing the broad moratorium. The Department of Justice filed an emergency appeal within hours.

The Court asked for a defense response this week and a reply from the government by May 16, so it is likely that a new order will be issued soon. But with the moratorium’s expiration date of June 30, a new ruling will have little, if any, effect. 

In addition to the national moratorium, some state and local laws restricting evictions remain in place.

The Court’s order vacating the moratorium pointed to the unprecedented challenges for public health officials and the nation caused by the COVID-19 pandemic. The difficult policy decisions, like the decision to impose the moratorium, have real-world consequences, according to the Court. The Court stated that it is the role of the political branches, not the courts, to assess the merits of such policy decisions. The Court perceived the question before it to be very narrow:  does the Public Health Service Act grant the CDC the legal authority to impost a nationwide eviction moratorium? The Court held that it does not.

*Alabama Association of Realtors v. United States Department of Health and Human Services, United States District Court for the District of Columbia, No. 20-cv-3377 (DLF).

Will we repeat the real estate crash of 2008?

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Those of us who were in the real estate industry in 2008 when the music stopped in that crazy game of musical chairs we seemed to be playing never want to see that scenario repeated.

It was frightening.

Our incomes plummeted, we had to reduce staffs, great employees left the business (many never to return), real estate lawyers dipped into their retirement and other savings to keep afloat. Real estate lawyers switched to other practice areas. I recently asked a lawyer of retirement age about his plans. His response was that he has no plans to retire because he is still making up the income lost in the crash.

Our business is crazy again.

We hear of houses routinely closing at above listing price in South Carolina. I read a national statistic that suggested more than 40% of houses are going to contract at more than the listing price.  Leading up to 2008, I can vividly remember being amazed that contracts on houses were being sold, sometimes more than once, before a closing could take place. We spent lots of time figuring out whether “flips” were illegal based on their facts. I am a member of a female lawyer page on Facebook, and someone posed the question yesterday asking how other lawyers are closing these multiple-contract transactions.

Why are we here now? Inventory is low. Builders are unable to keep up with the demand created, in part, by the angst of staying at home during COVID leading to appetites for better living space. Many have left cities for areas of less population, and, as always, the sunny South sees a constant influx of those looking for better weather.  Mortgage rates are low. The economy is good. These factors are converging and generally keeping everyone in the industry hopping.

Will the bubble burst again?

I have read everything I can find on what the experts are saying on this topic, and it appears that most economic and housing experts believe we are in much better shape this time around. The main protection appears to be responsible lending. Leading up to 2008, it seemed that anyone who could hold a pen could get a mortgage.  It now appears that loans are being made to more credit-worthy borrowers with decent down payments.

We will see a softening in the market at some point. Mortgage rates will rise resulting in less affordability in the market, and mortgage applications will decline. But that kind of cyclical activity is normal. Our business is accustomed to handling those typical economic and seasonal cycles. Everyone will probably welcome a break in the activity.

I hope and sincerely believe the experts are calling this situation correctly, so hold on for the ride and look forward to the break.

Lexington County suspends new subdivision applications

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The State Newspaper reported on April 13 that Lexington County Council plans to suspend subdivision developments for the next six months. The proposed ordinance had its first reading that day, and The State, in an article written by Bristow Marchant, reported that County Council invoked a “pending ordinance rule”, which will require staff to refrain from accepting applications immediately.

County Council indicated it plans to review its standards during the six-month moratorium. The State reports that the ordinance will affect applications to develop ten or more lots for new housing, subdivisions with lots of less than half an acre, and developments with some “attached land use activities.”

Completed applications will continue to move through the system.

We have seen other counties and municipalities impose similar freezes. Notably York County and Hilton Head Island have taken similar action in the past.

We are in the middle of a “sellers’ market”, with inventory in housing being a major impediment to residential sales. This moratorium is likely to exacerbate that situation in the midlands.