Uncategorized

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)

Is this a classic case of “bad facts make bad law?”

Standard

Or do you think this JTROS decision is accurate and fair?

This Alabama case* was discussed extensively on the DIRT listserv. I’d love to know how South Carolina lawyers react to the decision.

Here’s the recital of the facts from DIRT:

“Michael Upchurch, his brother Davis Upchurch, and his nephew Jason Upchurch owned several pieces of real property as joint tenants with the right of survivorship. They signed a contract to sell the properties to third parties. However, before closing, Michael died. In this declaratory judgment action, Michael’s widow Carol Upchurch, individual and as executor of Michael’s estate, asserted, among other things, a claim to one-third of the proceeds from that sale. David and Jason filed a motion for a summary judgment, which the circuit court granted. The Alabama Supreme Court held that under the circumstances, Michael, David, and Jason’s decision to enter into a contract to sell the properties severed their joint tenancy and that, as a result Michael’s estate was entitled to one-third of the proceeds from the sale of the properties. The Supreme Court therefore reversed the trial court’s judgment and remanded the case for the entry of a judgment in favor of the estate.”

What do you think about this opinion?  Would a South Carolina court come to the same result?

 I don’t believe our statute answers the question. For your consideration, here are relevant portions of our statute on the subject:

  • § 27-7-40. Creation of joint tenancy; filing; severance
  • (a)(ii) In the event of the death of a joint tenant survived by more than one joint tenant in the real estate, the entire interest of the deceased joint tenant vests equally in the surviving joint tenants who continues to own the entire interest owned by them as joint tenants with right of survivorship.
  • (iv) If all the joint tenants who own real estate held in joint tenancy join in an encumbrance, the interest in the real estate is effectively encumbered to a third party or parties.
  • (vi) If real estate is owned by more than two joint tenants, a conveyance by one joint tenant to all the other joint tenants therein conveys his interest therein equally to the other joint tenants who continue to own the real estate as joint tenants with right of survivorship.
  • (ix) If real estate is owned by two or more joint tenants, a conveyance by all the joint tenants to themselves as tenants in common severs the joint tenancy and conveys the fee in the real estate to these individuals as tenants in common.
  • (c) Except as expressly provided herein, any joint tenancy severed pursuant to the terms of this section is and becomes a tenancy in common without rights of survivorship.

The answer would seem clearer to me if only one joint tenant had entered into a contract. Severance of the joint tenancy would appear to be the correct answer.  But under the facts recited here, I have my doubts.

The intention of the parties is always relevant. We don’t have any clear statement to that effect here. If all three had survived the sale, each joint tenant would have been entitled to his portion of the proceeds. But no document among the owners addressed a death prior to the sale. Originally setting up their interests as JTROS suggests their intent that a death of one would result in ownership by the other two. Did signing the contract evidence their intent to no longer own the properties as joint tenants?

One comment from DIRT suggested the court might have decided that the contract rights of the deceased owner survived his death and passed to his estate. But that’s not what the court held. It held that the JTROS was severed by the contract.

Dirt lawyers, what do you think?

*Upchurch v. Upchurch, Supreme Court of Alabama Case SC-2022-0478 (April 7, 2023)

Happy New Year dirt lawyers

Standard

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)

Beware of recent seller imposter fraud

Standard

Fraudsters are creative, changing their schemes to meet the current market at every turn! Seller imposter fraud has been an issue for several years, but we’re hearing new reports in South Carolina. My favorite title insurance company and former employer, Chicago Title, sent out its third memorandum about seller imposter fraud on December 8. I wanted to make sure all readers of this blog are aware of the new efforts by fraudsters.

Several dirt lawyers in Charleston have reported variations in the seller imposter fraud arena in the last month.

Here are warning signs Chicago Title’s memo highlights:

  • The property involved is often unimproved.
  • The property is often advertised for sale through internet-based listing services.
  • The property is often listed at a price less than fair market value.
  • Contact with the imposter seller is often only by email.
  • The purported seller declines any requested in-person contact.
  • The purported seller supplies identification only by photocopy or teleconference.
  • The purported seller suggests executing documents outside of closing.
  • The purported seller suggests acting via power of attorney.

If you see any of these factors in your closings, pay particular attention to the identity of the seller. Advise your staff of these matters and advise them to allow a second set of eyes to review any questionable practices suggested by sellers.

As the excellent underwriting staff of Chicago Title reports, most of these attempts to steal are entirely preventable by paying attention to documents and taking extra steps to verify the identities of the parties involved in your closings.

South Carolina lawyers have prevented these fraud attempts by using the following tactics:

  • They carefully review documents for irregularities and inconsistencies.
  • They verify seller identity through contact information available in the public records or through other trusted sources.
  • They verify foreign identities and notarizations by contact with appropriate embassies.
  • They confirm witnesses and notorizations with the notary whose signature appears on the documents.
  • They compare package tracking information and wiring instructions to the purported location of the seller.

Please be careful out there and advise your staff members of these issues.

Contract drafters beware!

Standard

SC Supreme Court invalidates builder arbitration clause … and refuses to enforce the severability provision

It’s rare that we read the Advance Sheets and pause to say “wow”, but this is one of those cases! Damico v. Lennar Carolinas, LLC* is a construction defect suit brought by a number of homeowners against their homebuilder and general contractor, Lennar Carolinas, LLC. The case involves new homes in The Abbey, a subdivision in the Spring Grove Plantation neighborhood located in Berkeley County, consisting of 69 single-family homes constructed between 2010 and 2015. The suit alleged, among other things, negligence, breach of contract, and breach of various warranties.

Lennar moved to compel arbitration. The Circuit Court denied the motion to compel, finding the contracts were grossly one-sided and unconscionable and thus the arbitration provisions were unenforceable. The Court of Appeals reversed, citing a United States Supreme Court case** that forbids consideration of unconscionable terms outside of an arbitration (the Prima Paint doctrine).

The South Carolina Supreme Court agreed with the Court of Appeals that the Circuit Court violated the Prima Paint doctrine but agreed with the homeowners that the arbitration provisions, standing alone, contain a number of oppressive and one-sided terms, thereby rendering the provisions unconscionable and unenforceable.  The Court further declined to sever the unconscionable terms from the remainder of the arbitration provisions.

The Court denied severability for two reasons. First, enforcing the severability provision would have required the Court to blue-pencil the agreement regarding a material term of the contract, a result strongly disfavored in contract disputes. Second, as a matter of policy, The Court found severing terms from an unconscionable contract of adhesion discourages fair, arms-length transactions.

The Court said that if it honored the severability clause in such contracts, it would encourage sophisticated parties to intentionally insert unconscionable terms—that often go unchallenged—throughout their contracts, believing the courts would step in and rescue them from their gross overreach. This is not to say, according to the Court, that severability clauses in general should not be honored, because the courts are constrained to enforce a contract in accordance with the parties’ intent.

Rather, the Court said it merely recognized that where a contract would remain one-sided and be fragmented after severance, the better policy is to decline the invitation for judicial severance.

I read this case to be a clear message to lawyers that it doesn’t pay to be too clever in drafting contracts.

The Court defined unconscionability to mean the absence of meaningful choice on the part of one party because of one-sided contract provisions, together with terms that are so oppressive that no reasonable person would make them and no fair and honest person would accept them. The touchstone of the analysis begins with the presence of absence of meaningful choice coupled with unreasonably oppressive terms.

What was so horrible about the contract in question?

One provision gave Lennar the sole discretion to include or exclude its contractors, subcontractors and suppliers, as well as any warranty company and insurer as parties in the arbitration. The Court said that it is a fundamental principle of law that the plaintiff is the master of the complaint and the sole decider of whom to sue for the injuries. Giving Lennar the “sole election” to include or exclude parties strips the homeowners of that right, according to the Court. Taken to its logical conclusion, this provision could require homeowners to litigate with some defendants and arbitrate with others.

Another provision said the homeowners “expressly negotiated and bargained for the waiver of the implied warranty of habitability (for) valuable consideration…in the amount of $0.”

Similarly, the contract specifically stated that the “(l)oss of the use of all or a portion of your Home” is not covered by its warranty to new homebuyers.

Another provision stated, “(T)his Agreement shall be construed as if both parties jointly prepared it”, a blatant falsehood, according to the Court, “and no presumption against one party or the other shall govern the interpretation or construction of any of the provisions of this Agreement.”

The Court found that these and other terms of the contracts to be absurd, factually incorrect, and grossly oppressive.

The Court pointed to the fact that Lennar is significantly more sophisticated than the consumer homeowners, creating a disparity in the parties’ bargaining power and that South Carolina has a deeply-rooted and long-standing policy of protecting new home buyers.

The Court said, “It is clear that Lennar furnished a grossly one-sided contract and arbitration provision, hoping a court would rescue the one-sided contract through a severability clause. We refuse to reward such misconduct, particularly in a home construction setting.”

WOW!

Lawyers who represent consumers should wave this case in the face of parties who claim contracts can never be negotiated. Every contract can be negotiated, and this case is clear evidence that this fact is true in South Carolina. Consumer lawyers, this is your case!

*South Carolina Supreme Court Opinion 28114 (September 14, 2022)

**Prima Paint Corp. v. Flood & Conklin Mfg. Co, 388 U.S. 395 (1967)

FEMA’s action causing many homeowners to drop flood insurance

Standard
Devine St. and Crowson Rd., Columbia, SC during the “1000-year flood” of 2015

If you have clients who are complaining about the rising cost of flood insurance, there may be a good reason for those complaints. This issue came to my attention through The DIRT listserv which I have recommended to South Carolina dirt lawyers several times. If you haven’t already, subscribe to this listserv for interesting discussions of current real estate topics.

In 2021, FEMA announced that the National Flood Insurance Program (NFIP) was shifting to a risk-based premium system. The new system is called Risk Rating 2.0, and it attempts to base premiums on the actual characteristics of individual properties rather than simply referring to “flood maps”. I’d like to refer everyone to this article from ClimateWire dated August 27, 2022.

According to the article, FEMA’s shift was intended to encourage more homeowners to buy flood insurance by showing more precisely the risk that each property faces of being flooded. The shift has apparently caused the opposite result. Many homeowners have dropped FEMA flood insurance based on increasing premiums. It should be noted that many premiums were also reduced.

Closing attorneys understand all too well that properties in high-risk flood zones require flood insurance if the property owners obtain federally backed mortgages. The individuals who are dropping the coverage are not those who have such mortgages. Many of the individuals opting out of flood insurance because of increased costs are low-income individuals in coastal areas.

The article states that the number of NFIP policies dropped from 4.96 million in September of 2021 to 4.54 million in June of 2022. The declining numbers cause concerns that owners whose homes are flooded will not be able to rebuild or recover financially, and that low-income households will suffer the most.

FEMA told the reporter that many factors could influence the drop in policy holders, including the economic impact of the pandemic, inflation, the housing market, and the affordability of purchasing flood insurance from the private market. It is not clear how many people who dropped NFIP policies have bought flood insurance through private insurers. In other words, FEMA does not consider that its change in premium calculations is the sole cause of the problem.

We need to pay attention to this issue as Congress wrestles with possible solutions. It is certainly dangerous to have flood insurance priced in a way that fails to protect low-income homeowners who live in the most precarious areas geographically.

Do you represent residential condominium HOAs or residential lenders? Do you handle residential condominium closings?

Standard

This news from Fannie Mae negatively impacts condo closings

This blog has previously discussed the June 24, 2021 collapse of the 136-unit Champlain Towers South condo project in Surfside, Florida.

South Carolina has many aging condominium projects, particularly along our coast. And we have earthquake issues to consider. Do our local homeowners’ association boards face expensive repair and inadequate reserve dangers like those in Florida? These concerns may impact HOAs, lenders and purchasers. Dirt lawyers should be prepared to assist their clients in navigating these concerns.

Fannie Mae has addressed this issue by issuing Lender Letter (LL-2021-14), which took effect on January 1 of this year. The letter directs lenders that make loans on condominium projects containing five or more attached units to gather information from owners’ associations about potential unsafe conditions.

Dale Whitman, the esteemed retired professor from the University of Missouri School of Law who moderates the national Dirt Real Estate Lawyers Listserv has commented on this letter. He said on a January 24 DIRT entry that HOAs are probably not obligated legally to respond to a lender’s inquiry prompted by Fannie Mae’s letter, but a potential buyer of a unit may not be able to obtain a loan absent a response.  

That’s the crux of the problem. If repair and reserve issues arise in connection with a condominium project, it may become impossible to obtain loans.

DIRT also discussed a December 2021 addendum to the condominium questionnaire of Fannie Mae (Form 1076) that asks if there have been any findings relating to safety, soundness, structural integrity or habitability of the buildings in an inspection report, reserve study or government inspection or if the HOA board knows of such issues. This information is requested whether the issues have been resolved or would be resolved. The form requests information of how funds to make repairs will be obtained.

The lender letter points to a growing concern across the nation about aging infrastructure and significant deferred maintenance issues in condominium projects because a majority of these projects were built more than twenty years ago. Fannie Mae states its condominium standards are designed to support the ongoing viability of these projects.  

Fannie Mae will change the status of deficient condominium projects to “unavailable”, and lenders are able to check the status of projects on Fannie Mae’s “Condo Project Manager™” software.

Consider representing wealthy consumers who may seek to purchase expensive coastal condominium units paying cash. How should a closing attorney advise these clients considering these repair and reserve concerns? This is an issue that should be addressed in residential closing practices.

If affirmative coverage is needed for your closing…

Standard

Be sure to advise your client and paper your file!

This blog recently discussed one of the biggest mistakes I made in private practice.  This edition relates a war story where I (thankfully) did the right thing.

I represented real estate developers and rarely handled residential closings.  When my clients developed residential subdivisions and residential condominium projects, I would gladly handle those cookie-cutter closings. And every now and then, another lawyer in my firm would ask for a favor: “Please close our good client’s purchase of a new home so he won’t choose another lawyer the next time he needs representation for his business….and please close it without charging an attorney’s fee.” I bet 90% of my dirt lawyer friends have fielded similar requests. Maybe you were smart enough to say “no”.

The client in this tale was a doctor. I’ll call him Dr. Roe. There are several doctors in my life that I hold in high esteem, but I have never liked representing doctors in legal matters. My experience is that they are too busy to listen to advice. They prefer for the magic to happen without their involvement.

This particular doctor had recently gone through a nasty divorce, and he had found a new home for himself and his four children who would be with him half of the time. This house was in the Hollywood area of Columbia, and the restrictive covenants contained a reverter clause. The clause stated that a violation of the normal residential restrictions would cause title of the lot to revert to the corporation that had developed the subdivision fifty or so years ago.

The reverter clause posed no problem if there was no violation of the covenants. I ordered a new survey and held my breath. The stars did not align for me, and the survey revealed a very slight violation of the side setback line. By very slight, I mean a couple of inches. The house was several decades old, and the violation may have been caused by settling.

I had a great relationship with my friendly title insurance company underwriter and called him to discuss my problem. He was very reasonable, and because of the minuscule violation, he authorized affirmative coverage for the lender as well as the owner. I was relieved but also concerned about relaying this information to my client. To get his attention, I had to set up an appointment at his office to explain the problem and show him the restrictions and the survey.

The bottom line was that he would obtain insurable title but not marketable title. I had seen marketability issues previously in my practice. In a commercial transaction, I saw a buyer walk away from a closing he had decided was not a good deal for him when his lawyer was able to uncover a questionable title problem that he argued defeated marketable title. I didn’t want that to happen to my client when he decided to sell his house.

He wanted the house! I gave him two pieces of advice: (1) when you decide to sell this house, please come to me, and let me help you with the listing agreement and contract. We will draft both documents to provide for insurable title instead of marketable title; and (2) please do not add onto this house in a way to increase the setback violations.

He said he understood completely. Before the closing, I drafted a letter to explain both problems. His signature at closing evidenced that I had delivered both pieces of advice.  Done deal.

Fast forward about ten years. My office phone rings, and a residential closing lawyer friend calls me and says, “Claire, how did you handle this HUGE setback violation for Dr. Roe when you closed his house?” You know the feeling, dirt lawyers, my heart fell, and I lost several years off my life between that call and the moment I could get my hands on the file to see what had happened ten years previously.

Since I had explained marketability vs. insurability to my client verbally and in writing, I was in the clear. It turns out that Dr. Roe added a pool, a very nice and very big pool house and brick fencing, all of which violated the setbacks.

And I got payback! The lawyer who had asked me to handle the closing free of charge was asked to bring the quiet title action to “fix” the title problem. Luckily, the corporation that had imposed the restrictions was defunct, and no surviving officers or directors could be located. The title was cleared with a simple action served by publication. And Dr. Roe paid attorney’s fees and costs.

Never forget that obtaining affirmative coverage does not “fix” title problems. Affirmative coverage often provides a mechanism for a closing to take place, but your client always must be advised that marketable title is unavailable. And your client must be advised of the consequences of accepting insurable title. In writing!

The hazards of drafting survivorship deeds for consumers

Standard

Pay attention to tricky South Carolina law!

More than a decade has elapsed since our Supreme Court surprised dirt lawyers with Smith v. Cutler,* the case that told us there were already in place two survivorship forms of ownership in South Carolina. We apparently missed that day in law school! The two forms of ownership are joint tenancy (which we knew and loved) and tenancy in common with an indestructible right of survivorship (which slipped by us somehow). This is a mini-history lesson about how we got to this state of the law and a reminder for dirt lawyers to carefully draft deeds.

Under the common law in South Carolina, tenancy in common is the favored form of ownership. A deed to George Clooney and Amal Clooney (whether George and Amal are married or not) will result in a tenancy in common. At the death of George or Amal, the deceased’s fifty percent interest in the property will pass by will or intestacy laws. Joint tenancy was not favored in South Carolina, and there was no tenancy by the entirety that would have saved the property from probate (and creditors) for a married couple.

A rather convoluted 1953 case** interpreted a deed that intended to create a tenancy by the entirety as creating a shared interest in property between husband and wife referred to as a tenancy in common with an indestructible right of ownership. This is the case that the Smith v. Cutler Court referred to as creating the form of ownership we missed.

It’s not technically true that all of us missed this form of ownership. Some practitioners did use the language from the 1953 case to create a survivorship form of ownership. The magic language is “to George Clooney and Amal Clooney for and during their joint lives and upon the death of either of them, then to the survivor of them, his or her heirs and assigns forever in fee simple.”  Other practitioners routinely used the common law language: “to George Clooney and Amal Clooney as joint tenants with rights of survivorship and not as tenants in common.”

Conveying title from a person to himself and another person establishing survivorship was not possible in South Carolina prior to 1996 because the old common law requirement of unities of title could not be met. To create a survivorship form of ownership, the property owner conveyed to a straw party, who would then convey to the husband and wife, complying with the unities of title requirement and establishing survivorship.

A 1996 statutory amendment to §62-2-804 rectified this problem by providing that a deed can create a right of survivorship where one party conveys to himself and another person. The straw party is no longer needed. This statute was given retroactive effect.

In 2000, our legislature added §27-7-40, which provides that a joint tenancy may be created, “in addition to any other method which may exist by law” by the familiar words “as joint tenants with rights of survivorship and not as tenants in common”.  The statute addresses methods for severing joint tenancies which typically results in a tenancy in common. For example, unless the family court decides otherwise, a divorce severs a joint tenancy held by husband and wife, vesting title in them as tenants in common.  A deed from a joint tenant to another severs the joint tenancy. A conveyance of the interest of a joint tenant by a court severs the joint tenancy.

Following the enactment of §27-7-40, most practitioners used the language set out in the statute to create a joint tenancy, “as joint tenants with rights of survivorship and not as tenants in common.” Five years later, Smith v. Cutler required us to examine our drafting practices with fresh eyes. The court held that a joint tenancy with a right of survivorship is capable of being defeated by the unilateral act of one tenant, but a tenancy in common with an indestructible right of survivorship is not capable of being severed by a unilateral act and is also not subject to partition.

Real estate lawyers in the resort areas in our state are often asked to draft survivorship deeds because couples from other states as accustomed to tenancy by the entirety. Until Smith v. Cutler, most practitioners did not believe different estates were created by the different language commonly in use. We believed joint tenancy was created in both cases.

Now, clients should be advised about the different estates and should choose the form of ownership they prefer. I’ve discussed this issue with many lawyers who advise married couples to create the indestructible form of ownership. Others who seek survivorship are often advised to create joint tenancy under the statute.  I see many deeds from the midlands and upstate that use the traditional tenancy in common form of ownership. I’ve heard estate planners prefer tenancy in common so the distribution at death can be directed by will. Lawyers who draft deeds for consumers need to be aware of and need to address the various forms of ownership with their clients.

One final thought on the survivorship issue in South Carolina. Do we now have a form of ownership that protects property from creditors of one of the owners? If a tenancy in common with an indestructible right of survivorship is not subject to partition, then it may not be reachable by the creditors of one of the owners. Let me know if you see a case that makes such a determination. It would be an interesting development.

*366 S.C. 546, 623 S.E.2d 644 (2005)

**Davis v. Davis, 223 S.C. 182, 75 S.E.2d 45 (1953)

We have our second Ethics Advisory Opinion of 2021

Standard

It answers two specific trust account disbursement questions

Ethics Advisory Opinion 21-02 deals with two questions posed by a lawyer concerning a trust account disbursement issue.

The lawyer received settlement funds in a significant amount subject to a valid lien, but the exact amount of the lien has not yet been determined. The parties agreed that the funds will not be disbursed until the lien amount is determined. It is expected that the funds will be held for more than a year. The fee agreement provides that the attorney will receive a contingency fee of a specific percentage plus costs. The client wishes to earn interest of the funds.

The questions presented to the Ethics Advisory Opinion are: (1) Is the lawyer permitted to open a separate account for the funds; and (2) Should the entire amount be held in trust or the entire amount minus the attorney’s fees and costs?

The Committee begins with an examination of South Carolina Appellate Court Rule 412 (a)(3) which requires an IOLTA account for “pooled nominal or short-term funds of clients or third persons.” The opinion states that there is no requirement for a long-term trust account to be an IOLTA account.

Rule 412 (d)(1) says a lawyer must exercise good faith judgment in determining whether funds are nominal or short-term. The rule then states that client or third person funds shall be deposited into an IOLTA account unless funds can earn income for the client more than the costs incurred to secure such income. If the funds can be invested in an interest-bearing account for the benefit of the client at an expense less than the costs of securing that income, then a separate account is permitted.

The Committee opined that a separate account is permitted in this case because the funds in question are not nominal, and they are not short-term because they are expected to be tied up for more than a year. The Committee advised that since the attorney has the duty of keeping client funds secure, it would be the best practice to invest the funds in a government insured account. The Committee then reminded the attorney that all normal trust account recordkeeping rules will apply to the separate account.

Finally, the Committee opined that the attorney is free to disburse attorney’s fees and costs immediately. Since those amounts are not subject to the lien, leaving those funds in the account would amount to improper commingling in violation of Rule 1.15(a).