On August 13, the Consumer Financial Protection Bureau (CFPB) issued an Advisory Opinion to remind all of us that contracts for deed (also called bonds for title, installment land contracts, land contracts, land sales contracts) on residential property are subject to the Truth in Lending Act (TILA), in the same manner as mortgage loans.
The press release touts the action is intended to stop investors from setting borrowers up to fail. It states that the deals often have little oversight, and investment groups and other sellers can set a series of traps that leave buyers in unlivable homes, on the hook for tax liens and extensive repairs, and at risk for losing their down payments and homes.
The press release further argues that predatory lenders use contracts for deed to target low-income borrowers, particularly those in religious communities, and set them up to fail so the sellers can kick them out and repeat the process with a new family.
The houses are often sold at inflated prices, with high interest rates and balloon payments. The transactions often occur without the benefit of inspections required by mainstream lenders.
TILA applies only to creditors who make five or more loans per year, unless a particular loan is considered “high cost” credit. In that case, a single loan can trigger TILA. If TILA applies to a contract for deed:
The seller has a duty to access the buyer’s ability to repay;
The seller must provide interest rate and other disclosures required by TILA; and
In most cases, balloon payments are prohibited.
South Carolina real estate lawyers familiar with these issues have advised clients for years to avoid buying and selling residential real estate using contracts for deed. And the same lawyers have advised their fellow practitioners to avoid closing these transactions.
Dirt lawyers understand that South Carolina appellate courts will overturn tax sales on the flimsiest of technicalities. Our courts require strict compliance with the tax sale statutory requirements. In an August 21 Supreme Court case*, a tax sale was overturned because the tax collector failed to post the required conspicuous notice.
Alvetta Massenberg inherited a 2.54-acre undeveloped tract of land near the rural community of Alcola in Clarendon County in 1997. She paid taxes through 2015 but failed to pay taxes in 2016. The tax sale process began.
The property is densely forested and triangular in shape. One side faces a two-lane paved secondary road known as Plowden Mill Road. This road is marked with a double-yellow center line and solid white fog lines. The second side of the property faces a one-lane dirt road known as Robert Rees Durant Road. This road has very little shoulder area and the surrounding vegetation crowds the one lane of travel.
The tax collector sent the required “notice of delinquent property taxes” by regular mail to Massenberg’s permanent address in Charlotte and sent another notice by certified mail. The certified mail notice was returned, and the tax collector turned to the required alternative notice of South Carolina Code §12-51-40(c). That subsection requires the tax collector to “take exclusive physical possession of the property…by posting a notice at one or more conspicuous places on the premises.”
The tax collector hired a private contractor to post the notice, but gave the contractor no instruction and no guidance on how to—or ever whether to—post the notice in a “conspicuous” place. The contractor posted a “Notice of Levy” printed on an 8.5 x 11-inch sheet of paper on a tree facing the one-lane road.
Testimony indicated traffic on the paved road would be 100 times more than traffic on the dirt road.
The Master found the posting was appropriate. The Court of Appeals affirmed.
On appeal, the Supreme Court focused on the very narrow question before it, that is, whether the notice was posted in a conspicuous place. The Court stated that the statute does not require that the notice be posted in the most conspicuous place, only that it be posted at “one or more conspicuous places.”
The Court held that the process of selecting a conspicuous place is necessarily comparative and a judgment call. The Court found it critical that the Clarendon County tax collector exercised no judgment at all. Rather, she entrusted the responsibility to a private contractor without instruction. And there was no evidence that the contractor even knew of the “conspicuous place” requirement.
The Court held that the posting was clearly not in a conspicuous place.
*Massenberg v. Clarendon County Treasurer, South Carolina Supreme Court Opinion 28234 (August 21, 2024).
Rule changes resulting from NAR class action settlement discussed
South Carolina real estate lawyers were invited to an excellent Zoom meeting on August 20 sponsored by South Carolina Realtors. The meeting was advertised on the South Carolina Bar’s Real Estate section listserv. Nick Kremydas of that organization and Gary Pickren, founding member of Blair Cato Law Firm, addressed the changes residential real estate lawyers should expect as a result of the National Association of Realtors class action settlement. South Carolina dirt lawyers owe a huge thank you to these two well-informed lawyers who, in addition to speaking and answering questions on the topic, offered their email addresses for the purposes of fielding further questions. *
According to the settlement, as of August 17, NAR affiliated residential multiple listing services can no longer accept listings that indicate the amount or percentage of the seller’s commission that will be paid to the buyer’s broker. There is no requirement that a buyer be represented by a separate broker, and for many years, buyers typically had no representation. But in recent years, buyers’ agents have routinely been employed, and it is clear that some other method must be worked out for their payment.
The speakers initially stated that the MLS entities in South Carolina have complied with the August 17 deadline, but there was a brief mention that Hilton Head may be an exception. Some brokers are drafting “showing agreements” or “touring agreements” to comply with the rule that a buyer must agree to commissions prior to seeing houses.
The implementation of the changes in practice has fallen to the state level, which makes sense because state laws are not consistent on the related issues. Gary Pickren said implementation may be somewhat of a moving target as the market begins to dictate what will occur. It is important to remember, he said, that only sixty percent of real estate agents are NAR-affiliated Realtors, so all agents are not currently required to comply. As a practical matter, however, agents will have to comply because they use the MLS services. In addition, according to Gary, future lawsuits are always a possibility, so that threat will encourage compliance by everyone in the marketplace.
Gary pointed to three ways buyers’ agents may be compensated:
Direct Payment: The seller will pay the seller’s agent and the buyer will pay the buyer’s agent. Gary sees this method being applicable with higher-priced homes. Settlement Statements will simply reflect a charge for the seller and a charge for the buyer.
SC Realtor Form 120: This form is a compensation agreement. The seller will enter into an agreement with the listing agent to pay $X to the listing agent and to authorize the listing agent to pay $Y to the buyer’s agent. The Settlement Statement will reflect both charges to the seller, exactly as we have shown these charges in recent years.
Contract Concessions: In addition to the normal concessions for closing costs, sellers may make concessions for commissions. Settlement Agreements will reflect the seller’s charge for the listing agent’s commission, the buyer’s charge for the buyer’s agent commission, and a credit from the seller to the buyer for the concession. There may be some concern here with regard to appraisals and lender limitations on concessions. Closing attorneys will have pay particular attention to these issues.
In addition to these three methods, some brokers are drafting their own documents to handle commissions in different ways.
Gary questioned how the new rules will be policed and indicated closing attorneys may have additional liability in this regard with no additional payment. We have all seen that our Supreme Court seems to place the liability for the accuracy of closing statements directly on the shoulders of closing attorneys. He said he does not feel closing attorneys will have to review MLS listings, but they may ask to see the Forms 120 and they require have the parties sign separate documents addressing the accuracy of the commissions reflected on the Settlement Statement.
Gary indicated the Real Estate Commission has no jurisdiction to police these issues, but the MLS services and the local Realtor Associations may implement rules with fines, commission forfeitures and even suspensions and bans from using the MLS services.
I want to personally thank Nick and Gary for providing this service for all of us. It appears to me that their thinking and their willingness to educate the Bar may place South Carolina lawyers ahead of lawyers in other states. Based on the reading I’ve done from a national standpoint, it appears the answers to these issues are still very mysterious in some locations.
*I won’t offer up the email addresses, but lawyers know how to find each other!
Chandelle Property Owners Association v. Armstrong* is a South Carolina Court of Appeals case stemming from several disputes within the Chandelle subdivision, a residential aviation community in Spartanburg County.
Appellant lot owners contend the Circuit Court erred in granting Chandelle Property Owners Association’s (the POA) motion for summary judgment. They assert the subdivision’s formation documents prohibited the POA from borrowing more than $50,000 without a vote of the lot owners. They also assert that assessments can only be used for maintenance.
The formation documents are a bit unusual. In 1997, CSC Developers, LLC and James P. Brockman, Sr. agreed to develop approximately thirteen acres of Brockman’s land into a new subdivision. The original restrictive covenants referred to Lots 1-26. The original document envisioned and authorized additional properties being subjected to the restrictions, and the developer continued to expand the subdivision by recording new plats and annexing the new lots by recorded documents.
No real estate lawyer should be surprised that several disputes and questions arose surrounding the development given the confusing nature of the various sets of documents. The POA brought this quiet title action, in part to remove any uncertainty as to which properties were subject to the restrictive covenants.
The POA filed amended complaints adding a cause of action addressing negative reciprocal easements. Simply stated, that cause of action would have alleged that whether or not certain lots were technically subjected to the restrictions, the lots were included within the subdivision because the sales program and recorded documents would have put all buyers on notice that the lots were a part of the subdivision. (This is my explanation, not the Court’s.)
In the interest of simplicity and discussing only the real estate issues, this discussion eliminates bankruptcy issues and certain counterclaims and third-party claims.
The Court of Appeals held that the Circuit Court had properly granted partial summary judgment to the POA. The Court discussed the nature of restrictive covenants, including the fact that they are contractual in nature and must be interpreted to give legal effect to the parties’ intention as determined by the language of the documents.
The documents did, in fact, include a provision limiting the borrowing power of the board of the POA to $50,000 without prior approval of a majority of the lot owners. The Circuit Court did not reach the merits of whether this provision had been violated, stating that such a violation would not relieve the lot owners of their obligation to pay assessments. The Circuit Court said that if the lot owners’ argument were accepted, it would mean that if the POA borrowed more than $50,000 without member approval, then the POA could never assess the lot owners to pay off that loan, forcing the POA to default on the loan.
The Court of Appeals agreed, stating that because lot owners may not exempt themselves from assessments, the lot owners’ obligation to pay their assessments exists independently of their disagreement with the POA board’s use of the assessment funds, its business judgment, or incurring more than $50,000 in debt. Perhaps more importantly, according to the Court of Appeals, the POA has the right and likely the duty to bring legal action against owners for delinquent assessments.
The board of the POA may at some point be held responsible for the alleged violation of the loan limitation, but assessments are nevertheless obligatory, particularly for the purposes of this summary judgment posture.
It is an interesting concept and probably necessary for the proper governance of residential subdivisions.
*South Carolina Court of Appeals Opinion 6078 (August 7, 2024)
In Maybank 2754, LLC v. Zurlo, * South Carolina’s Court of Appeals dealt with issues surrounding whether an easement was created and, if so, whether that easement was wiped out through a foreclosure.
The lawsuit centers around two properties located along Maybank Highway in Charleston County. The dominant estate, owned by Maybank, is occupied by an office building containing leased office spaces. The servient estate, containing sixty acres, was purchased by Penny Creek Associates, a company owned equally by Michael LaPlante and Respondent Zurlo Trust.
Initially, Penny Creek owned all of Maybank’s membership interests. In 2013, those membership interests were transferred to the LaPlante family. Shortly after that transfer, Zurlo Trust and others commenced a derivative and judicial dissolution action against Penny Creek. That matter settled in 2016 with an agreement for Penny Creek to wind up its business, sell its real estate, and terminate its LLC status.
The LaPlante family currently retains all membership interests in Maybank. In its complaint, Maybank alleged that as a part of the transfer of the membership interests, Penny Creek granted the LaPlante family a thirty-foot easement, and that the LaPlante family assigned that easement to Maybank. Zurlo Trust and Michael LaPlante each owned fifty-percent of Penny Creek at the time of the transfer.
In 2017, the servient estate was sold as a part of a foreclosure action Wells Fargo brought against Penny Creek. Respondent 1776, LLC, an entity Maybank alleges is owned entirely by Zurlo Trust, bought the property at the foreclosure sale and sold the portion of the property over which the alleged easement runs to Respondent Beach Fenwick, LLC.
In January 2020, Maybank brought the subject action seeking a declaratory judgment that it has an easement, or, in the alternative, that the private right-of-way is a restrictive covenant. The lawsuit also alleged civil conspiracy and requested a temporary injunction to stop development on the easement.
Respondents filed a motion to refer the 2020 action to the Master on the theory that the Master had retained jurisdiction after the foreclosure. Maybank objected on the grounds that it has requested a jury trial. Maybank also argued that it had not been a party in the foreclosure and, therefore, its rights could not have been extinguished by the foreclosure.
The matter was referred to the Master, and Maybank appealed. The Master held a status conference while that appeal was pending. Maybank objected. The Master sent the matter back to the Circuit Court, and the Respondents filed motions for summary judgment. Maybank filed a motion to amend the Complaint. Respondents then filed a motion with the Court of Appeals to dismiss the appeal.
The Circuit Court held a hearing on the motions for summary judgment, and Maybank filed a Rule 59 (e) motion that the Circuit Court denied. This appeal followed. The Court of Appeals then issued an order denying Respondents’ motion to dismiss the first appeal.
Please refer to the 25-page case for the complicated procedural trial and appeal issues. The Court of Appeals held, for example, that Maybank was entitled to a jury trial. I’d like to simply make a couple of points involving real estate law.
At the heart of the complaint is the alleged creation of an easement. In 2013, Penny Creek was Maybank’s then sole member. Zurlo Trust and Michael LaPlante executed a Resolution of Sole Shareholder that memorialized Penny Creek’s approval of a sale, transfer and conveyance of Penny Creek’s membership interest in Maybank to the LaPlante family.
The Resolution contained language to the effect that Penny Creek agreed to grant to the LaPlante family, their successors and assigns, a thirty-foot easement for pedestrian and vehicular access, the location and condition of which shall be mutually agreed upon at the completion of a roadway known as Pitch Fork Road. The Resolution was never recorded, and Pitch Fork Road has yet to be competed.
The Circuit Court concluded that the Resolution did not meet the essential elements required to create a property right because it lacked any identifiable location or condition, duration or scope. The Circuit Court concluded that the Resolution created only an agreement to agree. The Court also stated that, even if the Resolution created some form of an easement, it was never recorded, preventing a finding of actual or constructive notice of an easement. And if the easement did exist, it failed to survive the foreclosure.
The Court of Appeals reversed and remanded after Maybank successfully argued that the foreclosure did not affect its rights because it was not a party to that action. The Court of Appeals also agreed with Maybank that the Resolution clearly expressed the parties’ intention to create an easement.
The Court of Appeals discussed the character of the easement (appurtenant, in gross, or in gross commercial) agreeing with Maybank that parol evidence could be properly considered to determine the character to be an appurtenant easement. Summary judgment was held to be improper because the language of the Resolution is ambiguous as to the character of the easement.
Again, I am ignoring many trial and procedural issues. Please read the case! But one point of this litigation for real estate lawyers is the importance of careful drafting and recording documents to create interests in real estate. This case is an example of a real estate lawyer’s nightmare.
*South Carolina Court of Appeal Opinion 6081 (August 7, 2024)
Lots of entertaining real estate stories arise in the Sunshine State, and I say that fondly because I spent my middle school and high school years there. In fact, I’m heading down to Panama City for a milestone high school reunion in September.
This story was reported by ABC News and other sources. Florida passed legislation this year affecting homeowners’ associations that, among other consumer-protection efforts, prohibited associations from limiting the rights of owners to park personal vehicles, work vehicles, and assigned first responder vehicles in their driveways.
One news story I saw related the excitement of one resident of a restrictive HOA who was elated he could begin to park his work truck in his driveway. His alternative had been to park his truck almost a mile away from his home in a rented storage area and walk the distance in the Florida heat twice each workday.
But the legislation contained a “loophole” that allowed the HOA to keep the parking restrictions in place. The resident was crestfallen when he learned his neighborhood could keep rules in place that were effective when the legislation was enacted. He still has to park his truck a mile away and walk.
Another resident said she was upset because she must continue to pay $1,000 to park her Mercedes Sprinter that contains her mobile spa (the Maui Skin Bus) in a remote location and walk home after each break in her appointment schedule.
The goal of the HOA, according to its manager, is to keep the vision of the developer of the neighborhood in place. The developer saw beautiful homes, well-manicured lots, and only nice, personal vehicles parked in driveways.
Early in my career, I practiced briefly in the area of estate planning. I attended week-long seminars and poured over tax laws. I even drafted a few irrevocable trusts for wealthy clients. But I was also representing real estate developers, and, at some point decided that I couldn’t keep up in both areas. So, I dropped estate planning in favor of real estate.
But real estate lawyers need to know enough about estate planning to figure out who gets the real estate at the death of the owner, so the two areas often overlap, and I was often thankful I had a background in estate planning.
I found a recent Court of Appeals case involving an omitted spouse claim by a fourth wife fascinating. Ward v. Ward* involved a mutual will and related documents between Stephen Ward and his third wife, Nancy.
The spouses generally intended that the death of one would cause their assets to “pour over” into a trust controlled by the other. After the death of the surviving spouse, any remaining assets would be disbursed among each spouse’s children and heirs as detailed in their wills and trust documents. Both parties agreed that they would not amend the documents after the death of the first spouse.
Those documents were executed in 2005. Nancy died in 2011. Later that year, Stephen began dating Mary, and they married in 2013. At the time of marriage, Stephen was 69 and Mary was 88. Stephen died in 2016.
After Stephen’s death, his children sought to probate his estate, and Mary filed a petition seeking to have herself declared an omitted spouse.
Several witnesses testified that Stephen’s intent when he executed the estate planning documents was to have those documents enforced as written, and that his estate plan would not be altered by a subsequent marriage.
The Court of Appeals agreed that a testator’s intention, as expressed in his will, governs the construction of the will if it does not conflict with law or public policy. But the Court held that the testator’s intent must fail when it conflicts with the probate codes’ protection of a surviving spouse.
Mary had only to prove that Stephen’s will was executed prior to their marriage and that it did not provide for her. Her claim to an omitted spouse’s share was affirmed.
Justice Geathers dissented, stating that the only evidence in the present case shows that years before he met Mary, Stephen made it clear that he meant to leave a subsequent spouse nothing.
Interesting case! I wonder whether our Supreme Court will have the chance to weigh in.
*South Carolina Court of Appeals Opinion 6073 (July 24, 2024).
Last week, this blog discussed a South Carolina Court of Appeals case involving the rule against perpetuities. This week, we look at the Court’s take on another basic real estate issue, King’s and sovereign grants. East Cherry Grove Co., LLC v. South Carolina* involves a dispute over dock permit over tidelands properties in North Myrtle Beach.
Matt Leonhard applied to DHEC for the permit over tidelands property adjacent to his property. East Cherry Grove Co., LLC and Ray & Nixon, LLC (collectively, Respondents) claimed they each owned a portion of the tidelands property, and the Circuit Court agreed.
The State of South Carolina appealed, making several legal arguments, including ownership by the State of navigable waterways, and the propriety of testimony by a real estate lawyer as to title even though he was not a surveyor.
At the Circuit Court’s bench trial, four King’s and sovereign grants were admitted into evidence. William Deschamps, a real estate lawyer, testified he searched the titles of the respective properties back to the grants. He testified he had no doubt that the properties were subject to the grants based on all the survey information and his review of the titles. On cross examination, he admitted he was not a surveyor and clarified that he was not rendering a surveying opinion but was basing his opinion on his title examinations after reviewing the grants in conjunction with the surveys.
A surveyor also testified and was asked if the property in question came from the grants. His response was, “There’s no other place it could have come from.”
The Circuit Court ruled that the Respondents met their burden of proof by a preponderance of the evidence that they owned their respective properties by virtue of the Grants. On appeal, the State argued that a clear and convincing standard should have been applied instead. The Court of Appeals agreed with the Circuit Court, stating that our case law provides that the State possesses presumptive title of tidelands property, and the person seeking to establish private ownership must present evidence to rebut the presumption.
The Court of Appeals agreed with the State, however, as to small portions of the East Cherry Grove tract that were outside of the grants.
The State argued that the titles should have been based on a particular plat rather than the plats relied upon by the Respondents because of the specificity of the State’s preferred plat. The Court of Appeals concluded that the Circuit Court had not erred in weighing all the evidence of title.
For simplicity, I’m omitting other issues that were argued but failed. Please read the case in its entirety for an interesting discussion of testimony in a real estate case.
*South Carolina Court of Appeals Opinion 6068 (July 3, 2024)
Dirt lawyers have been known to joke that after decades of successfully practicing real estate law, they have never encountered a true rule against perpetuities situation. Here is one such situation that arose in Columbia and made it to our Court of Appeals this year.
Spring Valley Interests, LLC v. The Best for Last, LLC* involved a perpetual option to purchase a 74.425% undivided co-tenancy interest in real estate located in Columbia.
In 2017, Spring Valley’s predecessor, White Interests Limited Partnership, entered into an agreement with Best through which White loaned Best $800,000. Best used the loan proceeds to purchase the property. As a part of the consideration for the loan, Best granted White the freely assignable perpetual option. The language of the option contains no termination date other than a statement that Best would exercise the option at its sole discretion by delivery of a written notice no later than thirty days before the intended closing.
White assigned the option to Spring Valley, and in 2019, Spring Valley sent Best a letter exercising the option. Best objected to the purchase of the undivided co-tenancy interest and, instead, insisted that Spring Valley exercise the option by becoming a member of Best. The parties negotiated and nearly came to an agreement except for Spring Valley’s insistence on certain attorneys’ fees.
Spring Valley filed a complaint seeking specific performance of the option. Best filed an answer asserting defenses including that the option was void because it violated the common law rule against perpetuities. Spring Valley asserted that our common law rule was preempted by our statutory rule against perpetuities (S.C. Code § 27-6-10, et seq.), which became effective in 2007.
The common law rule mandates that any interest not certain to vest within a life in being plus 21 years is void. The statutory construction provides for a ninety-year wait-and-see period that would likely save otherwise violative transfers. The statutory construction states that it supersedes the common law rule, but also states that it does not apply to nonvested property interests arising out of nondonative transfers.
Best eventually filed a motion for summary judgment, which the circuit court granted, stating that the statute does not apply to nondonative transfers and, therefore, cannot replace the common law; thus the common law is the appropriate legal standard to conclude that the option is unenforceable. The Court of Appeals affirmed.
The Court of Appeals stated that most states that have adopted a form of the uniform rule seem to conclude that such adoption removes commercial transactions from the common law rule and the uniform rule. But South Carolina was the first state to adopt a form of the uniform act, and the Court said it cannot say with certainty that the abolishment of the common law rule was the legislature’s intent at the time.
Also, according to the Court, the complete abolition of the common law rule without some provision for limitations in commercial transactions risks putting two legal principles at odds—freedom to contract and restrictions on alienability.
Since the Court believed it could construe the statutory construction in a manner that preserved the common law, it affirmed the lower court’s ruling finding the option void under the common law.
I would not be surprised to see this case go to our Supreme Court.
*South Carolina Court of Appeals Opinion 6070 (July 10, 2024).
The State newspaper reported on July 2 that the home-buying site Zillow is suing Richland County. The claim is that the County is violating public records laws by failure to reply to a Freedom of Information (FOIA) request for property tax data.
The article reports that in May, Zillow requested property assessment data from Richland County by submitting multiple FOIA requests. The County first responded that it did not have any records matching the request. Then, the County denied the request because the requested information is available online and argued that state law does not require the County to create new documents to fulfill a FOIA request.
Zillow argued, according to the article, that not all the assessment information for every parcel in the County is available online. Zillow had apparently requested an electronic copy of the assessment files for all the parcels instead of the option to search parcels one by one. The company apparently didn’t want to have to search titles in the manner of South Carolina real estate professionals.
Zillow also argued that it had received the requested information in prior years. Before 2022, the company said it had received the assessment date from the County each year in the format the company requested, which was an electronic file that contained all assessment information. The lawsuit claims the company paid about $8,800 per year for that information.
Zillow is now suing for the requested information and demanded that the County pay Zillow’s legal fees if the lawsuit is successful. We’ll see what happens with this one!
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