Newberry land-transaction dispute replete with equitable issues

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We don’t often see current land-transaction dispute cases among South Carolina’s appellate court decisions, but the Court of Appeals handed down an opinion on September 16 that covers the gamut of equitable issues. Not uncommon, though, is that the facts in this equitable case involving real estate, like most, are quite interesting.

The use of the property in the case, Shirey v. Bishop*, is interesting in itself. Mr. and Mrs. Bishop operated a grave digging and burial vault business on the property for more than 30 years. Mr. Bishop died in 2010, leaving his wife to run the business by herself. Mrs. Bishop suffered from depression and anxiety and ultimately determined that she did not want to continue operating the business.

In 2012, Mrs. Bishop entered into a contract to sell the property to her niece, Cassandra Robinson. Although the bank wasn’t consulted, Robinson agreed to assume the mortgage and make the monthly payments until the mortgage was satisfied.

In 2014, however, Mrs. Bishop approached Shirey about purchasing the property, and a contract was signed in 2015 to sell the property to Shirey for $125,000. (Apparently Robinson was late on many mortgage payments.) The closing was to occur between August 3 and August 12, 2015. Time was stated to be of the essence.

On August 12, 2015, Shirey attempted to close by tendering funds to his attorney. After it became apparent that Mrs. Bishop was not going to appear, Shirey’s attorney called Bishop to ask if the closing period could be extended to August 13. Bishop agreed.

On August 13, Shirey arrived at his attorney’s office, but Bishop again failed to appear. Bishop’s doctor sent a note to Shirey’s attorney asking that Bishop be excused from the closing. (I’ve never seen a doctor’s excuse for a closing!) However, that afternoon, Bishop entered into a second contract with Robinson. This contract added a provision that Bishop would indemnify Robinson against “any and all issues of illegality or fraud concerning the transaction.” Bishop executed a deed conveying the property to Robinson, and Robinson recorded the deed the same day.

This lawsuit followed. The special referee ordered specific performance in favor of Shirey and further determined that Shirey was a bona fide purchaser who took free of any interest of Robinson, that Robinson and Bishop were in a confidential relationship, that the phone call from Shirey’s attorney to Bishop was tantamount to an extension of the contract, and that Bishop’s entering into the 2015 contract with Robinson demonstrated an intention to hold Robinson in default of the 2012 contract.

The Court of Appeals affirmed and made the following points:

  1.  Bishop and Robinson waived their statute of frauds argument by failing to plead it or argue it in the lower court.
  2.  Robinson was not entitled to the property under the 2012 contract because the 2015 contract held her in default.
  3.  The equities in the situation favored Shirey.
  4.  Bishop and Robinson were in a confidential relationship, not only because of their familial relationship, which is not sufficient standing alone, but because the facts indicated Bishop trusted Robinson and failed to seek legal advice. Additionally, Robinson drafted her second contract, and Bishop testified she didn’t understand what she was signing.
  5.  Shirey partially performed by tendering funds.
  6.  Shirey was a bona fide purchaser because he did not have notice of Robinson’s claim at the time he attempted to close. The Court held he had the “best right to” the title to the property.
  7.  Shirey was entitled to attorney’s fees because he prevailed under his contract, which provided for the award of attorney’s fees to the successful party.

All these issues are discussed in detail, and I recommend this case to any lawyer who seeks a refresher on equitable questions involving real estate under South Carolina law.

*South Carolina Court of Appeals Opinion 5718 (September 16, 2020).

CDC announces COVID eviction moratorium through the end of 2020

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On Tuesday, September 1, the CDC announced a temporary eviction moratorium through December 31, 2020. The order applies to all rental units nationwide and goes into effect immediately. Treasury Secretary Steven Mnuchin said that the order applies to around 40 million renters.

The CDC announced the action was needed to stop the spread of the coronavirus and to avoid having renters wind up in shelters or other crowded living conditions. This order goes further than the eviction ban under the CARES Act which covered around 12.3 million renters in apartment complexes of single-family homes financed with federally backed mortgages.

The Order, entitled, “Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19, does not suspend mortgage foreclosures. To take advantage of the suspension, the tenant must sign a declaration form alleging:

  1. The individual has used best efforts to obtain all available government assistance for rent or housing;
  2. The individual either (i) expects to earn no more than $99,000 in annual income for Calendar Year 2020 (or no more than $198,000 if filing a joint tax return), (ii) was not required to report any income in 2019 to the U.S. Internal Revenue Service, or (iii) received an Economic Impact Payment (stimulus check) pursuant to Section 2201 of the CARES Act;
  3. The individual is unable to pay the full rent or make a full housing payment due to substantial loss of household income, loss of compensable hours of work or wages, a lay-off, or extraordinary out-of-pocket medical expenses;
  4. The individual is using best efforts to make timely partial payments that are as close to the full payment as the individual’s circumstances may permit, taking into account other nondiscretionary expenses; and
  5. Eviction would likely render the individual homeless— or force the individual to move into and live in close quarters in a new congregate or shared living setting— because the individual has no other available housing options.

The order specifically does not excuse rent, it just delays eviction. There is a substantial body of depression -era caselaw that holds this type of governmental action is permissible because it does not impair the contract, it only delays the remedy, and it is not a taking because the rent is still due. Lawsuits are likely to follow regardless of this old caselaw.

Many would argue that a temporary ban on eviction for non-payment burdens landlords with the cost of rental delay. Many landlords are individuals or small businesses that cannot spread the losses and cannot pay maintenance costs, mortgages and property taxes without the benefit of rental income.

Succession planning and the real estate practitioner

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Like me, many of my real estate practitioner friends are retirement age. Before COVID-19 prevented travel, I often visited our law firms across South Carolina and at some point became acutely aware of our aging population. Real estate must not be as fascinating to young folks as it is to me and many other lawyers my age. I announced last week that I will retire next February. For corporate employees like me, the retirement process is easy. Let me restate that. Once the extremely difficult mental threshold is crossed, the paperwork is easy.

Retirement from a law firm is much more difficult both in the decision-making process and the paperwork! The old not-so-funny joke is that lawyers don’t retire; they die at their desks. Don’t do that!

My office encourages our real estate lawyers to seriously consider succession planning at least five years before they plan to step away from their offices. For sole practitioners, no succession planning means the value built over a lifetime of work vanishes the moment of death or disability. Lawyers who practice in firms can also lose their sweat equity if they don’t have the foresight to plan.

We encourage sole practitioners to consider hiring younger lawyers to train up to take over their practices. We also encourage lawyers to identify other lawyers who may be interested in purchasing their practices or merging practices. Conversely, we encourage younger lawyers who seek to grow their practices to reach out to lawyers nearing retirement age to explore purchasing or merging practices.

Several years ago, I contacted my friend Bill Higgins, a practitioner here in Columbia who has worked extensively with ethics and business entity issues, and asked him to develop a practice area that includes succession planning for lawyers. Bill has done that, and if you need legal advice in this regard, I highly recommend Bill as an excellent source.

If you want information about the firms who practice real estate and who might be open to discussing the issues of merging or purchasing practices, reach out to your title insurance company. We are singularly positioned to know what’s going on in the market place and we might be able to point you in the direction of a lawyer or firm that may want to discuss these issues.

The reason this topic came to my mind now is that the Ethics Advisory Committee issued new EAO 20-03 that touches on the issue of succession planning. The question in this opinion is a little complicated. “A, B, C & D, P.A.” is the name of an existing law firm.  Lawyer A is already retired. Lawyer B is the 100% equity owner of the firm, and now seeks to retire. Lawyers C and D are non-equity members who have each practiced with the firm more than ten years. Lawyer C plans to practice with another firm.

Lawyer D seeks to purchase most of the assets of the firm and to operate a new firm called “A, B & D, P.A.” in the same location, using the same phone number and website and retaining two or more of the employees. Lawyer D seeks to continue to represent Lawyer B’s current clients in ongoing and future matters if the clients elect to retain the new firm’s services via formal substitution of counsel agreements. The question became whether Lawyer D may ethically utilize the names of retired lawyers A and B in the name of the new law firm.

Analyzing Rules of Professional Responsibility 7.1 and 7.5 and prior Ethics Advisory Opinions 79-06 and 75-01, the Committee opined that Lawyer D may use the names Lawyers A and B in the new firm name.  The Rules have changed since the prior opinions, and the Committee sought to provide us with this updated analysis. The Committee assumed Lawyer D had the legal right to use the names of the two retired partners.

In Opinion 02-19, the Committee opined that a law firm may continue to use the name of a deceased or retired partner if the new law firm is a “bona fide successor” to the prior firm.  The question for the current opinion became what constitutes a bona fide successor, and the Committee stated that Lawyer D will be a part of the continuing line of succession of the firm and may use the names.

The Committee encouraged Lawyer D to review the comments to Rule 7.5 and EAO 05-19. The Committee also suggested that Attorney B remain at the firm for a time after the purchase to increase the “bona fides” of the firm name since both lawyers will work under the new name and therefore provide a continuing succession in the firm’s identity. Additionally, Lawyer D was encouraged to take care to avoid misleading the public by using asterisks or some other means to show that Lawyers A and B are retired.

This brief discussion is an example of how complicated succession planning can become. I encourage you to start early!

Excellent forbearance and CARES Act information from our company

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Diana Hoffman, Corporate Escrow Administrator with our company recently wrote an excellent article about mortgage forbearance that I am sharing with South Carolina closing attorneys in its entirety:

“Forbearance does not erase what the borrower owes. The borrower will have to repay any missed or reduced payments in the future. Borrowers able to keep up with their payments should continue to make payments. The types of forbearance available varies by loan type.

At the end of the forbearance, the borrower’s options can include paying their missed payments:

  • At one time
  • Spread out over a period of months
  • Added as additional payments, or
  • Added as a lump sum at the end of their mortgage

The CARES Act requires servicers to grant forbearance up to 180 days, with a one–time extension of 180 days for borrowers experiencing a hardship due to COVID–19 issues, such as, loss of income, unemployment, illness or caring for a sick relative.

The CARES Act also provides protection against derogatory marks against the borrower’s credit. However, the servicer can report notes to the credit bureau that can be seen by any future creditor that could prevent the borrower from obtaining any type of new financing for a 12–month period.

When the Federal Housing Finance Agency reports servicers who collect payments on mortgages backed by Fannie Mae and Freddie Mac, they will only be required to cover four months of missed payments on loans in forbearance.

The big question is what happens when that four–month period is over? As it turns out, the Government Sponsored Entities (GSEs) themselves are preparing to cover any remaining advances for as long as those loans remain in forbearance.

What does this mean to the title industry? To prevent payoff losses due to deferred payments, settlement agents should:

  • Ask borrowers if they have entered into a forbearance or loan modification agreement with their lender at the opening of the transaction
  • Review the preliminary report or commitment for title insurance for junior liens, securing the deferred payments
  • Ensure the payoff request includes the following language:
    • Please furnish to us a statement of the amount necessary to pay in full including any amounts deferred due to a forbearance or modification agreement.
      If the borrower entered into a forbearance agreement and you are not the entity servicing any deferred amounts, please provide the contact information for the entity who is.
  • Review the payoff statement for deferred principal balance amounts

The last item is important. If the deferred amounts are not contained in the payoff statements, it is likely the amounts are being serviced by another loan servicer and a separate payoff statement will need to be requested”

NC title agent fakes title insurance policies and gets fourteen month sentence

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A North Carolina title agent was sentenced this month for selling fake title insurance policies. Ginger Lynn Cunningham owned Blue Ridge Title Company, a title insurance agency located in Buncombe County, North Carolina.

The title insurance company that had done business with Cunningham had canceled the agency in March of 2016, but Cunningham continued through October of 2017 to represent herself as being a title insurance agent. During this time, she purportedly sold falsified title insurance policies, retaining 100% of the premium.

The court records reflect that at least 973 counterfeit title insurance policies were sold to the tune of around $400,000 in bogus premiums. Cunningham pleaded guilty to wire fraud on October 28, 2019.

Cunningham was sentenced to fourteen months in prison and three years of court supervision. She was also ordered to pay restitution.

I would love to say this is a novel case and that these facts don’t make my skin crawl, but former attorney, Brian Davis, was disbarred in South Carolina in 2015 for the same activity.*

By way of background, the vast majority of real estate lawyers in South Carolina are also licensed as title insurance company agents.  In other parts of the country, lenders receive title insurance documents directly from title companies’ direct operations.  In South Carolina, title companies run agency operations, supporting their networks of agents, almost all of whom are South Carolina licensed attorneys.

Lenders require closing protection letters for closings involving agents.  Stated simply, these letters inform lenders that the insurer may be responsible in the event a closing is handled improperly by the closing attorney.

Title insurance company agents also produce title insurance policies and commitments, following the guidelines of their insurance underwriters, and using software programs designed to support the production of these documents.

Some closing attorneys are not agents but instead act as approved attorneys for title insurance companies. Approved attorneys can obtain closing protection letters from their title companies, but they are not able to issue their own title insurance documents. Instead, they certify title to a title insurance company or to a title company’s agent.

If an attorney cannot provide lenders with closing protection letters, that attorney generally cannot close mortgage loans in South Carolina.

In 2007, Mr. Davis was canceled as an agent by his title insurance company**.  After that cancellation, he was able to legitimately obtain title insurance commitments and policies through an agent. In 2011, however, Mr. Davis was canceled as an approved attorney.  He didn’t let that fact stop him though. He began to fraudulently produce title insurance documents, making it appear that the title insurance company was issuing closing protection letters, commitments and policies for his closings.  He also collected funds designated as title insurance premiums, but he never paid those premiums to the title insurance company.  He continued to handle closings using fraudulent title insurance documents until his actions were discovered and he was suspended from the practice of law by the South Carolina Supreme Court in 2013. In 2015, Mr. Davis was disbarred.

I supposed I should close by saying don’t do this!  Please!

 

* In the Matter of Davis, S.C. Supreme Court Opinion 27480 (January 21, 2015)

** In the interest of full disclosure, I work for that company.

Court of Appeals decides same-sex common law marriage case

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In a same-sex common law marriage case, our Court of Appeals recently weighed in on the applicability in South Carolina of Obergefell v. Hodges*, the 2015 United States Supreme Court case that held same-sex couples may exercise the fundamental right to marry and that state laws challenged in that case were invalid to the extent they exclude same-sex couples from civil marriage on the same terms and conditions as opposite-sex couples.

In an appeal from the family court’s dismissal of Cathy Swicegood’s complaint alleging the existence of a common-law marriage with her same-sex partner, Polly Thompson, Swicegood argued the family court erred by dismissing the case for lack of subject matter jurisdiction**.

The family court case was filed in 2014. While Swicegood’s appeal was pending, the Supreme Court of the United States decided Obergefell.

The case sought an order recognizing the existence of a common-law marriage, a decree of separate support and maintenance, alimony, equitable division of marital property and related relief. Swicegood alleged she and Thompson cohabited as sole domestic partners for over thirteen years, until December 10, 2013, agreed to be married and held themselves out as a married couple. She also alleged the couple exchanged and wore wedding rings, co-owned property as joint tenants with the right of survivorship and included each other as devisees in their wills. She also alleged they shared a joint bank account and that Thompson listed her as a “domestic partner/qualified beneficiary” on Thompson’s health insurance and as a beneficiary on her retirement account.

Thompson moved to dismiss the action, alleging the family court lacked subject matter jurisdiction over Swicegood’s complaint because the parties were not married and lacked the capacity to marry.

Swicegood submitted the affidavits of two individuals who each attested they witnessed a wedding ceremony between Swicegood and Thompson in Las Vegas on February 12, 2011.

Thompson submitted a memorandum and several exhibits in support of her motion to dismiss. She argued that in August 2012 and September 2013, she and Swicegood signed affidavits of domestic partnership in which they acknowledged they had “a close personal relationship in lieu of a lawful marriage,” were “unmarried” and “not married to anyone.”

Thompson contended these documents indicated the parties did not hold themselves out as a married couple. In her affidavit, Thompson attested Swicegood knew they were not married. She stated she and Swicegood participated in a “commitment ceremony” in Las Vegas “on a lark,” but they knew it was not a wedding and that they could not legally marry in Nevada. Thompson attested she gave Swicegood several rings during their relationship, but she intended none of these to signify they were married. She stated she was not and never had been married to Swicegood: “We both knew that if we wanted to get married, we could go to a state that allowed same-sex marriage. It was not our intent to enter into marriage, and we did not”.

The family court dismissed Swicegood’s complaint, concluding it lacked subject matter jurisdiction to adjudicate the issues because a common-law marriage was not legally possible pursuant to section 20-1-15 of the South Carolina Code (2014), which was still in force at the time. That statute read: “A marriage between persons of the same sex is void ab initio and against the public policy of this State.”

The Court of Appeals issued an unpublished opinion remanding the case to the family court with instructions to “consider the implications of Obergefell on its subject matter jurisdiction.” The family court again concluded it lacked subject matter jurisdiction, finding that although Obergefell applied to common-law marriages, it could not retroactively create a common-law marriage between the parties.

The court concluded Obergefell could not “logically be read to exclude common-law marriages,” and so long as South Carolina continued to recognize the validity of common-law marriages for opposite-sex couples, it had “a constitutionally mandated duty to recognize the validity of common-law marriages for same-sex couples.” The court did not expressly resolve the question of whether Obergefell applied retroactively, but it concluded the couple could not have formed a common-law marriage because section 20-1-15 was in place throughout the couple’s thirteen-year period of cohabitation, and they believed they lacked the legal right to be a married couple.

The Court of Appeals applied Obergefell retroactively, but held that retroactive application of the decision did not require them to ignore the fact a state statute operated as an impediment to the formation of a common-law marriage between same-sex couples when it was still in force. Our state law concerning impediments to marriage was held to be “a pre-existing, separate, independent rule of state law, having nothing to do with retroactivity,” which formed an “independent legal basis” for the family court’s dismissal of Swicegood’s complaint.

 

*135 United States Supreme Court 2584 (2015).

**Swicegood v. Thompson, South Carolina Court of Appeals Opinion 5725 (July 1, 2020)

South Carolina is one of three states without remote online notarization

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This HousingWire article really caught my attention this morning. South Carolina is one of only three states without an online notarization option.

Efforts have been in progress to pass Remote Online Notarization (RON) legislation here for a couple of years, but the Council of the Bar’s Real Estate Section opposed the legislation on the theory that RON would challenge the control South Carolina licensed lawyers currently enjoy. Many other lawyers disagree with that position, but the legislation stalled.

Other states have used a variety of permanent and temporary solutions to allow for remote online notarization during the COVID-19 crisis. But, at this moment, California, Oregon and South Carolina are the only states with no solution.

What’s your opinion, South Carolina real estate lawyers? Would RON be a good solution to facilitate closings in South Carolina or would it erode your control? The legislation is likely going to be discussed in the next legislative session. Your opinion matters!

CFPB issues a factsheet on title insurance disclosures

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Also updates disclosure FAQs

cfpb-logoThe Consumer Financial Protection Bureau (CFPB) has recently issued two documents that may help closing attorneys.

The first document is a factsheet on TRID title insurance disclosures. This document addresses differences between state disclosures and TRID disclosures for simultaneous issue rates. It also addresses the situation where the seller pays for title insurance.

The second document is an updated list of frequently asked questions (FAQs) on the TILA-RESPA Integrated Disclosures. The additions address seller paid costs, total payments on the closing disclosure, accounting for negative prepaid interest and whether a lender may require the consumer to sign and return the Loan Estimate and Closing Disclosure.

U. S. Supreme Court rules CFPB structure is unconstitutional

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The Supreme Court issued an order on Monday, June 29 holding that the structure of the Consumer Financial Protection Bureau is unconstitutional. But the agency has not been abolished.

In a 5-4 decision authored by Chief Justice John Roberts, the Court held that the agency run by a single director who can be fired by the President only for cause violates the separation of powers doctrine. The agency can be saved simply by striking the for-cause termination provision of the Dodd Frank Act.

There will be no immediate effect because the agency is currently being run by an acting director who has not been confirmed by the Senate. For this reason, the director can be fired by the President without case.

In the case, a California law firm alleged that an investigative demand issued by the CFPB is invalid on the grounds that the CFPB’s structure is unconstitutional.

SC Supreme Court disbars two lawyers

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On June 24, the South Carolina Supreme Court issued two disciplinary opinions that both resulted in disbarment. Both involved interesting fact patterns, and I invite you to read  them as cautionary tales.

In the Matter of Brooks* involved a lawyer who was sworn in on February 19, 2019. Her application had been based on the Uniform Bar Exam score from Wyoming. One day after her admission, the Office of Bar Admissions learned that the lawyer had knowingly provided false or misleading information in her application.

She failed to disclose information about 2005 and 2014 arrests for driving under the influence (DUI), a resulting license suspension, use of cocaine and marijuana during her release as well as issues with Character and Fitness Boards in bar applications in other jurisdictions.

Bottom line: do not lie or omit facts on bar applications if you seek to practice in other jurisdictions. And advise potential South Carolina lawyers in your life to tell the truth and the whole truth on their applications.

The other case** is interesting only because of an underlying criminal conviction. The lawyer stole about $440,000 from trust accounts and was sentenced to probation. Never having worked in the criminal law arena, this sentence sounds unreasonably lenient to me. The disbarment makes complete sense though.

Bottom line: do not ever touch client funds for your own use!  Don’t borrow client funds, planning to replace them. Remove from your thought processes the idea that client funds are available to you for any reason other than to protect them for your clients.

 

*South Carolina Supreme Court Opinion 27983 (June 24, 2020).

**In The Matter of Collins, South Carolina Supreme Court Opinion 27984 (June 24, 2020).