Claire Manning

Property owners win railroad abandonment appeal

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On July 12, South Carolina’s Court of Appeals issued an opinion* in favor of multiple property owners in a railroad abandonment case.

The properties at issue abutted a 24-mile railroad line extending from McCormick County to Abbeville County. In 1878, the State chartered the Savannah Valley Railroad Company (SVR) to construct the railroad.  Prior title holders granted SVR easements to allow the construction and operation of the railroad. The documents stated the easements would be void in the event the railroad was not erected and established. Each successive title holders’ deed was subject to the easements. SVR conveyed its interest to Seaboard Coastline Railroad Company.

In the late 1970’s Seaboard decided to close the track and seek permission from the Interstate Commerce Commission (ICC) to abandon the line. The ICC granted the request in 1970. The company wrote a letter to the ICC dated February 25, 1980, indicating the track was abandoned as of February 15, 1980.

Calhoun Falls and Savannah Valley Trails (SVT) were the ultimate owners of the railroad’s interests. When SVT began to construct a walking trail on the former line, property owners adjoining the line in McCormick County filed suit in 2016 seeking a declaratory judgment that the properties reverted to them when the track was abandoned. Abbeville County property owners filed a similar suit in 2018.

The trial court issued two orders finding (1) the railroad abandoned the line; (2) when the railroad abandoned the line, the easements were terminated, and the property rights reverted to the adjoining title holders; and (3) the doctrine of laches did not bar the property owners’ claims.

SVT argued on appeal that the trial court lacked subject matter jurisdiction because the abandonment failed to follow the details of the ICC order. The Court of Appeals disagreed, holding that SVT had the burden of proving the railroad’s abandonment was incomplete and failed to meet that burden.

SVT also argued on appeal that laches barred the property owners’ claims. The Court of Appeals noted that SVT failed to plead laches as an affirmative defense, and that the trial court could have declined to address the issue. But, ultimately, the appeals court agreed with the lower court that SVT failed to present evidence that would equip the trial court to make a finding of prejudice to support the laches claim.

Finally, SVT argued that the trial court erred in finding the railroad had abandoned the line. The Court of Appeals noted that the railroad ceased operations, sought permission for abandonment from the ICC, removed the tracks, and transferred its property interests. Further, nothing in the record showed that the railroad failed to comply with the requirements of the ICC. Citing prior cases, the Court stated that to rule otherwise would gut the longstanding rule that an easement is extinguished when the railroad abandons the right of way for railroad purposes.

As a dirt lawyer, I like this opinion! If you run into railroad abandonment issues in your chains of title, consult your friendly, intelligent title company underwriters.

*Myers v. Town of Calhoun Falls, South Carolina Court of Appeals Opinion 5998 (July 12, 2023)

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

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In May, this blog discussed Ani Creation, Inc. v. City of Myrtle Beach,* a case where the South Carolina Supreme Court upheld an ordinance that imposed a zoning overlay district intended to bolster the “family friendly” nature of Myrtle Beach’s historic downtown area. The ordinance targeted smoke shops and tobacco stores and the merchandizing of tobacco paraphernalia, products containing CBD, and sexually oriented material.

The opinion begins, “The City of Myrtle Beach (the city) is a town economically driven and funded by tourism.” The facts indicate that the city received frequent criticism from tourists and residents that the proliferation of smoke shops and tobacco stores repelled families from the area. The city passed a comprehensive plan that aimed at increasing tourism and concluded that all businesses needed to encourage and support a “family beach image”.  The city passed an ordinance which created a zoning overlay district known as the Ocean Boulevard Entertainment Overlay District that encompassed the historic downtown area.

The prohibited uses in the district were declared immediately nonconforming when the ordinance was passed on August 14, 2018, but an amortization period was allowed which gave affected businesses until December 31, 2019, to cease the nonconforming portions of their businesses.

The zoning administrator issued citations to the nonconforming businesses. Nine of the 25 affected stories appealed to the Board of Zoning Appeals which found (1) it did not have jurisdiction to declare the ordinance unconstitutional; (2) it could not grant a use variance because it would allow the continuation of a use not otherwise allowed in the district; and (3) the businesses were engaged in one or more of the prohibited uses. On appeal, the circuit court affirmed the Board’s opinion, finding the appellants’ 25 grounds for challenging the ordinance meritless. The businesses appealed directly to the South Carolina Supreme Court.

The appellants raised a “host” of constitutional and procedural challenges, all of which fell on deaf ears at the Supreme Court. The Court held that the ordinance was a valid exercise of the city’s police powers. According to the Court, municipal governing bodies clothed with authority to determine residential and industrial districts are better qualified by their knowledge of the situation to act upon such matters than are the courts, and they will not be interfered with in the exercise of their police power to accomplish their desired end unless there is a pain violation of the constitutional rights of the citizens.

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

A comment on the Dirt Listserv said, “S. Carolina is OK with cancel culture after all.”  A store selling sexually oriented materials was removed from Garners Ferry Road in Columbia (about three miles from my house) using similar legal arguments. I was delighted to see that store torn down before I had to explain it to my grandchildren! But I do understand the “cancel culture” argument. What do you think?

*South Carolina Supreme Court Opinion 28151 (April 19, 2023, Re-filed June 28, 2023)

Magistrate has no jurisdiction when title is in question

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Court of Appeals reverses Circuit Court on this issue

In Rivers v. Smith*, South Carolina’s Court of Appeals reversed Orangeburg County’s Circuit Court order affirming a magistrate’s order of eviction.

Rufus Rivers and Merle Rivers have lived on property once owned by Jessie Mae Smith since 2009, although there was no record of a written lease. In 2013, Jessie Mae Smith signed a power of attorney in favor of her son, James Smith. In 2014, James Smith conveyed his mother’s property to himself by quitclaim deed using the power of attorney.

(The opinion contains no discussion of whether the conveyance of the property by the attorney in fact to himself was a valid transfer, but that would have been my first question.)

Jessie Mae Smith died in 2016. In 2018, James Smith sent the Rivers a letter demanding they vacate the property within 30 days. The Rivers refused. They asked James to cease and desist his efforts to displace them. They argued that James had an invalid power of attorney and alleged he had breached fiduciary duties. Competing lawsuits followed.

The Rivers’ lawsuit in the Circuit Court challenged James’ ownership of the property and alleged constructive fraud, unjust enrichment and other causes of action. The Rivers amended their complaint, alleging that James used an invalid power of attorney and that Jessie Mae Smith had orally given or promised the property to the Rivers.

James filed the subject case in the magistrate court, seeking eviction. The Rivers made various arguments to the magistrate opposing the eviction, including alleging that Jessie Mae Smith had promised the property to them. The Rivers also alerted the magistrate of their claims against James Smith in the circuit court.

James Smith’s main argument to the magistrate centered around the statute of limitations because the alleged gift would have occurred more than three years before the lawsuits were brought. The magistrate ruled that James Smith was the lawful owner of the property and ordered eviction.

On a motion by the Rivers to reconsider, the magistrate found that the case did not involve a question of title and that she had jurisdiction to hear the case. The circuit court affirmed, and this appeal followed.

The issue on appeal was whether South Carolina Code §22-3-20(2), which bars a magistrate from hearing a case when title to the property is in question, prohibited the magistrate from hearing this case.

The Court of Appeals acknowledged that Smith has defenses to Rivers’ claims, and that those defenses may be valid ones, but held that the magistrate’s jurisdiction ended as soon as it became clear that there was a challenge to title. The opinion further stated that the case may end in a second and successful eviction, but they refused to say that outcome is certain.

I will be curious to learn what the future holds in the litigation between these parties. I hope the property is worth the litigation, and I note with interest that the Rivers represented themselves pro se in the subject case.

*South Carolina Court of Appeals Opinion 5992 (June 21, 2023)

Pay attention to ALTA’s new seller impersonation memo

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American Land Title Association recently published a memorandum concerning seller impersonation fraud in real estate. You can read the memo in its entirety here.

We have always had to be on the lookout for fraudsters in real estate in South Carolina. Do you remember the infamous Matthew Cox who came to South Carolina after a fraud binge in Florida and Atlanta?

I’ll never forget the name, Matthew Cox, or the telephone call that tipped us off that we had a serious mortgage fraud situation here in Columbia. Long before the housing bubble popped, an attorney called to let us know what was going on that day in the Richland County ROD office. Representatives of several closing offices were recording mortgages describing the same two residential properties in Blythewood, as if the properties had been refinanced multiple times in the same day by different closing offices.

At first, we thought our company and our attorney agent were in the clear because our mortgage got to record first. South Carolina is a race notice state and getting to record first matters. Later, we learned that deeds to the so-called borrower were forged, so there was no safety for anyone involved in this seedy scenario. Thousands of dollars were lost.

Next, we learned about the two fraudsters who had moved to Columbia from Florida through Atlanta to work their mischief here. The two names were Matthew Cox and Rebecca Hauck. We heard that Cox had been in the mortgage lending business in Florida, where he got into trouble for faking loan documents. He had the guts to write a novel about his antics when he lost his brokerage license and needed funds, but the novel was never published. With funds running low, Cox and his girlfriend, Hauck, moved to Atlanta and then Columbia to continue their mortgage fraud efforts.

We didn’t hear more from the pair until several years later, when we heard they had thankfully been arrested and sent to federal prison.

The crimes perpetuated by Cox and Hauck were made easier by the housing bubble itself. Everything was inflated and values were hard to nail down. And closings were occurring at a lightening pace.

The new memo from ALTA says fraudsters are using owner’s Social Security and driver’s license numbers as well as notary credentials in these transactions. They, of course, use emails and text messages to mask their identity and commit fraud from any location.

The red flags remain the same:

  • Vacant real estate;
  • No outstanding mortgages;
  • For sale below market value;
  • Seller wants a quick sale;
  • Seller wants a cash buyer;
  • Seller refuses to attend the closing and claims to be out of the country;
  • Seller is difficult to reach by telephone;
  • Seller demands the proceeds be wired;
  • Seller refuses to complete multifactor authentication or identity verification;
  • Seller wants to use their own notary;

Be careful out there, dirt lawyers! Use your common sense and insist on verifications of identity.  ALTA’s memo has several useful tips.

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

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

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

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

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

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

South Carolina United Methodists agree to separate from 113 churches

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Real estate related issues should be kept to a minimum

My husband and I just returned from the 2023 annual meeting of the South Carolina United Methodist conference. We attended as lay members from our church, but my eyes and ears were open, as always, for real estate issues.

Dirt lawyers in South Carolina witnessed the real estate issues raised by the schism in the Episcopal Church several years ago. We made lists of church properties that could be sold or mortgaged without the involvement of any entity beyond the local congregation. We made lists of properties involved in a hierarchical church structure requiring agreements and signatures of persons in distant locations. We advised real estate practitioners to work in close connection with underwriting counsel of the title insurance companies to avoid title issues.

I have no inside information on this matter, but my guess is that the Methodists were able to learn from the Episcopalians and managed to avoid the extensive litigation involved in that earlier schism.

United Methodist churches exist under a hierarchical structure. Anyone who has handled a closing involving a United Methodist property has learned that the District Superintendent must be involved in closing documents. The church properties are, in effect, owned by the conference.

When issues began to arise about LGBT members and pastors and it became apparent that there would be a separation of congregations, South Carolina’s Bishop and the administrators surrounding him negotiated with the churches who desired to leave the conference. After months of talks, the parties agreed to a payout that would free the real estate of the local church from the involvement of the conference.

Churches who wanted to leave the conference were required to pay ten percent of the value of their real properties and other assets. They were also required to pay some funds related to pastor pensions and some funds related to “apportionments” (the money paid to the conference to support the work of the conference as opposed to the work of the local congregation.)

Prior to the meetings this week, we had heard that several churches decided to leave the conference. But we were surprised to learn that there are, in fact, 113 churches who made arrangements with the conference to separate from United Methodism.  On the last day of the meetings, we were asked to vote to approve the separation. Thankfully, the meeting, although very sad, was handled in a respectful manner. We witnessed an amicable divorce.

If you are asked to handle any transaction involving a church that is or formerly was a United Methodist congregation, you should, of course, investigate the title issues as usual. You should involve the friendly underwriting counsel from your title insurance company. But, after these appropriate investigations, you should learn that there are no title issues arising from the involvement of the conference.

Never say never, though. I wouldn’t be shocked to learn that some of the 113 church congregations failed to tie up all the details of the separation. So be even more diligent than usual in examining the authority documents of the church. I assume that real estate practitioners will see numerous transactions as these churches, now separated from the administrative arm that supported them and having paid out substantial funds for the separation, will need real estate loans.

US Supreme Court redefines “waters of the United States”

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Dirt lawyers, do you remember studying the cases in first year property classes in law school that defined navigable waters? We discussed the ebb and flow of tides. We talked about whether the water is presently used or had been used in the past or may be susceptible for use in the future for transportation.  I remember discussing whether logs could float and how big a boat must be to make the property qualify as navigable.

When I was in private practice in Columbia representing real estate developers, I ran into significant issues on a routine basis involving the federal government’s jurisdiction over wetlands. One developer was required to add an eight-acre lake to a residential subdivision because a minor portion of the property was soggy. We dealt with the Army Corps of Engineers on these issues, and getting approval for development was tedious at best. And I promise you that those soggy areas were not navigable by any size boat.

The reach of the Clean Water Act (CWA) was significantly constricted when the United States Supreme Court on May 25 issued a decision that narrowed the scope of wetlands and other water subject to the CWA’s protections. The case, Sackett v. EPA*, involved a residential lot in Priest Lake, Idaho.

Mike and Chantell Sackett bought the lot in 2004 for $23,000, intending to build a modest three-bedroom family home. They began building in 2007, and the Environmental Protection Agency (EPA) demanded the construction be halted, claiming it violated the CWA because the property was a federally regulated “navigable water”.

That demand began a 16-year legal battle. The Sacketts sued the EPA, and the case has reached the Supreme Court twice. The first decision involved a procedural matter. The Court decided in 2012 that property owners are entitled to immediate judicial review of EPA compliance orders without waiting for agency to seek judicial enforcement to contest the assertion that properties contain “waters of the United States” subject to CWA jurisdiction.

The case then worked its way through the lower courts until the Supreme Court agreed in 2022 to consider the issue of whether the EPA can define “navigable waters” to include semi-soggy parcels of land.

In January 2023, while the Sackett case was pending, the EPA published a final rule adopting a new definition of “waters of the United States” (WOTUS) to include traditional navigable waters, tributaries, adjacent wetlands and other waters that are not themselves navigable but are either relatively permanent or have a significant nexus to navigable waters. The Sackett case probably invalidates this rule.

The five-person majority held that WOTUS include only: (1) relatively permanent, standing or continuously flowing bodies of water forming geographic features described in ordinary parlance as streams, oceans, rivers and lakes; and (2) adjacent wetlands with continuous surface connection to such waters so that wetlands, as a practical matter indistinguishable from the bodies of water. To prove jurisdiction over a wetland, the EPA must now show that the adjacent body of water constitutes WOTUS (a relatively permanent body of water connected to interstate navigable waters) and that the wetland has a continuous surface connection with that water, making it difficult to determine whether the water ends and the wetland begins.

As I type this, I sit outside on a screen porch listening to birds sing in the previously defined wetlands that adjoin two sides of our house. We bought the lot, in part, because of the beauty and peace provided by wetlands, including the birds, as opposed to human neighbors. I wonder whether our peace and quiet will change.

*U.S. Supreme Court Opinion 21-454 (May 25, 2023)

State Farm will no longer accept new applications for home insurance in California

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My family has a modest second home in North Litchfield Beach. It isn’t close to the ocean. My Fitbit clocks 700 steps to the beach, and most family members prefer to drive a golf cart for that reason. To call it a “raised beach house” is an understatement. Because of flood insurance concerns, the garage level of the house was required to be very tall when we built in 2011.

We can’t paint or power wash with the tallest ladders available to homeowners. If we had a big boat, we could park it in the garage.  My point is that the living area of our house is so far above ground, that if it floods, it is likely that inland Pawleys Island and Georgetown County will also flood.

Thinking all the way back to Hurricane Hugo in 1989, my extended Georgetown County family members evacuated to Columbia to stay with us. Much to everyone’s surprise, our property in Columbia suffered more damage than their properties in Georgetown.

Earlier this year, we received a letter from our insurance agency indicating that it would attempt to obtain insurance for us for the upcoming insurance year, but we should be prepared for difficulty because of the frequency of hurricanes in our area.  There is no reason our house should be difficult to insure other than its location on the beach side of Highway 17.  

I share this information with South Carolina dirt lawyers, particularly those who practice in our coastal counties, for discussion purposes only. I’m not pushing a panic button by any means. But the headlines I read last week about State Farm’s decision to pull out of California as to new homeowners’ applications certainly caught my attention.

State Farm pointed to wildfire risks and construction cost inflation to justify its decision. Everyone is suffering from the latter, and, as to the former, the company didn’t attempt to limit the impact of its decision to those areas most affected by wildfires. Other stated concerns were climate change, reinsurance costs affecting the entire insurance industry, and global inflation. All of those concerns also affect all locations.

The company pulled out of the entire state as to new applications. And some news articles reported that State Farm is the largest insurer based on premium.  The fact that the largest insurer pulled out of the third largest state seems impactful.

The announcement did state that existing customers will not be affected and that automobile insurance applications will continue to be accepted.

There doesn’t appear to be anything we should do at this point, other than to keep our eyes and ears open as to developments in the area of insurance for ourselves and our clients.

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

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

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

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

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

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

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

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

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

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

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

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

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

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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)