Despite a decade of litigation by lot owners….

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Two Surfside golf courses are being redeveloped into residential lots

The North and South courses at Deer Track Golf Resort in Deerfield Plantation have been closed for more than ten years and are finally being redeveloped as residential lots. Adjacent lot owners waged class actions in Horry County seeking to have the use of the properties in question restricted to golf courses or open spaces. While these battles were being waged in court, nature attempted to reclaim the properties. One property owner testified that his views changed from overlooking a manicured golf course to overlooking a “sea of weeds”.

Similar battles have been successful in other parts of the country. The cases are fact intensive and turn on the law of implied easements, which, of course, varies widely from state to state. Plats showing golf courses may provide rights in adjacent lot owners, depending on the recorded documents, the sales program and the law of implied easements in the location.

golf course

Let’s look at how the Deerfield Plantation cases were decided. First, the facts:  The golf courses and surrounding residential subdivisions were originally developed beginning in the late 1970’s. The plats contained notes to the effect that the streets were dedicated for public use but the golf courses were to be maintained privately and were specifically not dedicated to public use.

The covenants gave the lot owners no rights, property, contractual, or otherwise, in the golf courses. A Property Report that was delivered to all prospective lot purchasers described the costs of golf memberships, which were not included in lot prices, and stated that to be allowed to use the golf courses, members would be required to pay initial dues and annual dues and fees. The real estate agents made it clear during the sales program that the mere purchase of a lot did not give a lot owner any right or entitlement to use the golf courses. The deeds of the lots did not convey any easements or other interests in the golf courses.

One plaintiff, who was also a real estate agent, testified that he was never told the golf courses would operate in perpetuity and that the real estate agents never told other potential purchasers that the golf courses would always exist on the properties.

What caused the golf courses to fail? When the golf courses opened, there were 30 – 40 golf courses in the Myrtle Beach area. By the time the golf courses closed, there were nearly 125 courses. Property taxes in the golf courses increased from $7,800 per year to $90,000 per year.  And then the economy tanked. These three factors have occurred across the country to varying extents.

Now, let’s look at South Carolina law. In one of the cases, a 38-page Order of Thomas J. Wills, Special Referee, examined the law of implied easements in South Carolina. I’m summarizing and eliminating the citations for this brief discussion.

The Order states that implied easements are not favored by the courts in South Carolina and must be strictly construed. The intent of the parties controls the existence and scope of implied easements, and the best evidence of that intent is the recorded documents. While case law in South Carolina is clear that lot owners in subdivisions hold easements in streets shown on plats by which their lots are sold, the order states that this rule does not extend beyond access, which is necessary and expected for residential purposes. Finally, the order states that no implied easements in views, breezes, light or air exist in this state.

Finally, these golf courses will be redeveloped into new residential subdivisions. Will we see more of this litigation in South Carolina? Probably. While the law in South Carolina appears generally to favor redevelopment in these cases, there is no doubt that the facts in some of the situations may give rise to implied easements in adjacent lot owners, even in the face of our law.

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Dirt lawyers: Did you know some County boundary lines in South Carolina are changing?

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For your reading pleasure, here is a repost of an excellent blog (with maps!) by my friend Josh Lonon of The Wyche Firm in Greenville. We will have to pay particular attention as this un-folds. Some of us who have been involved in the practice of real estate law for many years will remember confusion and extra work for title examiners and practitioners when other county boundary lines changed. Thanks, Josh, for the great information!

HOA foreclosures are being challenged on multiple levels in SC

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The HOA won in a recent Court of Appeals case

In January, I blogged about a Federal class action lawsuit filed in Charleston seeking to invalidate non-condo foreclosures by owners’ associations. You can read that blog here but the short version is that the suit challenges foreclosures on the grounds that these non-profit corporations don’t have the power to create liens for unpaid assessments prior to obtaining judicial judgments. Condominium associations established through the Horizontal Property Regime Act have statutory authority to create liens, but the power of non-condo projects is created by restrictive covenants. We’ll have to wait and see how that suit turns out, but if the plaintiffs there are successful, foreclosure practice will change drastically in South Carolina.

gavel house

Our Court of Appeals decided a case* on April 4th that could have made drastic changes in another way. In fact, Richland County’s Master-in-Equity, Joseph Strickland, stated in his order that “the practice of homeowners’ association foreclosures would effectively be eradicated if (the Plaintiffs’) position came to bear.”

This appeal was handled by the law office of my friend, Brian Boger, a Columbia lawyer and well-known champion of consumers’ rights. The appeal argued that the $3,036 successful bid “shocked the conscience” and violated equitable principles. The parties agreed that the home was valued at $128,000. There was a mortgage balance of $66,004, leaving equity of $61,996. The Hales did not argue that there were irregularities in foreclosure process, but instead argued that the low bid should have encouraged the Master to use his gavel to “do equity”.

Comparing the successful bid to their equity using the “Equity Method”, the Hales argued that the bid amounted to 4.8% of the fair market value of the property. The HOA argued, using the “Debt Method”, that the bid must be added to the senior mortgage balance to judge its sufficiency because the successful bidder would have to pay the senior mortgage to have good title. In this case, using the Debt Method, the bid amounted to 54.94% of the fair market value. The Court of Appeals agreed that the Debt Method was the proper method for considering a senior encumbrance in a foreclosure.

The Court found no South Carolina cases that expressly weighed the two methods of judging a bid, but pointed to prior cases that considered the amount of a senior mortgage in the determination and found a 3.15% bid sufficient. One reason the Court of Appeals prefers the Debt Method is that it will result in “fewer set asides”.  In other words, the Court of Appeals is not interested in upsetting the foreclosure practice applecart at this point.

Justice Lockemy dissented, stating that he thought it improper to give a judicial sale buyer credit for assuming a debt it is not legally required to pay. He said the Court’s decision could create a perverse circumstance where a judicial sale bidder purchases property for a de minimis amount simply to capitalize on rental revenue until the senior lienholder forecloses. The majority called this argument a solution in search of a problem because there was no evidence that the successful bidder in this case was engaged in such a scheme and because the successful bidder must satisfy the mortgage to obtain clear title.

Foreclosure practice in South Carolina remains the same…for now.

* Winrose Homeowners’ Association, Inc. v. Hale, South Carolina Court of Appeals Opinion 5549 (April 4, 2018)

Scary telephone identity compromise story from one of our own

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Our company distributes a great publication, Fraud Insights, which tells scary fraud stories every month. Lisa Tyler, National Escrow Administrator, edits this publication and does a great job keeping us informed about new scams. A Fraud Insights story in March came from one of our company employees who told her personal identity compromise story to prevent it happening to the rest of us. I’m going to translate the story to South Carolina terms and call the victim Pam Paralegal.

Pam Paralegal was working on a messy residential purchase file in her office in Charleston and was not focusing on the telephone call on her cell phone that she received purportedly from her personal bank. The caller ID was indeed Pam’s bank’s name. When Pam answered, the caller identified herself as Jill Jones and said she was with the fraud department of the bank. Ms. Jones said she was going to text a code to Pam to confirm Pam’s identity.

scammer calling

Pam received the text code and read it back to Ms. Jones.  Ms. Jones then asked if Pam had authorized a $1,000 transfer from her account that morning. Pam said that she had not made that transfer. Pam told Ms. Jones that she would log into her online account to determine whether that transfer was showing up, but Ms. Jones told Pam the bank had already shut down her ability to access her account via the Internet. Ms. Jones told Pam that she needed her to read off an additional text code to authorize the shutdown. When Pam read the second text code back, the phone line went dead.

Pam immediately started receiving emails from her real bank. The first email confirmed a change in Pam’s password. The second email confirmed Pam had authorized a $1,000 withdrawal via electronic funds transfer. Pam called her bank to report the incident and later received a call back from the real fraud department. Pam was informed that the thieves had stolen $1,000 by using her Social Security number, and that they really had shut down her account.

Pam purchased a credit monitoring service, filed a police report, and contacted all three credit bureaus to make them aware of the incident. And she is still missing $1,000.

Here are seven tips from the Better Business Bureau ® (BBB) offers to protect against telephone scams:

  1. Do not trust caller ID: Victims fall for telephone scams because they assume the number on their caller ID is the correct person. Scammers can easily spoof numbers to make it look like a certain person is calling you, when in reality they are not. Some scammers will use your own telephone number for the caller ID. Others will use your prefix with a different last four digits to make you assume you’re being contacted by a neighbor.
  2. Do not give out personal information: Any legitimate person or business who reaches out to you will already have your information on hand. If they do not, or if you receive a call out of the blue asking for personal information, just hang up.
  3. Scammers usually pose as a trusted source: Like the story from Pam who was called from someone posing as an employee in the fraud department of her bank, scammers will pose as a trusted source to attempt to obtain information from you. Hang up immediately.
  4. Do not press buttons: Many “robocallers” will prompt you to “press 9” to be taken off their call list. Pressing 9 will only do the opposite and flood your phone with even more calls. Pressing a number on the keypad alerts the scammers that they have reached an active telephone number.
  5. Beware of big name companies calling: Scammers impersonate big name companies, charities and legitimate businesses, hoping that you will be more inclined to give personal information to them. If you receive such a call, hang up immediately, find the appropriate number and call the business to verify.
  6. Sign up for the Do Not Call Registry: To cut down on the amount of calls you receive, you can register your phone number for free through the Federal Trade Commission (FTC) Do Not Call Registry. This registry prohibits calls, informational calls, telephone survey calls and calls from companies you have recently done business with.
  7. Do not answer: If you receive a call from a number you don’t recognize, let it go to voicemail. Any legitimate person or business will leave a message. If a scammer decides to leave voicemail, you will have time to think about what is being asked by them, instead of being pressured on the spot to give up your personal information.

That last tactic is the one used in our household and with my business cellphone. If I don’t recognize the number, I don’t answer the call. It makes more sense to return the call of a legitimate caller than to become involved with a scammer or telemarketer. That’s my plan and I’m sticking to it!

Drafting survivorship deeds continues to be a concern

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Pay attention to tricky South Carolina law!

This blog has addressed the issue of drafting survivorship deeds previously. This issue comes back up today because the South Carolina Bar’s Real Estate Practices Section’s listserv discussed this issue, in part, last week.

The thread began with a question about whether a tenancy in common with a right of survivorship is a recognized estate in South Carolina. I believe that the concern arose from some drafting liberties taken by attorneys with these deeds. In my opinion, to create a survivorship deed in South Carolina, the drafter should follow the case or the statute exactly. And it is my opinion that if the drafter follows the case or statute exactly, then a valid survivorship estate is created, and that estate will avoid probate for the property in question at the first death.

Let’s take a look at the case and the statute.

dee house

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! These 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 are 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 under the case. 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.

If anyone on the listserv has different opinions from those stated here, I would love to hear them. The real estate bar in South Carolina would love to hear them, too!

 

 

 

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

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

South Carolina Dirt Lawyers: Are you as confused by the SC Supreme Court’s most recent implied easement case as I am?

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I’ve never maintained a list of the South Carolina real estate cases I find mystifying, but the most recent implied easement case, which involves a gravel driveway in Lexington County, may compel me to start.* When I say mystifying, I mean I can’t figure out why the Court came to the conclusion it did, based on what I had previously understood to be the law.

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The case is Gooldy v. The Storage Center-Platt Springs, LLC **, decided March 18.  One reason I found the case puzzling was that it failed to include the plat. When that happens, I usually attempt to draw the properties based on the language in the case, but I was unable to accomplish that in this situation. So for your edification, the main plat in question is included here.

Thanks to the efforts of my friend, Bill Booth, who sent the plat along with the chains of title and aerial views for both properties, I’ve at least figured out the facts in the case.

Here’s what happened. Congaree Associates owned 500 acres in Lexington County. In the 1980s, Congaree developed a residential subdivision of thirteen lots, called Westchester Phase I. Robert Collingwood created the plat for the subdivision. The plat was dated August of 1983 and was recorded. The northernmost lot (Lot 13) bordered the property now owned by Gooldy. This plat does not show a road crossing Lot 13. Six months later, in January of 1984, Collingwood was asked to prepare a survey for Westchester Phase II. That plat included the disputed road as “50’ Road”. The plat was conditionally approved, but the developer abandoned the subdivision. We don’t know the date of this abandonment.

In December of 1985, Collingwood prepared the Loflin plat, linked above. Note the “50’ Road” bordering the 0.68 tract. In September of 1986, Congaree conveyed the 0.68 tract to Loflin by a deed that incorporated this plat but made no mention of the road. The 0.68 acre tract was conveyed four times during the next sixteen years, and each deed incorporated the Loflin plat. The final conveyance was to Gooldy in January of 2002. Gooldy used the road for access for himself and the customers of his chiropractic business. In 2007, Congaree conveyed a 7.5 acre tract to The Storage Center. The disputed road was included in the 7.5 acre tract. The Storage Center’s representatives informed Gooldy that he was no longer entitled to use the road. Gooldy filed suit seeking to establish an easement.

The master in equity held that the deed incorporated the plat and established a presumption of an implied easement which The Storage Center failed to rebut. The master found that because Collingwood surveyed Westchester Phase I and II, he knew Congaree intended to build a road, and armed with that knowledge, Collingwood included the road on the Loflin plat.  Huh?  What if another surveyor had been employed? Does the fact that a surveyor called it a road make it so?

The Court of Appeals reversed, holding the presumption did not arise because the deed only incorporated the plat to describe the metes and bounds of the 0.68 acre tract rather than to demonstrate the intent to create an easement.

The Supreme Court reversed, holding that the Loflin plat created the presumption of an implied easement as established by Blue Ridge Realty Co. v. Williamson*** and its progeny. In Blue Ridge, a developer subdivided its property into lots and streets and recorded the plat. The Court held that purchasers of lots with reference to the recorded plat acquired every easement, privilege and advantage shown on the plat, including the right to use all the streets, near or remote, shown by the plat by which the lots were purchased.

There is no question that the Loflin plat was in The Storage Center’s chain of title. And there is no question that the two properties share a common grantor, Congaree Associates. What is missing in my understanding of the Blue Ridge holding is a subdivision plat, by which conveyances from the common grantor to Loflin and The Storage Center were made. Here, the common grantor did record a subdivision plat before any out conveyances were made and it did not show the road. Years later, the surveyor, who happened to have knowledge of a proposed (but later abandoned subdivision), depicted a road that he knew would be used if the subdivision was created on a plat he made, not for the common grantor, but for the purchaser, Loflin.  And that plat and a deed referring to it created an implied easement.

If this case makes sense to you, please explain it to me!

Here are two off the top of my head:  Smith v. Cutler and Boone v. Quicken Loans, Inc. Name your favorite!

** South Carolina Supreme Court Opinion 27782, March 14, 2018.

*** 247 S.C. 112, 145 S.E.2d 922 (1965).

Another settlement agent sued for failing to protect buyer in email diversion

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My first blog of 2018 discussed a novel lawsuit (at least novel to me) brought in York County against a residential closing law firm. A home purchaser had lost $50,000 in closing funds that were diverted by a third-party criminal posing as the transaction’s real estate agent. Did you hear that? The real estate agent was hacked. The law firm was not hacked and was only involved in the loss because it was the settlement agent. 

The law firm’s paralegal and the purchaser had discussed the funds necessary to close by telephone, but no mention was made in that conversation of the wiring instructions. The complaint stated causes of action in negligence and legal malpractice and listed the following breaches of duty:

  • Requiring the purchaser to wire funds without counseling the purchaser about methods by which the secure delivery of wired funds could be compromised;
  • Failing to counsel the purchaser about the risks and insecurity of email communications, particularly of private, sensitive and financial closing information; and
  • Failing to be alerted by the circumstances of the purchaser’s telephone call to the firm’s paralegal.

email fish hook

American Land Title Association’s ALTA News, dated March 9, reports on a similar lawsuit filed in Wisconsin. The original news story was written by Brian Huber and reported by gmtoday on March 8. 

In the Wisconsin lawsuit, the email of the settlement agent, Merit Title, was apparently compromised. According to the complaint, a Merit Title employee used an unsecured system to email the closing statement and wiring instructions to the purchaser. The following month, the purchaser received an email purportedly from Merit Title, but with a missing “T” in the domain name (merititle instead of merittitle). The second email provided wiring instructions that were similar in format, structure and design to the ones sent by Merit, according to the complaint. The purchaser lost $82,000 in the scam.

The lawsuit claims Merit “had knowledge or should have had knowledge of a cybercriminal epidemic whereby hackers target title companies to learn about real estate transactions occurring and the hackers then send fraudulent wire instructions to the buyers prior to the closing.” Merit Title should have known of preventive steps to protect the buyers, the complaint stated.

My guess is that we are about to see numerous suits like this, seeking payment from the deepest pockets involved in real estate transactions. As I asked in the earlier blog, would the processes established by your law firm for the protection of your clients defend against this type of fraud?  If not, get busy and make changes.

ALTA has a list of resources that can be used to provide the appropriate safeguards, and your title insurance company should be able to assist you in implementing the appropriate resources in your office. Most of the protective procedures involve making sure your own systems are secure. But these lawsuits seems to indicate that consumers must also be advised of the dangers of dealing with others involved in closings who do not use secure systems. You don’t want to be left holding the bag for a comprised email system of a real estate agent!