Vrbo and Airbnb are two go-to websites to find interesting short-term rentals in vacation locations. Sometimes a cabin or house seems much more appropriate and fun than a hotel room for a family get-away. Having a kitchen and room for dining is often a plus. And I love a hot tub with a view!
But I’ve seen a couple of news articles about South Carolina cities questioning whether these types of short-term rentals are appropriate in residential subdivisions, and I understand the concern.
The article quotes a man who said he and his wife operate nine Airbnb locations and have been put out of business by the resolution. The article quotes the resolution: “the homes are mainly in their older neighborhoods and these transient tenants have a negative effect on the peace and perceived safety of those neighborhoods.”
An article posted on March 17 by South Carolina Public Radio entitled “Upstate cities ponder the fate of short-term rentals” discusses the Rock Hill moratorium as well as similar discussions by city officials in Spartanburg.
The city attorney in Spartanburg is quoted as saying that city’s “permissive” zoning ordinance does not address short-term rentals and that any use that is not specifically allowed is prohibited. He admitted, however, that there are “plenty” of short-term rentals—about 120 on Airbnb alone.
One councilman in Spartanburg was quoted as arguing in favor of creating rules to keep “bad actors” from causing trouble in neighborhoods.
Rules vary greatly in the cabins and houses we’ve rented, but a common theme seems to be that parties are not allowed. I’ve also seen limits on the number of cars that can be accommodated and, of course, the number of people permitted. Pets may or may not be allowed.
What do you think? Would you be comfortable with short-term rentals in your neighborhood? Could rules about groups, parties and parking make a difference?
We may see other cities in The Palmetto State considering whether to limit short-term rentals through zoning or permitting. It’s an interesting question!
But apparently not when the claimant has no interest in the property
South Carolina courts don’t respect tax sales!
For that reason, tax sales have always been problematic for title examiners and real estate closing attorneys. Any concern about service of process or naming proper parties can result in the return the property to the owner of record. Historically, we would simply not close in the face of a tax sale in the chain of title.
In recent years, title insurance companies and real estate lawyers have attempted to take a more liberal approach. A rule of thumb might be that a tax sale that is at least ten years old where one person or entity has held title for a ten-year period since the tax sale may not result in an aborted closing. The title may not be marketable, but it may be insurable.
A recent Court of Appeals case* made me laugh. (Remember I am an easily amused title nerd.) The plaintiff, Scott, was “renting to own” the property in question under a 1998 oral agreement with her uncle, McAlister. Scott took possession of the property after making an initial down payment of $4,000 and agreeing to pay the remaining $31,000 purchase price in monthly installments of $300. That’s her story, at least. McAlister testified that Scott agreed to obtain a loan to make a second payment of $31,000.
After Scott failed to make the $31,000 payment, McAlister told Scott that her monthly payments would be considered rent only, and the parties agreed to reduce the monthly payment to $200. In 2007, McAlister began eviction proceedings, but the circuit court vacated the order of ejectment when Scott asserted that she occupied the property under a land purchase agreement. McAlister moved and changed the mailing address for tax purposes. The taxes for 2011 were never paid, and the property was sold in a tax sale in 2012.
Scott claimed she was unaware of the mailing address change, the delinquent taxes, the tax sale or the opportunity to redeem the property until the purchaser’s surveyor showed up! In 2015, Scott filed a complaint alleging that tax sale technicalities were not followed because notices were never posted on the property. The tax collector claimed her office posted the property notice on the property in August of 2012.
The circuit court granted summary judgment after it determined Scott lacked standing and that the tax authorities owed her no duties because she was not the record taxpayer, property owner or grantee. The Court of Appeals cited cases for the proposition that a tax execution is issued against the defaulting taxpayer, not against the property. The summary judgment decision was upheld on the theory that while due process is owed to a property owner, it is not owed to a person who whose only interest is based on an oral agreement.
I love it when our appeals courts answer real estate questions correctly. Overturning this tax sale would have resulted in serious consequences for title examiners and closing attorneys!
*Scott v. McAlister, South Carolina Court of Appeals Opinion 5897 (March 9, 2022)
The Oregon legislature believes they should, but a Federal Court issued an injunction
Late last year, my son and daughter-in-law decided to buy a new house, mainly to move into the school district where their children attend school and to be closer to their children’s friends. My daughter-in-law is an elementary school teacher who had enrolled her children in the school where she teaches. She’s a great teacher, by the way, as evidenced by being named Richland One teacher of the year several years ago. I’m not just bragging about her, although I am very proud of her. Being a great teacher is part of the story.
They immediately sold their house in our very hot seller’s market and were looking at the daunting process of having to move twice. They got lucky when their real estate agent found the perfect house in the perfect neighborhood. The real estate agent advised them to make an offer at full price, which they did, but apparently several other real estate agents gave the same advice to their customers.
My son and daughter-in-law got lucky again when they learned that she had taught the seller’s children. She wrote a letter to the sellers to make that connection and to express how much they loved the house. They are happily living in that house today.
I learned just this week that the real estate industry has dubbed such attempts to influence sellers “love letters”. And an article published in the oregonlive.com on March 6 entitled “Federal judge blocks Oregon’s first-in-nation ban on homebuyer ‘love letters’” tells the tale of the Oregon legislature attempting to ban these letters. The news story points to a preliminary injunction* issued by the U.S. District Court for the District of Oregon.
The opinion defined “love letters” as “notes, letters, and pictures that buyers may submit along with their offer to purchase in order to create an emotional connection between sellers and buyers – especially when significant competition exists on a given property.” A practicing real estate agent who is also an Oregon legislator introduced legislation to ban these letters because they “perpetuate systemic issues of bias in real estate transactions.”
The legislation, which passed in 2021, amended a statute that enumerates the duties and obligations owed by a seller’s agent and reads:
In order to help a seller avoid selecting a buyer based on the buyer’s race, color, religion, sex, sexual orientation, national origin, married status or familial status as prohibited by the Fair Housing Act (42 U.S.C. 3601 et seq.), a seller’s agent shall reject any communication other than customary documents in a real estate transaction, including photographs, provided by a buyer.
The statute does not define “customary documents”, but Oregon’s Real Estate Commissioner offered guidance: “the Agency interprets (customary documents) to mean disclosure forms, sales agreements, counter offer(s), addenda, and reports. Love letters would not be considered customary documents.”
The plaintiff, a real estate agency, sought a preliminary injunction against Oregon’s real estate commissioner and attorney general against enforcing the statute. The Court said the purpose of the legislation is laudable, to stop discrimination in home ownership based on protected class status, but agreed to issue the preliminary injunction because the legislation “unquestionably” interferes with free speech.
The defendants presented evidence of the history and prevalence of housing discrimination in Oregon, and the Court agreed that considerable racial disparities persist in home ownership. The defendant’s expert opined that the vast majority of “love letters” disclosed the buyer’s race, color, religion, sex, sexual orientation, national origin, marital status, familial status, or disability. He said about half the letters used as evidence in the case included photographs that revealed some information about race, color, sex, and other characteristics. He opined that love letters enable intentional and unintentional discrimination in housing.
The evidence indicated love letters are powerful documents! The opinion cites a study conducted by the real estate company Redfin that found 40% of offers include love letters and that love letters increase the likelihood of having an offer accepted by 52%. A real estate agent testified that love letters allow her clients to compete with higher offers, including those submitted by investors. The evidence also indicates that real estate agents play a significant role in drafting love letters, including providing templates to their clients.
The plaintiff suggested alternatives to the legislation: (1) greater enforcement of existing fair housing laws; (2) requirement that agents redact client love letters, (3) prohibition on the inclusion of photos; (4) fair housing disclosure requirement in real estate transactions; (5) increased fair housing training for real estate agents; (6) increase the stock of affordable housing; or (7) do nothing and allow individual real estate agents to advise their clients to not send love letters.
The Court indicated the last two alternatives do not merit serious consideration. The other alternatives, however, show that the defendants’ objectives could be achieved in a manner that places less of a burden on otherwise lawful speech.
I am confident we will see more “love letter” legislation and litigation in future.
*Total Real Estate Group, LLC v. Strode, 22 WL 633670, 2022 U.S. Dist. LEXIS 38653 (D. Or., March 3, 2022)
Ethics Advisory Opinion 22-02 fielded two marketing questions from a lawyer concerning a website, Expertise.com. This website finds and reviews service professionals and states that it researches businesses by using customer referrals, public records, accreditations and licenses and mystery shoppers.
Some law firms are listed on the site without the knowledge of the lawyers through the site’s unilateral research and screening. The site states that it lists businesses alphabetically, but it allows law firms to submit to be reviewed and included at no cost. The site indicates this process takes approximately one year to complete. A law firm can also purchase a “featured placement” to take advantage of being seen first on the website page and to include links to the law firm’s social media.
The lawyer’s questions were:
If an attorney or law firm pays for a featured placement on Expertise.com, does that attorney violate Rule 7.4(b) by holding the law firm and its attorneys out as experts by virtue of the website’s name?
2. Does paying for a featured placement on Expertise.com violate Rule 7.2(c)?
The Ethics Advisory Committee responded definitely: “Lawyer may not participate in any way in marketing via Expertise.com.” Actively participating in an online business listing at a website whose stock language violates the advertising rules is itself a violation of the advertising rules, according to the Committee.
The Committee referred to an earlier EAO: 09-10 which opined that a lawyer who adopts, endorses, or claims an online directory listing takes responsibility under the Rules for all content of the listing and general content of the directory itself, regardless of who created the material. While the prior opinion focused on comparative language contained in client testimonials and endorsements submitted to the website, the reasoning applies to content created by the host that violates some other rule, like 7.4(b), according to the current EAO.
Regardless of the creator of the offending content and regardless of which rule it violates, the Committee’s view is that a lawyer may not adopt, endorse, claim, or contribute to any online listing that contains language or other material that would violate the Rules if created and disseminated directly by the lawyer.
Paying for a featured placement within a business directory website is not itself a violation of Rule 7.2(c) if the payment obligation or amount is not tied to the referral of business as a quid pro quo, according to the EAO. In the Committee’s view, if a featured placement is the only benefit received in exchange, the payment would be a “reasonable cost of advertisement” under the 7.2(c)(1) exception.
However, the Committee believes a lawyer may not pay Expertise.com for a featured placement because that step would be prohibited by Rule 7.4(b).
My preacher has suffered several email hacking schemes that prey on church members with kind hearts.
He has sent out a written notification and has announced from the pulpit more than once that church members have reported to him that they sent money because of his very touching email requests about persons in need…email requests that he never made. He assured his congregation that if he needs specific funds for specific needs, he will make phone calls. He shared that preacher friends of his have reported similar schemes. The fake emails always report that he is unavailable to take phone calls but that the need is urgent and immediate.
Phone calls may be the key to fraud prevention!
A lawyer friend of mine called me this week to ask an opinion on a potential client’s case. Help me answer the question: Does a closing attorney have a duty to make a telephone call to clients who may need to wire funds in connection with a closing to warn about the dangers of wire fraud and how to prevent the loss of closing funds?
I don’t know the answer to that question. My gut reaction is that the standard in our communities in South Carolina is that lawyers should provide very specific instructions on wiring instructions and engagement letters to prevent this type of fraud. I’ve seen several excellent examples of red-letter, bolded warnings.
Chicago Title in South Carolina continues to see a rise in the amount of fraud and attempted fraud in connection with real estate closings. The most recent memorandum was sent out to agents on February 2. Most of these incidents involve hacked emails where a party to the transaction fails to maintain strong computer or email security.
Unfortunately, law firms with significant security measures in place have also been victims of these schemes. The hackers typically submit altered payoff letters or wiring instructions to divert the funds. Like the emails that have plagued my preacher, the forged emails, wiring instructions and payoff letters look very similar to legitimate documents.
Here is the current advice on preventing these disasters in your law firms:
Obtain payoff information and wiring instructions early in the transaction so that there is ample time to review them and confirm their authenticity.
Review every payoff and wiring instruction to determine whether it appears authentic on its face. Many fraudsters are excellent at spoofing letterheads and logos, but sometimes, you may see tell-tale signs.
Compare each payoff letter and wiring instruction to prior instructions to determine whether account numbers have been changed.
If the wire is going to an entity to which you have previously sent wires, compare the new information with the prior transaction. If you save wiring instructions in your systems, make sure that repository is secure and cannot be easily shared.
Verify every wiring instruction verbally using a known and trusted telephone number. Do not use telephone numbers provided in the instructions themselves unless you can verify its validity.
If you cannot verify the instructions verbally or have doubts about the transaction, consider mailing, overnighting or even hand delivering a check to a confirmed address instead of using a wire.
In Lyons v. PNC Bank*, a consumer, William Lyons, Jr., filed suit against his home equity line of credit lender alleging violations of the Truth in Lending Act (TILA). The lender, PNC Bank, had set-off funds from two of Mr. Lyons’ deposit accounts to pay the outstanding balance on his HELOC.
PNC moved to compel arbitration of the dispute based on an arbitration provision in the parties’ agreements relating to the deposit accounts. The case contains some discussion about jurisdiction, and one judges dissented on that basis. But the important holding in the case relates to pre-dispute arbitration provisions in consumer mortgages and related documents.
The Court found the relevant legislation to be 15 U.S.C. §1639c(e)(1) and §1639c(e)(3) from the Dodd-Frank Act, which had amended TILA. The first provision states:
“No residential mortgage loan and no extension of credit under and open end consumer credit plan secured by the principal dwelling of the consumer may include terms which require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.”
The second provision states:
“No provision of any residential mortgage loan or any extension of credit under an open end consumer credit plan secured by the principal dwelling of the consumer, and no other agreement between the consumer and the creditor relating to the residential mortgage loan…shall be applied or interpreted so as to bar a consumer from bringing an action in an appropriate district court of the United States…”
The Court held that the plain language of the legislation is clear and unambiguous that a consumer cannot be prevented from bringing a TILA action in federal district court by a provision in any agreement related to a residential mortgage loan. The Court’s holding indicates its opinion that Congress clearly intended consumers to have the right to litigate mortgage disputes.
* United States Court of Appeals for the Fourth Circuit Opinion No. 21-1058 (February 15, 2022)
Is a unilateral non-client communication entitled to confidentiality?
We have our first Ethics Advisory Opinion of 2022 and it touches on a real estate matter. In EAO 22-01, a lawyer posed a question to the Ethics Advisory Committee about an unsolicited email from an individual with whom the lawyer had no prior relationship.
The subject line of the email read “Land Title Dispute”. The email requested the lawyer’s “legal insight on a real estate situation” and included a description of the underlying facts with an inquiry of the lawyer’s opinion about whether the sender had a “legitimate claim.”
The lawyer immediately recognized that the facts recited in the message related to a matter in which the lawyer and the lawyer’s client had adverse interests to those of the sender. The lawyer replied to the email informing the sender of the adverse interests and stating that the lawyer could not represent the sender. The email further stated, “Please let me know if and when you are represented by other counsel and I will (be) happy to communicate with them regarding this matter.” The lawyer then took the opportunity to inform the sender that the lawyer believed the sender’s “proposal to profit off of this mistake is both theft and fraud.”
The lawyer asks the Committee whether the lawyer has an ethical obligation to maintain confidentiality of the information in the email since it was provided in the course of seeking legal advice.
The Committee first stated that the sender was neither a current nor a former client of the lawyer. The answer to the question depended on whether the sender is a “prospective client” under Rule 1.18. This rule reads: “A person with whom a lawyer discusses the possibility of forming a client-lawyer relationship with respect to a matter is a prospective client only when there is a reasonable expectation that the lawyer is likely to form the relationship.” Comment 2 reads: “Not all persons who communicate information to a lawyer are entitled to protection under this Rule. A person who communicates information unilaterally to a lawyer without any reasonable expectation that the lawyer is willing to discuss the possibility of forming a client-lawyer relationship, therefore, is not a “prospective client” …
The Committee concluded that the lawyer had no ethical obligation to maintain confidentiality of the information in the email.
This is excellent news! We’ve all heard stories of an individual about to seek a divorce who holds meetings with all the divorce lawyers in town to limit the spouse’s choice of counsel. Thankfully, that tactic should not extend to an unsolicited email.
This blog has previously discussed (here and here) the excellent lawsuit brought by The Finkel Law Firm against the Charleston County Register of Deeds seeking a writ of mandamus requiring the ROD (1) to immediately file all documents delivered to the ROD within one month of delivery; (2) to mark the documents as having been recorded on the date of delivery; and (3) to record all future documents in the order of the time delivery regardless of whether they were delivered in person or by the U.S. mail or parcel post.
The Court appointed Howard Yates, one of the most experienced real estate lawyers of the Charleston Bar, as Court Monitor. Mr. Yates issued a report dated January 31, 2022, the parties signed a Consent Order on February 10, and the Court issued a separate Order, also dated February 10. Please read all three documents here.
Mr. Yates has made numerous recommendations involving, among other matters, increasing office hours, increasing work hours for staff, and hiring employees from other ROD offices to reduce the backlog by working weekends.
The Court will maintain jurisdiction and will require frequent reports on progress. We can all applaud the efforts of The Finkel Law Firm and Howard Yates in bringing this matter to satisfactory conclusion, at least temporarily.
Advice for lawyers: paper your file when clients refuse!
On this cold, wet Monday morning, I was wondering what I could write to help my real estate lawyer friends through a February week in South Carolina. Then I remembered this news article from the U.S. Sun an excellent dirt lawyer friend from the coast sent to me. His quote was: “I wish I could get all buyers to read it when they turn down a survey.” Perhaps you can use this article to convince a client or two.
Any of us who are old enough to have practiced in the 1990s will remember a time when lenders and title insurance companies required current surveys for every closing. A current survey is a great tool for a real estate lawyer to review along with the title work. Comparing the boundary lines with the title work and checking for easements, encroachments and such horrible mishaps as sewer lines running under improvements gave the lawyer and client a great deal of comfort.
Our backdoor neighbors were once Steve and Wendy Spitz. Many real estate lawyers in South Carolina attribute our knowledge and enthusiasm for the practice to Steve’s property classes in law school. We both built in a new subdivision, and a corner of the Spitz home, as revealed by a survey, sat squarely on a City of Columbia water easement. That builder’s mistake was corrected prior to closing by negotiating with the City to move the easement. Thankfully, the water line itself was not a problem.
To hold down closing costs, at some point in the 1990s lenders began to eliminate the requirement for a survey in most residential closings if the lender could obtain title insurance survey coverage. One of the title insurance companies agreed to provide survey coverage to lenders without a new survey. There were some requirements back then, like having a survey of record showing the improvements or having an affidavit from the owner that nothing had changed since the prior survey.
Then, for competitive reasons, all the title insurance companies caved. Current surveys were no longer required. Over the years, the requirements were even softened.
My thought was that the title companies had unceremoniously hung the lawyers out to dry. Previously, the closing attorney simply told the client that a survey was required to close. With the change, the closing attorney had to convince the client of the need for a survey despite the added cost. I believe one of the biggest traps for the unwary closing attorney is failing to advise purchaser clients to obtain surveys and failing to paper files when surveys are rejected.
And don’t even mention the surveyors! They were collectively and understandably furious that they had lost a large portion of their business. I remember being the sacrificial lamb who was sent to speak to a statewide group of surveyors on behalf of the title insurance industry. It wasn’t pretty.
Here’s another story from my neighborhood. A kindly preacher friend bought a house several doors down from us. The free-standing garage had been added prior to my friend’s purchase and well after the original construction. My friend did not obtain a current survey. When he sold the house, a new survey revealed that the garage violated the side setback line by more than ten feet, and the purchaser refused to close. Keep in mind that contracts typically require sellers to give marketable title. A setback violation of this magnitude may be insured over by a title insurance company, but the title may not be marketable. This purchaser was within his rights to reject this title.
By that time, the developer, a Greenville based insurance company, had sold all the lots, and took the position that it could no longer waive violations of the restrictions even though the restrictions clearly allowed for developer waivers. The solution was that my friend went door to door to obtain the signatures of the required majority of the owners. Thankfully, my friend was a very nice guy, and the neighbors were willing to accommodate his request by signing the waiver.
Today, title insurance policies have evolved to the point that survey coverage is often given to owners without current surveys. But the example above demonstrates that title insurance coverage may not cure the underlying problem. Title insurance can never create marketable title. And title insurance claims may take time and cause aggravation that clients will not appreciate.
So let your clients read the linked article and advise them to obtain surveys. And, if they refuse, obtain informed consent confirmed in writing for your file!
This news from Fannie Mae negatively impacts condo closings
This blog has previously discussed the June 24, 2021 collapse of the 136-unit Champlain Towers South condo project in Surfside, Florida.
South Carolina has many aging condominium projects, particularly along our coast. And we have earthquake issues to consider. Do our local homeowners’ association boards face expensive repair and inadequate reserve dangers like those in Florida? These concerns may impact HOAs, lenders and purchasers. Dirt lawyers should be prepared to assist their clients in navigating these concerns.
Fannie Mae has addressed this issue by issuing Lender Letter (LL-2021-14), which took effect on January 1 of this year. The letter directs lenders that make loans on condominium projects containing five or more attached units to gather information from owners’ associations about potential unsafe conditions.
Dale Whitman, the esteemed retired professor from the University of Missouri School of Law who moderates the national Dirt Real Estate Lawyers Listserv has commented on this letter. He said on a January 24 DIRT entry that HOAs are probably not obligated legally to respond to a lender’s inquiry prompted by Fannie Mae’s letter, but a potential buyer of a unit may not be able to obtain a loan absent a response.
That’s the crux of the problem. If repair and reserve issues arise in connection with a condominium project, it may become impossible to obtain loans.
DIRT also discussed a December 2021 addendum to the condominium questionnaire of Fannie Mae (Form 1076) that asks if there have been any findings relating to safety, soundness, structural integrity or habitability of the buildings in an inspection report, reserve study or government inspection or if the HOA board knows of such issues. This information is requested whether the issues have been resolved or would be resolved. The form requests information of how funds to make repairs will be obtained.
The lender letter points to a growing concern across the nation about aging infrastructure and significant deferred maintenance issues in condominium projects because a majority of these projects were built more than twenty years ago. Fannie Mae states its condominium standards are designed to support the ongoing viability of these projects.
Fannie Mae will change the status of deficient condominium projects to “unavailable”, and lenders are able to check the status of projects on Fannie Mae’s “Condo Project Manager™” software.
Consider representing wealthy consumers who may seek to purchase expensive coastal condominium units paying cash. How should a closing attorney advise these clients considering these repair and reserve concerns? This is an issue that should be addressed in residential closing practices.
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