Are RON closings now allowed in South Carolina?

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After a tease from our Supreme Court on Friday, the answer is still “no”

For about 15 minutes on Friday afternoon, May 1, those of us involved in real estate transactions in South Carolina got excited. An Order* from the South Carolina Supreme Court hit our in-boxes. The order was entitled “RE: Participation in Closings of Real Estate Transactions”. We collectively thought South Carolina may have moved into the 21st Century with an authorization for Remote Online Notarization (RON) closings.

Then we read the order.

You can read it here.

By way of preamble, the Court said, “we find that the public health emergency created by COVID-19 requires changes in the usual operation of the Rules of Professional Conduct in terms of the normal functioning of real estate transactions.”

Then the order stated that until August 1, lawyers may “participate in and supervise the closing of a real estate transaction by way of a video conference.”

Fair enough, but I think most South Carolina transactional lawyers believed they could already ethically handle closings via video conference.

Most lawyers definitely believed they can ethically handle “mail away closings.” Were we wrong? Ethics Advisory Opinion 05-16 states that an attorney may ethically conduct real estate closings by mail as long as it is done in a way that: (1) ensures that the attorney is providing competent representation to the client; (2) all aspects of the closing remain under the supervision of an attorney; and (3) the attorney complies with the duty to communicate with the client so as to maintain the attorney-client relationship and be in a position to explain and answer any questions about the documents sent to the client for signature.

To meet this test, according to the EAO, clients must have reasonable means to be in contact with the attorney, by telephone, facsimile, or electronic transmission. The EAO further states that there is no legal requirement that a client attend the closing, but that it must be the client’s decision not to attend the closing.

Ethics Advisory Opinions are, of course, not binding on the South Carolina Supreme Court. But if we rely on the EAO and handle mail-away closings, why can we not also handle closings via video conference, as long as we comply with all of our ethical obligations to properly represent our clients? Technology has changed since 2005!

Setting that issue aside, let’s look at the real problem. The primary obstacle to any closing that is not conducted strictly in the presence of the lawyer is the proper notarization of the recordable documents. According to South Carolina Code §26-1-5, the notary must be in the physical presence of the signatory. For this reason, clients and their lawyers must employ notaries in the client’s location when the client and the lawyer are not in the same location.

Did the May 1 Supreme Court order fix the notary problem at least temporarily? Lawyers who have spent the last four days debating this question via listserv and Facebook have decided that it does not. But did the Court try to help? Maybe.

The Order goes on to say, “necessary persons to a real estate transaction may, under the direction of the supervising attorney, similarly participate in the real estate closing by way of a video conference, provided any necessary person so consents; further, the supervising attorney shall ensure that the attestation of a recordable instrument is accomplished, which may be satisfied by use of real-time audio-visual communication technology, provided the identity of the necessary person is confirmed and a notary attests the signature of any necessary person.” (Emphasis added.)

Giving the Court the benefit of the doubt, perhaps the Justices did not attempt to fix the notary problem but, instead, believed they must address the professional responsibility aspects of the closing process to allow the legislature and governor address the statutory notary issue.

I think I am going to go with that interpretation. Otherwise the Order is useless.

And, I have another concern. Anyone of us who has read and struggled with the facts in the notorious Quicken** case knows that the Court by implication blessed dividing the various aspects of the closing that must be handled by an attorney among many attorneys. But the final sentence of this Order reads, “This order does not suspend any other provisions of the Rules of Professional Conduct, and nothing in this order is intended to relieve an attorney of his or her obligation to assume the full professional and direct responsibility for the entire transaction.” (Emphasis added.)

I am so confused!

 

*Order 2020-05-01-01, South Carolina Supreme Court.

**Boone v. Quicken Loans, Inc., 420 S.C. 452, 803 S.E.2d707 (2017).

SC Court of Appeals Upholds Developer’s Plan for Tailgate Condo Project

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The SPUR avoids kiddie condo status.

In a case decided in the midst of a wretched Carolina football season, the South Carolina Court of Appeals upheld a restriction against rentals to students in a condominium project that was clearly built to accommodate terrific tailgate parties.

williams brice condoLalla v. The SPUR at Williams Brice Owners Association, Inc.* involved a three bedroom condominium in the shadow of Williams Brice stadium purchased in 2007 for $470,000. Mr. and Mrs. Lalla purchased the condo intending to enjoy football games and to allow their daughter and two roommates to live there during college.  However, the great market decline beginning in 2008 spoiled their plans.

The Master Deed contained a prohibition against renting to any student enrolled in a two or four year college. But owners could allow their children or grandchildren to reside in or rent a unit along with rent-paying roommates.

When the market declined, the value of the condominium substantially decreased in value, and the Lallas unsuccessfully attempted to sell it. At the time of the appellate court hearing in 2014, the condo had been on the market for four years.

During the summer of 2010, the Lallas notified the owners’ association of their decision to rent to college students and began to do so. In June of 2010, the board of the association met and considered a comment card from a unit owner complaining that the association was allowing the project to turn into a dormitory.  Following this meeting, the board sent out a notice to each owner indicating the restrictions would be enforced and giving owners until May of 2011 to terminate any violating leases.

When the rules were not followed by Mr. and Mrs. Lalla, the association filed a declaratory judgment action seeking interpretation and enforcement of the master deed. The Lallas answered and counterclaimed, seeking a ruling that the restrictions were null and void because of changed circumstances. The association prevailed in the circuit court, and the Lallas appealed, asserting that the restrictions discriminated against a specific class of individuals (college students) and are unreasonable because the violation caused no damage to other property owners.

football tailgateThe discrimination argument failed because ”college students have not faced a long history of discrimination, are not an insular minority, and have not been classified according to an immutable trait acquired at birth.” In other words “college students” is not an inherently suspect class. The purpose of the restriction, to insure the comfort and safety of the residents and to protect the investment of the property owners by minimizing the risk of creating a dormitory-like atmosphere, was held to be rational.

The Court of Appeals also held that the economic change in circumstances failed to support the termination of the restriction because the declining market had no effect on the association’s need to minimize the risk that the project might develop a dormitory-like atmosphere.

South Carolina dirt lawyers like to see restrictive covenants enforced as written, so this case matches our world view.  And the Carolina fans among us dream of an outstanding replacement for Steve Spurrier so those terrific tailgate parties can resume!

SC Supreme Court Crafts New Foreclosure Law

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foreclosureFailure to file bond does not render appeal moot

In a case decided on November 4*, the Supreme Court of South Carolina interpreted S.C. Code §18-9-170** in a way that may come as a surprise to dirt lawyers.

The case arose from the foreclosure of an HOA lien. The absentee owner defaulted in the foreclosure and did not appeal. Instead, he moved to vacate the resulting sale. When his motion to vacate was denied, the master issued a deed to the successful bidder, and the defaulting owner appealed without filing an appeal bond.

The Court of Appeals dismissed the appeal, holding that the property owner failed to comply with the statute that would have stayed the sale, and, therefore the master-in-equity’s deed rendered the appeal moot.

The Supreme Court reversed and remanded the case to the Court of Appeals for a decision on the merits.

Real estate practitioners have likely read §18-9-170 to mean that failure to file a bond in this situation renders the appeal moot. This case indicates that the failure to file a bond may not be an issue. If no bond is filed, the master may issue the deed to the successful bidder, but the appeal can proceed. By implication, if the appeal is successful, then the purchaser’s deed may be set aside. The Court specifically stated that the master’s deed does not moot the appeal, and the appellate court may reach the merits.

For title examiners and the lawyers who rely on title examinations, this case means that whether or not an appeal bond has been filed, we must pay attention to a case on appeal.

* Wachesaw Plantation East Community Services Association, Inc., v. Alexander, Appellate Case No. 2012-21340, Opinion 27585

** S.C. Code §18-9-170 reads in relevant portion: “If the judgment appealed from directs the sale or delivery of possession of real property, the execution of the judgment shall not be stayed unless a written undertaking be executed….”