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).

Can non-citizens receive the owner-occupied tax ratio?

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Interesting question discussed on SC Bar’s Real Estate Law Listservundefined

The South Carolina Bar maintains a great listserv for members of the Real Estate Practices Section through which lawyers can ask questions and share information via email. I recommend that South Carolina real estate practitioners join the section and the list. Both provide opportunities for staying in touch with fellow practitioners and keeping up with news and trends.

Last week, a practitioner from the Fort Mill area was advised that the county would not allow the 4% owner-occupied assessment ratio for his clients who had Hispanic names but who presented South Carolina driver’s licenses and vehicle registrations as evidence of their permanent addresses. He asked other practitioners how to appeal.

Several lawyers, mostly from the Charleston area, responded that they were well aware of this issue. Apparently, Charleston County takes a hardline approach on the issue and requires that persons who are not United States citizens be resident aliens/permanent residents to obtain the 4% ratio.

My friend and excellent Charleston real estate practitioner, Beth Settle, pointed us to this Attorney General’s opinion on the topic.

The opinion is dated June 21, 2019 and is addressed to Jerry N. Govan, Jr., a member of the South Carolina House of Representatives. Mr. Govan’s question noted that some county offices are requiring individuals to present proof of U.S. citizenship as a requisite of receiving the special ratio and asked whether South Carolina law, specifically §12-37-10 et seq., requires proof of citizenship. The legislator then asked whether counties are authorized to use investigative methods to determine citizenship.

The opinion agreed with the questioner that South Carolina law provides no “bright line” rule to determine whether a non-citizen is or is not a domiciliary for the purposes of the special ratio and pointed to court decisions from multiple jurisdictions with varying results on this issue. Some courts have held that illegal aliens cannot form the requisite intent to achieve domicile in the United States. Other courts have indicated the determination must be made on a case-by-case basis. Some aliens, according to an opinion from Alaska, are allowed in the country only if they do not intend to abandon their foreign residence. Those restricted aliens would jeopardize their legal presence in the United States if they seek to establish domicile here. Others are not so restricted and may be able to form the intent to remain here without jeopardizing their legal alien status.

No decisions from South Carolina appellate courts have addressed this issue, but the Administrative Law Court considered the question* and concluded that establishing domicile is ultimately a question of fact and largely one of intent. A distinction was drawn between “actual residence” and “legal residence”, and the court stated that an individual remaining in the United Stated without documentation cannot form the requisite intent to make property in South Carolina the domicile for the purposes of the discount.

The burden of proof on this issue falls on the taxpayer. The Attorney General’s opinion concluded that in order to receive the four-percent special assessment ratio, the property in question must be the legal residence of the taxpayer. The determination must be made on a case-by-case basis after investigation by the county officials and ultimately the courts. Generally speaking, the opinion continued, those aliens who are here illegally are deemed unable to establish domicile in the United States. Where the alien is in the United States as a result of DACA, that person cannot qualify. And a tourist without a permanent visa cannot be a permanent resident.

*Richland County Assessor v. Herrera, 2018 WL 5114185 (18-ALJ-17-0006-cc)(October 9, 2018).

Dirt Lawyers: beware of these assessor antics

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and be aware of a tool for fighting back!

tiny detectives

The South Carolina Bar maintains a great listserv for members of the Real Estate Practices Section through which lawyers can ask questions and share information via email. I recommend that South Carolina real estate practitioners join the section and the list. Both provide opportunities for staying in touch with fellow practitioners and keeping up with news and trends.

Recently, the list contained this entry from a wonderful practitioner in Myrtle Beach whose name I’m withholding from this blog:

“Good morning Listmates,

Is every County going through the same audit of principal residence discounts for their taxpayers? Or is it just in Horry County? I have run into multiple back-charged properties and even ran into one where it was back-charged between when we did the title search and when we recorded the Deed. (And, yes, the Assessor refused to abate the new bills for the new owner.)

So what we have now is that on any given day the assessor can back charge multiple years’ worth of taxes (and you know how big the discount is, so these bills aren’t tiny!) regardless of whether or not we have searched the title, whether the property is in foreclosure, or even whether or not the property owner is dead. (Yes – my situation involved a deceased person in foreclosure – who do I go after for that tax bill payment??)

Add to this that our title abstractors who update the title work prior to recording are looking for judgments, liens, Deeds, Mortgages….but they are not looking for new tax bills, because tax bills come out in the Fall, right? Not anymore.

I imagine the buyers who get stuck with these bills could make a title insurance claim, but ultimately that will come back to the attorney because we “missed it” and then the E&O premiums go up and the client is lost to us because we look incompetent.

I guess the moral of this story is to instruct your abstractors to check for taxes before recording any Deeds. If you have a seller on the hook at least you can get the taxes paid at the closing. (Or if you have a deceased foreclosed party, at least you’ll know before the next tax year…)”

Horry County is, of course, a vacation haven. Many, many homeowners use Horry County properties as second homes and investment properties. Primary resident discounts amount to the difference in a 6% and a 4% mileage rate, so, as the astute lawyer suggested in her e-mail to fellow real estate practitioners, the differences are “not tiny”. Thus, all the coastal counties are vigilant about policing the discounts for primary residents.

(I know a guy who lives in an interior county in North Carolina and owns a second home in the Outer Banks. He votes where his beach house is located and has his mail delivered there, resulting in multiple trips to retrieve the mail. I don’t know exactly how the North Carolina statute on the primary residence discount reads, but I don’t recommend this tactic without the advice of a tax expert.)

Luckily for us in South Carolina, the Palmetto Land Title Association worked on this problem several years ago. Teri Callen of our office was Legislative Chair of PLTA at a time when the Association lobbied to “fix” the situation outlined above.

The Association, through intense lobbying efforts, was able to obtain a statutory amendment to the effect that a tax bill is final and that a “surprise” change in the 4% eligibility would only result in a personal liability so as not to affect title to the real property.

Most buyers are protected because they are bona fide purchasers for value without notice. (The lawyer’s problem, above, with the deceased property owner in foreclosure might not see the benefit of the statute.) The amendment went into effect in 2016, and counties will typically withdraw their surprise tax bills when they are provided with the statutory language.

Section 12-43-220(c)(2)(vii) of the South Carolina code now reads:

“(A) if a person signs the certification, obtains the four percent assessment ratio, and is thereafter found not eligible, or thereafter loses eligibility and fails to notify the assessor within six months, a penalty is imposed equal to one hundred percent of the tax paid, plus interest on that amount at the rate of one-half of one percent a month, but in no case less than thirty dollars nor more than the current year’s taxes. This penalty and any interest are considered ad valorem taxes due of the property for the purposes of collection and enforcement.

(B) If property had undergone an assessable transfer of interest as provided pursuant to Section 12-37-3150 and the transferee is a bona fide purchaser for value without notice, penalties assessed pursuant to subsection (vii)(A) and the additional property taxes and late payment penalties are solely the personal liability of the transferor and do not constitute a lien on and are not enforceable against the property in the hands of the transferee…”

Thanks to Teri Callen and Palmetto Land Title Association for this statutory “fix”! If you are faced with the problem outlined in the email above, provide your assessor’s office with the statute and remind them that the Code does not allow a “re-do” of tax bills that affect third party purchasers.

Also, consider joining Palmetto Land Title Association. It fights for us!