Captain Sam’s Spit continues to be the subject of litigation

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I’ve blogged about “Captain Sam’s Spit” in Kiawah Island previously. Googling that name will reveal a treasure trove of news, opinion and case law involving the proposed development of a gorgeous but extremely precarious tract of pristine beach property on South Carolina’s coast.

The South Carolina Bar’s Real Estate Intensive seminar in July of 2016 and again in July of 2018 included field trips to view this property, from a distance at least. Professor Josh Eagle of the University School of Law is an excellent tour guide, and how many opportunities do we, as lawyers, have for field trips? South Carolina Dirt lawyers should calendar the July 2020 version of this workshop.

Real estate development is my bread and butter, but two visits to the area told me that property should not be developed. A fellow field tripper, however, pointed out that the south end of Pawleys Island, where my parents took me to the beach as a child and which has been developed for many years, is just as precarious.

Captain Sam's Spit

Aerial view of Captain Sam’s Spit from The Post & Courier

The South Carolina Environmental Law Project located in Pawleys Island fights these cases. Amy Anderson, an attorney with that entity, joined us and explained the environmental issues as well as the legal battle.

Six months ago, the South Carolina Supreme Court held that a bulkhead and retaining wall could not be built to develop the property.  Just last month, however, Administrative Law Court Judge Ralph Anderson ruled that a road can be built to support the development because the economic benefits of building homes on Captain Sam’s Spit outweigh its natural preservation.

Here are greatly simplified facts in a very complicated South Carolina Supreme Court case: the developer and the community association entered into a development agreement in 1994. That agreement covered many issues, one of which was the proposed conveyance from the developer to the community association of a ten-mile strip of beachfront property, basically, the entire length of the island. A deed consummated that conveyance in 1995. All of the property conveyed was undevelopable because of the State’s jurisdictional lines.

I didn’t learn the following fact from the published case, but I learned it from one of the lawyers who was kind enough to speak with me. When the jurisdictional lines were redrawn by the State, the 4.62 acre tract became developable. The developer then took the position that the 1994 development agreement and the 1995 deed resulted from a mutual mistake, and that the parties never intended to include that tract.

The Master-in-Equity and Court of Appeals did not see it that way. Both found that the agreement and deed were unambiguous and that parole evidence of the intent of the parties was not allowable. The Supreme Court agreed.

In the recent Administrative Law Court case, Judge Anderson said the economic benefit of developing the property would include real property taxes of $5 million per year. This case is just the most recent in a decade of litigation.

Count on an appeal in this case and other litigation to follow. I’ll keep you posted!

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Charleston is exploding!

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The locals are expecting a quarter-million neighbors!

Last weekend, about sixty commercial dirt lawyers attended South Carolina Bar’s Dave Whitener Real Estate Intensive Workshop in Kiawah Island. This workshop is held every-other-year and honors the memory of the late, great real estate lawyer and law school professor who planned and moderated it for many years until his untimely death in 2014. I think Dave would have enjoyed the collaboration and education we all enjoyed last weekend*.

And I think he would have been shocked at changes in the Charleston area!

Charleston Ravenel Bridge

Charleston is exploding! Kiawah Island itself is in the throes of a major renovation anticipating its next PGA tournament in 2021. As we left Kiawah Island early Sunday morning, a time we could survey our surroundings with no traffic, we were amazed at the new subdivisions that have sprung up between the beautiful island and I-26 as well as those in the North Charleston area where the Boeing plant is located. The area is changing so fast it’s hard to recognize even for someone who does business in the area and visits it often.

I was not surprised to see this Charleston Post and Courier article entitled “105,000 homes await construction in the Charleston metro area” by David Slade dated July 18. The article begins with the premise that Charleston-area residents are about to welcome 250,000 neighbors—roughly equal to the population growth Charleston, Berkeley and Dorchester Counties have experienced since 1990. Wrap your brain around that thought! The anticipated housing, according to this report, is nearly enough to accommodate the combined populations of Charleston and neighboring Mount Pleasant, which are the largest and fourth-largest cities in South Carolina.

Traffic is already horrible in the area. We hear from many lawyer friends and their staff members who fight increasing traffic to get into work each morning. When the I-526 bridge over the Wando River was closed recently for emergency repairs, we heard that some lawyers found it easier to take boats to work rather than to deal with the detour around the bridge. The emergency repairs required for this bridge are an example of the challenged infrastructure in the area.

But, as this article points out, area governments will see added tax revenues from the new growth, which will be needed for the roads and other infrastructure. Mr. Slade points out that residents of John Island, Kiawah Island, Seabrook Island and Wadmalaw Island have been waiting for many years for planned improvements to the Maybank Highway and River Road intersection which bottlenecks each day. The islands are beautiful places to live, but getting into Charleston to work can be problematic at best.

Charleston is the number 1 tourist destination in the United States and the number 2 tourist destination in the world. All of us in the real estate business will be looking with interest as this anticipated growth unfolds in the Holy City and its surrounding areas.

 

*Among the speakers this year was Dave’s widow, also a commercial real estate lawyer extraordinaire, Patricia Wharton Whitener, and two of Dave’s best friends, litigator Robert E. Stepp and USC Law Professor S. Alan Medlin. The line-up was excellent, and I encourage other lawyers who practice in the area of commercial real estate to attend this workshop at each offering!

With great power comes great responsibility

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Six sensational ways to stop cyber villains

Cybersecurity is job #1 for dirt lawyers. Even in our close-knit state, we hear of attacks every week. A lawyer’s office could easily be forced out of business by one of these evil attacks. In our office, we read everything printed on the topic, and I offer you the six best, simplest tips I’ve seen. The first five are from American Land Title Association, developed with the help of the FBI, and the sixth is from the South Carolina Bar.

  1. Call, don’t e-mail: Confirm all wiring instructions by phone before transferring funds. Use the phone number from the recipient’s website or business card.
  2. Be suspicious: It’s not common for the companies involved in real estate transactions to change wiring instructions and payment information. Use common sense, stay alert to things that don’t look or feel quite right in a transaction and use your “Spidey senses”!
  3. Confirm it all: Ask your bank to confirm not just the account number but also the name on the account before sending a wire.
  4. Verify immediately: Call the recipient to validate that the funds were received. Detecting that you sent the money to the wrong account within 24 hours gives you the best chance of recovering your money.
  5. Forward, don’t reply: When responding to an email, hit forward instead of reply, then start typing with a known email address. Criminals use email addresses that are similar to real ones. By typing email addresses you will make it easier to discover if a fraudster is after you.

Thank you, ALTA and FBI, for those great tips!

The best tip, by far, that I have seen comes from the South Carolina Bar.  This tip is not only excellent for avoiding cyber fraud, it’s a great way of avoiding mistakes of all kinds in real estate practices. Here it is:

  1. Give yourself and your staff permission to slow down! We know things are hot out there not only in terms of the weather but also in terms of the speed of closings. Many of us who weathered the financial downturn remember what it was like when things were hot in 2005 – 2007. Closing speed can be increased only so much without causing error after error. Remember illegal flips prior to the financial downturn?  How many of them could have been prevented if someone had stopped long enough to think or long enough to bounce the scenario off of a friendly title insurance company underwriter? The same is true of protecting your clients’ money. Stop and think and allow your staff members to spend the time to stop and think.

Thank you, South Carolina Bar, for this great tip.

And, finally, I strongly recommend insurance against cyber fraud. Check with your E&O carrier to see what it offers. If it does not offer insurance to protect against this danger, find a company that does!  Call your title insurance company for suggestions!

How to cure a defective deed

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Why South Carolina should consider a legal specialty in real estate.

The Real Estate Practices Council of the South Carolina Bar is considering petitioning our Supreme Court to create a specialty for the practice of real estate law. Two committees have been formed, one to consider residential real estate as a specialty and the other to consider commercial real estate as a practice specialty. If you have ideas that may help, please pass them along to me!

One reason for consulting a real estate lawyer might be for assistance in curing a defective deed. It is impossible to list all the types of defects that appear in deeds of record. The list grows every day! Some of the most common defects are property description discrepancies, grantor and grantee name discrepancies, out-of-state forms that do not comply with South Carolina statutory requirements, right of survivorship attempts that fail, discrepancies in ownership percentages, failure to recite consideration, grantor signature discrepancies, and authority issues of seller entities.

dee house

Curing defective deeds will often require corrective deeds or quitclaim deeds from parties with outstanding interests. Note that corrective deeds are exempt from the deed recording fees imposed by §12-24-10 et seq. of the Carolina Code. See, specifically, §12-24-40(12). With corrective deeds, it may be necessary to obtain a deed back from the grantee. An example would be a deed from the developer to Richard Roe for lot 35, where Mr. Roe actually bought and occupied lot 34. To cure this problem, in addition to obtaining a deed from the developer to Mr. Roe of lot 34, Mr. Roe would need to convey lot 35 back to the developer. I continue to be amazed at the number of real estate professionals who think this step can be skipped, and that a corrective deed will somehow get the title back for the other lot. Also remember that mortgages may have to be re-executed or otherwise corrected once the deed issue is cured.

I am often asked whether the lawyer can “fix” the problem on the original deed and re-record it without the involvement of the parties. The answer is a strong “no”. The grantor must at least initial any changes. The more serious the problem, the more likely it will be that a corrective deed will be needed and that the grantor as well as the grantee will have to be involved.

When a deed discrepancy is discovered after the title has been conveyed again, the question often arises whether the corrective deed should run to the original grantee, and whether that would create the necessity for deeds from each grantor to each grantee in the chain of title after the problem. I often suggest that the corrective deed be given to the current property owner. The participation of intervening property owners is not needed.

Deed reformation actions are possible, and foreclosures often include additional causes of action for deed reformation to correct legal descriptions and other mistakes. Title insurance companies are often responsible to pay for these additional causes of action.

With these difficulties to be faced, don’t you think real estate practice as a specialty is a good idea?

Buried in the Dirt

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Are you sure your IOLTA account was properly established?

A Charleston lawyer just shared a bit of an Interest on Lawyer Trust Accounts (IOLTA) horror story with us, and I’m passing it along for the benefit of all South Carolina practitioners to prevent at least one surprise in future certification attempts.

businessman pennies

This lawyer was being vetted by a third-party vendor for the purposes of staying on the good side of a lender. The vetting company advised that the lawyer’s IOLTA account had been set up incorrectly using his firm’s Taxpayer Identification Number (TIN).  The lawyer called The South Carolina Bar Foundation and learned that the account should have been set up using the Foundation’s TIN: 23-7181552. In order to make this change, the bank required the lawyer to open a new account…with all that entails.

As a review, here are some IOLTA facts.

  • These accounts must be used for client funds that are small in amount or expected to be held for a short time, so that the funds cannot practically be invested for the client because they won’t provide a positive net return.
  • Funds that do not meet the nominal or short-term fund requirements of an IOLTA account should be deposited in a separate demand account to earn interest for the benefit of the client, and the client’s TIN should be used.
  • Some financial institutions waive all fees for IOLTA accounts. If reasonable and customary fees are charged, those fees may be deducted from interest. Other fees and service charges are the responsibility of the attorney.
  • There should be no tax consequences for the attorney or client for IOLTA accounts.
  • The Bar Foundation maintains a list of eligible financial institutions on its website.
  • Rule 1.15(h) of the SC Rules of Professional Responsibility mandates that all lawyers with trust accounts must file a written directive with their bank requiring the bank to report any non-sufficient funds (NSF) transactions. This mandate applies to IOLTA accounts.

Check your IOLTA accounts and make sure you’re in compliance before the vetting companies arrive on the scene!

Donut Fridays

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Ethics Opinion gives them a thumbs up!


donutsSavvy residential dirt lawyers continue to explore innovative marketing methods. A recent Ethics Advisory Opinion (15-02) issued by the Ethics Advisory Committee of the South Carolina Bar blessed the following scenario, with a few caveats:

“Law Firm would like to pursue a practice referred to as “Donut Friday,” where an employee of Law Firm visits the Firm’s existing vendors (e.g., banks, real estate agencies, etc.) and delivers a box of donuts to these vendors. Included with the box of donuts are a dozen koozies bearing the name of Law Firm, as well as a fee sheet, a pamphlet containing information about Law Firm and its staff, and a coupon for $50.00 off Law Firm’s fee for a consultation or real estate closing. None of the marketing materials is addressed or directed to any one person, nor does the material request that existing vendors refer business to Law Firm, although the intent is to receive referrals.”

The Committee stated as a preliminary matter that the mere delivery of gifts or other marketing materials to a business generally without delivery to specific individuals does not constitute solicitation. For that reason, Rule 7.3 of the Rules of Professional Responsibility does not apply. Enclosing law firm materials in a donut box does constitute lawyer advertising, making the remainder of the advertising and communication rules (7.1, 7.2, 7.4 and 7.5) apply.

Because the donut box recipients are existing law firm vendors who refer closing business to the firm, the specific rule at play, according to the Committee, is Rule 7.2(c), which prohibits giving “anything of value to a person for recommending the lawyer’s services.”  The Committee specified that as long as the weekly donut boxes are delivered regardless of whether the lender or real estate agency had referred clients to the law firm that week, and regardless of how many, then the requisite quid pro quo for a Rule 7.2 (c) violation does not exist. The rule would be violated, however, if the delivery of donuts was contingent on the referral of business.

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The Committee said that only the donuts, koozies and coupons (not the fee sheets or pamphlets) would be considered things “of value” under Rule 7.2 because the rule contemplates value to the recipient and not cost to the sender. Finally, the Committee stated that although the Rules of Professional Conduct are “rules of reason”, the prohibition on giving “anything” of value contains no explicit de minimis exception.

Kudos to the law firm that devised this marketing ploy and received the blessing of the Ethics Advisory Committee!