South Carolina’s Supreme Court has invalidated an arbitration agreement in a residential home purchase contract because of a sentence found to run afoul of public policy*. The homebuyers are free to pursue their lawsuit against the home builder.
Amanda and Jay Huskins bought a house from Mungo Homes. The arbitration section in the purchase contract included this sentence:
“Each and every demand for arbitration shall be made within ninety (90) days after the claim, dispute or other matter in question has arisen, except that any claim, dispute or matter in question not asserted within said time periods shall be deem waived and forever barred.”
The Court held that it is undisputed that this clause shortened the statute of limitations for any claim to the ninety-day period. Mungo conceded that this provision ran afoul of South Carolina Code §15-3-140 (2005), which forbids and renders void contract clauses attempting to shorten the legal statute of limitations.
The Huskins brought this lawsuit against Mungo, raising various claims related to the sale. Mungo asked the Circuit Court to dismiss the complaint and compel arbitration. The Huskins countered that the arbitration clause was unconscionable and unenforceable and the lower court granted the motion to compel arbitration. The Court of Appeals held the clause was unconscionable and unenforceable but ruled the clause could be severed from the rest of the arbitration agreement and affirmed the order compelling arbitration.
The Supreme Court stated that the better view is that the clause is unenforceable because it is void and illegal as a matter of public policy. The Court further noted that the contract contained no severability provision and that Mungo’s “manipulative skirting of South Carolina public policy goes to the core of the arbitration agreement and weighs heavily against severance.”
The Court mused that it has been steadfast in protecting home buyers from unscrupulous and overreaching terms, and stated that applying severance here would erode laudable public policy. The Court, therefore, declined to sever the unconscionable provision for public policy reasons. The entire arbitration provision was held to be unenforceable. The case was remanded to the Circuit Court for further action.
Drafting contracts for corporate clients can be tricky, dirt lawyers. Read this case and similar cases carefully!
*Huskins v. Mungo Homes, LLC, South Carolina Supreme Court Opinion 28245 (December 11, 2024).
Williams v. Jeffcoat* involved real estate in Charleston owned by Bradford Jeffcoat and Sandra Perkins, a couple who had a roughly two-decade relationship but who never married. In April 2000, Jeffcoat bought a house and lot, and in July 2000, he executed a deed conveying the property to himself and Perkins “jointly with right of survivorship and not as tenants in common.” The two resided together at that location until 2015.
In 2009, Perkins developed dementia. Jeffcoat served as her sole caregiver until he hired an in-home aid. In the spring of 2015, Perkins’ health rapidly declined, and Jeffcoat asked Vanessa Williams, Perkins’ only child, to come to Charleston from her home in Alabama to help care for Perkins. Soon after Williams arrived in Charleston, her name was added to Perkins’ checking account. Williams used Perkins’ funds to pay for Perkins’ medical appointments, but also allegedly used Perkins’ funds to pay Williams’ personal expenses, including closing costs on a mobile home in Alabama, living expenses totaling around $2,200 per month, and Williams’ daughter’s college tuition.
During her five weeks in South Carolina, Williams helped care for Perkins. On June 16, 2015, Williams was scheduled to take Perkins to a doctor in Charleston. Instead, without telling Jeffcoat, Williams took Perkins to live with her in Alabama. Perkins resided with Williams until her death, later that year.
Jeffcoat said Williams shut Jeffcoat out of Perkins’ life and give him no information about her whereabouts or condition despite his repeated efforts to contact them.
Before Perkins’ death, Williams filed a petition for general guardianship and conservatorship in Alabama to “protect and manage the person, assets and financial affairs” of Perkins. The petition did not mention Jeffcoat. The Alabama court granted letters of guardianship and conservatorship. Williams then, acting as Perkins’ guardian and conservator, deeded Perkins’ interest in the Charleston property to herself, individually, for $10.00 and love and affection, thus allegedly severing the joint tenancy between Jeffcoat and Perkins and creating a tenancy in common between Jeffcoat and Williams.
Two days before Perkins’ death, Williams brought this action, individually and as Perkins’ guardian and conservator, against Jeffcoat, in Charleston County, asking the court to compel partition of the property. Jeffcoat answered, asserting affirmative defenses of failure to state a claim, unclean hands, and lack of standing, and counterclaims for fraud, breach of fiduciary duty and slander of title.
Williams amended her complaint to also appear as personal representative of Perkins’ estate. Williams moved for partial summary judgment, arguing a joint tenancy can be severed by a cotenant’s unilateral conveyance to a third party under South Carolina law and that Alabama law permits a conservator to collect, hold, and retain a ward’s property without prior court order. Jeffcoat also moved for summary judgment, arguing that a joint tenancy with right of survivorship cannot be unilaterally severed by conveyance to a third party and that the deed to herself individually was self-dealing contrary to South Carolina and Alabama law. He requested a deed in his name only.
The Master granted Williams’ motion, finding that a joint tenancy may be unilaterally severed without the consent of the other joint tenant and that the deed to herself was lawful. The Court of Appeals affirmed, and the Supreme Court granted Jeffcoat’s petition for a writ of certiorari.
I’m going to skip several issues to concentrate on the joint tenancy issue. The Supreme Court ultimately remands the case, concluding that there were issues of material fact with regard to the unclean hands issue.
As to the joint tenancy issue, Jeffcoat contended that the master erred in finding the joint tenancy could be unilaterally severed, arguing South Carolina Code §27-7-40 prohibits such severance. The Court held that it did not need to decide this issue because the deed was executed prior to the effective date of the statute, (August 17, 2000) and the statute should not be applied retroactively. Under common law, according to the Court, the joint tenancy could be unilaterally severed by conveyance by one joint tenant to a third party. Consequently, Jeffcoat and Perkins own the property as tenants in common, and the sole remaining issue is whether Jeffcoat’s defense of unclean hands will defeat Williams’ demand for partition.
Acting Justice Addy concurred, writing separately to bring attention to issues which may arise under §27-7-40.
The Court of Appeals had correctly stated, according to Justice Addy, that the General Assembly’s primary purpose in passing this statute was to delineate specific language which would conclusively create a joint tenancy with right of survivorship. Although the statute accomplishes that purpose, in light of the legislature history and the holding by the majority opinion, joint tenancies with right of survivorship which were created pursuant to the language of the statute may well remain subject to severance by unliteral conveyance of a joint tenant.
Addy noted that the original bill read: “The fee interest in real estate held in joint tenancy may not be encumbered or conveyed to a third party or parties by a joint tenant acting alone without the joinder of the other joint tenant or tenants in the encumbrance or conveyance. Prior to passage, however, the legislature removed the underlined language. Therefore, because the legislature elected to remove the language prohibiting conveyance by a joint tenant, the Court of Appeals’ holding that even joint tenancies created pursuant to the statute remain subject to severance under the common law may well prove prescient.”
In a footnote, Justice Addy said, “I am sympathetic to the common sense of Jeffcoat’s argument. It makes little logical sense to a unilateral encumbrance by a joint tenant is ineffective and void, but a unilateral conveyance acts to destroy a joint tenancy and create a tenancy in common. However, under a strict reading of the statute’s text and, considering its legislative history, this result appears to have been the intention of the General Assembly.”
I can’t tell you the number of times I’ve unsuccessfully tried to apply logic to this statute! I appreciate Justice Addy’s affirmation of my efforts!
The Concurrence’s other footnote is even more interesting. It reads: “The facts of this case present, at best, a cautionary tale and, at worst, a liability trap to the real estate practitioner. As the court of appeals noted, had the author of the deed in issue created a tenancy in common with right of survivorship pursuant to the language used in Smith v. Cutler, 366 S.C. 546, 551, 623 S.E.2d 664, 647 (2005), Williams’ unilateral conveyance would have been ineffective in severing the tenancy.” (Citation to the Court of Appeals omitted.)
Cautionary tale, indeed! Trap, indeed!
South Carolina Supreme Court Opinion 28236 (September 18, 2024)
In one of the saddest disciplinary cases I’ve read to date, the South Carolina Supreme Court disbarred a real estate practitioner for dipping into his trust account to support his gambling addiction.
In the Matter of Webb, * involved a real estate practitioner who had worked in a law firm for many years. The lawyer opened his own practice in 2020. He self-reported numerous instances of accessing his trust account for personal use in 2022.
When he left his law firm, the lawyer hired his long-time real estate paralegal and gave her access to his real estate trust account. Interestingly, no funds were misappropriated from this account. He subsequently opened another trust account, however, and used this account inappropriately. His paralegal offered to handle and reconcile this account, but he refused, and he never kept proper financial records for this account.
The improper transfers suggest the lawyer was attempting to merely borrow funds. For example, he received a wire of $114,352 to be held in escrow on May 10, 2021. On May 12, he transferred $4,000 of these funds to his operating account. On May 14, he made a cash deposit of $4,000 into the trust account, and on May 18, he transferred the full amount of $114,352 to his client. His records indicate he used some of the $4,000 for personal and business expenses and some to conduct online sports gambling.
Later, the lawyer began to repay funds he had borrowed from one client by using funds held in trust for another client. For example, on August 20, 2021, he received a wire in the amount of $284,150 to be held for a 1031 exchange. Over the course of the next seven months, he converted these funds for his personal use, including to fund gambling activities. When he disbursed the funds to his client in March of 2022, he did so, in part, by using $53,336 held in trust for another client. He delayed disbursement to the second client by three months, and he made that disbursement using funds held in trust for other clients.
He admitted he failed to keep client ledgers and “did a terrible job of keeping financial records.” The case lists funds misappropriated from numerous clients and, in addiction, lists an aggregate amount of more than $500,000.
The sad part of the case is the evidence the lawyer presented in mitigation. He explained that he had struggled with a gambling addiction since 1999, and that addiction escalated between 2014 and 2016, resulted in him taking out numerous mortgages and loans and eventually declaring bankruptcy in 2016. He then sought counselling and attended Gamblers Anonymous meetings, and “quit gambling for the most part” for approximately two years.
He explained that after he opened his own practice, the pressure of managing his business and personal finances triggered a gambling relapse. He was able to leverage assets and borrow additional funds from family members and friends to replace all but $126,000 belonging to five clients. After the self-reported his misconduct, he advised those five clients to file claims with the Lawyers’ Fund for Client Protection, which covered the full amount of losses for all but one client. The lawyer said he borrowed $35,000 from his parents to cover the funds owed to the fifth client.
Following his suspension, the lawyer enrolled in an in-patient gambling recovery program. After returning from that program, he explains he has prioritized healthy activities, including Bible study, church attendance, Gamblers’ Anonymous Meetings, maintaining contact with Lawyers Helping Lawyers, spending time with his children, working out, and working a full-time job and driving part-time for Uber.
The lawyer explained his “decisions and actions cost me my marriage, my law license, friendships, and significant time and experiences with my children.” The Court commended the lawyer for his extensive efforts to address and rehabilitate his gambling addiction, but said the mitigating circumstances in no way excuse the serious misconduct.
Dirt lawyers understand that South Carolina appellate courts will overturn tax sales on the flimsiest of technicalities. Our courts require strict compliance with the tax sale statutory requirements. In an August 21 Supreme Court case*, a tax sale was overturned because the tax collector failed to post the required conspicuous notice.
Alvetta Massenberg inherited a 2.54-acre undeveloped tract of land near the rural community of Alcola in Clarendon County in 1997. She paid taxes through 2015 but failed to pay taxes in 2016. The tax sale process began.
The property is densely forested and triangular in shape. One side faces a two-lane paved secondary road known as Plowden Mill Road. This road is marked with a double-yellow center line and solid white fog lines. The second side of the property faces a one-lane dirt road known as Robert Rees Durant Road. This road has very little shoulder area and the surrounding vegetation crowds the one lane of travel.
The tax collector sent the required “notice of delinquent property taxes” by regular mail to Massenberg’s permanent address in Charlotte and sent another notice by certified mail. The certified mail notice was returned, and the tax collector turned to the required alternative notice of South Carolina Code §12-51-40(c). That subsection requires the tax collector to “take exclusive physical possession of the property…by posting a notice at one or more conspicuous places on the premises.”
The tax collector hired a private contractor to post the notice, but gave the contractor no instruction and no guidance on how to—or ever whether to—post the notice in a “conspicuous” place. The contractor posted a “Notice of Levy” printed on an 8.5 x 11-inch sheet of paper on a tree facing the one-lane road.
Testimony indicated traffic on the paved road would be 100 times more than traffic on the dirt road.
The Master found the posting was appropriate. The Court of Appeals affirmed.
On appeal, the Supreme Court focused on the very narrow question before it, that is, whether the notice was posted in a conspicuous place. The Court stated that the statute does not require that the notice be posted in the most conspicuous place, only that it be posted at “one or more conspicuous places.”
The Court held that the process of selecting a conspicuous place is necessarily comparative and a judgment call. The Court found it critical that the Clarendon County tax collector exercised no judgment at all. Rather, she entrusted the responsibility to a private contractor without instruction. And there was no evidence that the contractor even knew of the “conspicuous place” requirement.
The Court held that the posting was clearly not in a conspicuous place.
*Massenberg v. Clarendon County Treasurer, South Carolina Supreme Court Opinion 28234 (August 21, 2024).
This blog has discussed “Captain Sam’s Spit” in Kiawah Island three times before. Googling that picturesque name will reveal a treasure trove of news, opinion and case law involving the proposed development of a beautiful and extremely precarious tract of pristine beach property on South Carolina’s coast.
In the news, reported by WCSC- TV (Charleston), the town of Kiawah Island, the Kiawah Island Community Association, and the Kiawah Conservancy filed a breach of contract suit against KDP II, LLC, the owner of the spit. According to the reporting, the lawsuit alleges that a 2013 development agreement required KDP to deed a portion of the property to the Kiawah Island Community Association as community open space and to place all remaining undeveloped lands under a conservation easement to be held by the Conservancy.
The most recent blog discussed the 2021 Supreme Court case the latest case* in which the Court refers to the property as one of our state’s only three remaining pristine sandy beaches readily accessible to the general public. The other two beaches are Hunting Island State Park and Huntington Beach State Park. I enjoy the blessing of walking the pristine beach of Huntington Beach State Park on a regular basis, so despite having a career on the periphery of real estate development, I am in favor of maintaining these three state treasures.
The South Carolina Bar’s Real Estate Intensive seminars have included field trips to Captain Sam’s Spit, from a distance at least. Professor Josh Eagle of the University of South Carolina School of Law was an excellent tour guide, and how many opportunities do we, as dirt lawyers, have for field trips? The South Carolina Environmental Law Project, located in Pawleys Island, fights these cases. Amy Armstrong, an attorney with that entity, joined our group to explain the environmental and legal issues.
Here are greatly simplified facts. Captain Sam’s Spit encompasses approximately 170 acres of land above the mean high-water mark along the southwestern tip of Kiawah Island and is surrounded by water on three sides. The Spit is over a mile long and 1,600 feet at its widest point, but the focal point of the latest appeal is the land along the narrowest point (the “neck”), which is the isthmus of land connecting it to the remainder of Kiawah Island. The neck occurs at a deep bend in the Kiawah River where it changes direction before eventually emptying into the Atlantic Ocean via Captain Sam’s Inlet.
The neck has been migrating eastward because of the erosive forces of the Kiawah River. The “access corridor”—the buildable land between the critical area and the ocean-side setback line—has narrowed significantly in the past decade to less than thirty feet. Googling this issue will lead to active maps which show the change over time. The width of the neck is significant because the developer needs enough space to build a road. At the base of the neck is Beachwalker Park, operated by the Charleston County Parks and Recreation Commission. Our fieldtrips were conducted on that Park.
Twice before, the administrative law court (ALC), over the initial objection of DHEC, has granted permits for the construction of an extremely large erosion control device in the critical area. In both cases (citations omitted), the Supreme Court found the ALC erred. The 2021 case arose from the ALC’s third approval of another structure termed “gargantuan” by the Supreme Court—a 2,380-foot steel sheet pile wall designed to combat the erosive forces carving into the sandy river shoreline in order to allow the developer to construct the road to support the development of fifty houses. The Court again reversed and, in effect, shut down the proposed development, at least temporarily. The economic interests of an increased tax base and employment opportunities do not justify eliminating the public’s use of protected tidelands, according to the Court.
I wouldn’t be surprised to see future appellate court cases involving this property.
*South Carolina Coastal Conservative League v. South Carolina Department of Health andEnvironmental Control, South Carolina Supreme Court Opinion 28031 (June 2, 2021)
The S.C. State Conference of the NAACP, the S.C. Advocate Program (“Housing Program”) and three prospective nonlawyer volunteers for the Housing Program petitioned our Supreme Court seeking authorization to allow nonlawyer volunteers to provide free, limited assistance to tenants facing eviction in magistrate courts.*
The petition sought a declaratory judgment in the Court’s original jurisdiction that their proposed activities will not constitute the unauthorized practice of law. Dirt lawyers will recognize the Court’s struggle with the UPL issue because it took 18 pages to reach an affirmative answer. More than three pages were devoted to the history of the UPL issue in South Carolina. Many of us can recite that history from memory.
The petitioners argued that the unmet legal needs of tenants facing eviction is an emergency situation justifying immediate action and that 99% of defendants in eviction cases are not represented by lawyers in the proceedings.
Tenants involved in the program will be advised that the volunteers are nonlawyers. The volunteers are required to limit the information they provide to tenants, and they may only:
Confirm that the tenant has a pending eviction;
Advise the tenant that they should request a hearing and, based on the text of the eviction notice and checking relevant court records, explain how and when to do so; and
Provide the tenant with narrow additional advice about the hearing by flagging common defenses, primarily pertaining to notice, that the tenant might be able to raise.
The volunteers will be instructed to avoid conflicts of interest, abide by confidentiality rules, and refrain from revealing any information about the tenant’s situation except to Housing Program staff. The volunteers must refer tenants to legal service providers when issues are beyond the scope of the program, such as when the tenant has a counterclaim, if the tenant does not have a written lease, if the tenant receives a housing voucher or lives in public housing, or when the tenant seeks information in excess of that permitted under the program.
The petition recited that lawyers have reviewed the program and will work closely with the volunteers, evaluating and assisting them.
The petitioners agreed to share data and information about the successes and failures of the program with the Court to allow the Court to weigh the efficacy of the program to determine whether sufficient safeguards are in place to protect the public.
The Court found that the program appears to provide for sufficient training, safeguards, and lawyer supervision so that the volunteers working within the strict limits set forth in the program’s training manual will not engage in the unauthorized practice of law.
The Court approved the program on a provisional, pilot basis for a term of three years, unless extended or terminated by the Court. Petitioners are required to submit annual reports including the date and metrics discussed in the order as well as a written summary of the activities of the program.
*Appellate Case No. 2023-0016089 (February 8, 2024)
In May, this blog discussed Ani Creation, Inc. v. City of Myrtle Beach,* a case where the South Carolina Supreme Court upheld an ordinance that imposed a zoning overlay district intended to bolster the “family friendly” nature of Myrtle Beach’s historic downtown area. The ordinance targeted smoke shops and tobacco stores and the merchandizing of tobacco paraphernalia, products containing CBD, and sexually oriented material.
The opinion begins, “The City of Myrtle Beach (the city) is a town economically driven and funded by tourism.” The facts indicate that the city received frequent criticism from tourists and residents that the proliferation of smoke shops and tobacco stores repelled families from the area. The city passed a comprehensive plan that aimed at increasing tourism and concluded that all businesses needed to encourage and support a “family beach image”. The city passed an ordinance which created a zoning overlay district known as the Ocean Boulevard Entertainment Overlay District that encompassed the historic downtown area.
The prohibited uses in the district were declared immediately nonconforming when the ordinance was passed on August 14, 2018, but an amortization period was allowed which gave affected businesses until December 31, 2019, to cease the nonconforming portions of their businesses.
The zoning administrator issued citations to the nonconforming businesses. Nine of the 25 affected stories appealed to the Board of Zoning Appeals which found (1) it did not have jurisdiction to declare the ordinance unconstitutional; (2) it could not grant a use variance because it would allow the continuation of a use not otherwise allowed in the district; and (3) the businesses were engaged in one or more of the prohibited uses. On appeal, the circuit court affirmed the Board’s opinion, finding the appellants’ 25 grounds for challenging the ordinance meritless. The businesses appealed directly to the South Carolina Supreme Court.
The appellants raised a “host” of constitutional and procedural challenges, all of which fell on deaf ears at the Supreme Court. The Court held that the ordinance was a valid exercise of the city’s police powers. According to the Court, municipal governing bodies clothed with authority to determine residential and industrial districts are better qualified by their knowledge of the situation to act upon such matters than are the courts, and they will not be interfered with in the exercise of their police power to accomplish their desired end unless there is a pain violation of the constitutional rights of the citizens.
The Appellants petitioned for a rehearing and in an opinion re-filed on June 28, the court again affirmed the Court of Appeals.
A comment on the Dirt Listserv said, “S. Carolina is OK with cancel culture after all.” A store selling sexually oriented materials was removed from Garners Ferry Road in Columbia (about three miles from my house) using similar legal arguments. I was delighted to see that store torn down before I had to explain it to my grandchildren! But I do understand the “cancel culture” argument. What do you think?
Braden’s Folly, LLC v. City of Folly Beach* involves two small, contiguous developed residential coastal properties on the northeast end of Folly Beach. The City of Folly Beach amended an ordinance to require certain contiguous properties under common ownership, like the properties in question, to be merged into a single, larger property.
The ordinance did not impact the existing uses of the contiguous lots as vacation rental properties, but Braden’s Folly challenged the ordinance, claiming it had planned to sell one of the developed properties, and that the merger ordinance interfered with its investment-backed expectation under the Penn Central** test, which states that in regulatory takings cases, courts must examine the economic impact of the regulation on the property owner’s investment-backed expectations, as well as the character of the government action.
Folly Beach denied the claim of an unconstitutional regulatory taking, and pursuant to cross-motions for summary judgment, the circuit court agreed with Braden’s Folly. Folly Beach appealed to the South Carolina Supreme Court, which reversed and remanded the case for entry of judgment in favor of Folly Beach.
The Court stressed that underlying its applicability of the Penn Central test was the distinct fragility of Folly Beach’s coastline, which was subject to such extreme erosion that the General Assembly exempted Folly Beach from parts of the South Carolina Beachfront Management Act. The exemption empowered the City to act instead of the State in protecting the beach.
A portion of the northeast end of Folly beach has a double row of properties. The “A lots” are directly adjacent to the ocean-side of East Ashley Avenue, and the “B lots”—also known as “super-beachfront” lots—are closer to the ocean. There is no road between the A and B lots, so the B lots are accessible only through the A lots. Between beach renourishments, the B lots could be surrounded by the ocean on three sides. Braden’s Folly owns adjacent lots (Lot A and Lot B) on East Ashley Avenue. Both lots are very small.
Braden’s Folly contended that it had always intended to keep one of the lots and sell the other—whichever received the highest offer—to pay for the construction of a house on each lot. When the merger ordinance passed, the City sent a letter to Braden’s Folly requesting it stop marketing the lots separately. In response, Braden’s Folly filed the subject lawsuit.
The Supreme Court found that some facts weighed in favor of finding Braden’s Folly’s investment-backed expectation was reasonable and some facts weighed in favor of finding its expectation unreasonable. The PennCentral balancing test did not weigh in favor of either party, according to the Court.
Folly Beach and its witnesses set out the advantages to local beachfront property owners and the public at large of unwinding the super-beachfront development. The most important of the benefits to local property owners is the continued existence of federal funding for beach renourishment which in turn (1) protects A and B lots—particularly given that all the lots would be underwater if it were not for the continual renourishment; and (2) avoids property owners paying higher taxes if federal funding is extinguished.
The Court held that the merger ordinance was not a taking but responsible land use policy. Braden’s Folly retains, according to the Court, a near-full “bundle of sticks” incident to its ownership of the lots.
In Ani Creation, Inc. v. City of Myrtle Beach, * the South Carolina Supreme Court upheld an ordinance that imposed a zoning overlay district intended to bolster the “family friendly” nature of Myrtle Beach’s historic downtown area. The ordinance targeted smoke shops and tobacco stores and the merchandizing of tobacco paraphernalia, products containing CBD, and sexually oriented material.
The opinion begins, “The City of Myrtle Beach (the city) is a town economically driven and funded by tourism.” The facts indicate that the city received frequent criticism from tourists and residents that the proliferation of smoke shops and tobacco stores repelled families from the area. The city passed a comprehensive plan that aimed at increasing tourism and concluded that all businesses needed to encourage and support a “family beach image”. The city passed an ordinance which created a zoning overlay district known as the Ocean Boulevard Entertainment Overlay District that encompassed the historic downtown area.
The prohibited uses in the district were declared immediately nonconforming when the ordinance was passed on August 14, 2018, but an amortization period was allowed which gave affected businesses until December 31, 2019, to cease the nonconforming portions of their businesses.
The zoning administrator issued citations to the nonconforming businesses. Nine of the 25 affected stories appealed to the Board of Zoning Appeals which found (1) it did not have jurisdiction to declare the ordinance unconstitutional; (2) it could not grant a use variance because it would allow the continuation of a use not otherwise allowed in the district; and (3) the businesses were engaged in one or more of the prohibited uses. On appeal, the circuit court affirmed the Board’s opinion, finding the appellants’ 25 grounds for challenging the ordinance meritless. The businesses appealed directly to the South Carolina Supreme Court.
The appellants raised a “host” of constitutional and procedural challenges, all of which fell on deaf ears at the Supreme Court. The Court held that the ordinance was a valid exercise of the city’s police powers. According to the Court, municipal governing bodies clothed with authority to determine residential and industrial districts are better qualified by their knowledge of the situation to act upon such matters than are the courts, and they will not be interfered with in the exercise of their police power to accomplish their desired end unless there is a pain violation of the constitutional rights of the citizens.
A comment on the Dirt Listserv said, “S. Carolina is OK with cancel culture after all.” A store selling sexually oriented materials was removed from Garners Ferry Road in Columbia (about three miles from my house) using similar legal arguments. I was delighted to see that store torn down before I had to explain it to my grandchildren! But I do understand the “cancel culture” argument. What do you think?
SC Supreme Court discards arguments of ALTA and PLTA
Real estate cases can be absent from our Advance Sheets for months, but we have seen two cases already in 2023. In ArrowPoint Federal Credit Union v. Bailey* our Supreme Court was asked to adopt a novel replacement mortgage doctrine, but the Court deflected the question, deferring to the legislature, even though American Land Title Association and Palmetto Land Title Association filed amicus briefs in favor of the doctrine.
This is a real estate mortgage priority dispute between two institutional lenders concerning a residential property in Winnsboro. Jimmy and Laura Bailey mortgaged their residence at 247 Morninglow Drive to Quicken Loans in the amount of $256,500. The mortgage was recorded on October 20, 2009. One week later, the Baileys closed an equity line of credit with ArrowPoint Federal Credit Union in the amount of $99,500. The second mortgage was recorded on November 4. ArrowPoint had record notice of the Quicken mortgage. On November 23, the Baileys refinanced the Quicken mortgage with Quicken, this time in the amount of $296,000.
In connection with the refinance, the Baileys executed an interesting document entitled “Title Company Client Acknowledgment”, which stated the only outstanding lien on the property was the prior Quicken mortgage. This statement was false. The Court stated that there was no clear explanation as to whether Quicken had the title searched at this point.
The Baileys used $257,459 from the refinance to pay off the first mortgage. On December 15, Quicken released the first mortgage and recorded the refinance mortgage. Quicken assigned the mortgage to U.S. Bank, the petitioner in this case.
(If these facts make you break out into a cold sweat, then you were around doing real estate closings at the break-neck speed we suffered during this time frame.)
The Baileys defaulted on the line of credit, and ArrowPoint filed this action seeking a declaration that its line of credit had priority over the Quicken refinance mortgage. Both lenders moved for summary judgment. U.S. Bank claimed it had priority under the replacement mortgage doctrine. The special referee and Court of Appeals agreed with ArrowPoint, and the Supreme Court affirmed. Both appeals courts concluded that adopting the replacement mortgage doctrine is a question for the General Assembly.
Dirt lawyers are intimately familiar with South Carolina’s race-notice statute (S.C. Code §30-7-10) which prioritizes liens based on notice and the recording date.
The Supreme Court recited that it had recognized the equitable subordination doctrine as an exception to the race-notice statute. The Court noted the right of subrogation is essentially a creation of the court of equity, which allows a person who is secondarily liable for a debt, upon paying the debt, to assume by law the place of the creditor whose debt is paid. Decades later, the Court declined to recognize the doctrine for a lender that refinanced its own mortgage but failed to discover an intervening mortgage. The Court said in the case at hand that it had previously warned lenders of their duty to search titles!**
The Court noted that the replacement mortgage doctrine is another exception to the race-notice statute, and many jurisdictions either recognize the doctrine or follow its logic. Cases from other jurisdictions were cited, and the Restatement (Third) of Property was quoted. According to the Restatement, the replacement mortgage doctrine provides:
If a senior mortgage is released of record and, as a part of the same transaction, is replaced with a new mortgage, the latter mortgage retains the same priority as its predecessor, except
To the extent that any change in the terms of the mortgage or the obligation it secures is materially prejudicial to the holder of a junior interest in the real estate, or
To the extent that one who is protected by the recording act acquires an interest in the real estate at a time that the senior mortgage is not of record.
The Court said that it was required to respect the authority of the legislature on public policy matters and declined to sit as a “superlegislature” to second-guess the General Assembly’s decisions. The Court differentiated the equitable subrogation doctrine from the replacement mortgage doctrine by saying that the “race” begins with the original mortgage in the equitable subrogation situation, and the intervening lender suffers no loss. Under the replacement mortgage doctrine, on the other hand, the original first mortgage is satisfied of record and replaced with a new mortgage that is recorded after the intervening mortgage.
The Court also criticized the replacement mortgage doctrine because it dilutes the importance of title examinations. Lenders who seek to refinance their own mortgages, as Quicken did in this case, can easily search the title to discover the intervening lien. The last words of the case state, “Finally, we emphasize parties must conduct diligent title searches to protect their interests under the race-notice statute.”
I, for one, will not argue with that final statement. It now appears that if ALTA and PLTA want a replacement mortgage doctrine in South Carolina, they need to approach the legislature.
*South Carolina Supreme Court Opinion 28129, January 11, 2023.
**All the citations are omitted but are set out in detail in the subject case.
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