What Happens When Easements Are Abandoned?

What happens if an easement is abandoned? While most easements in South Carolina last indefinitely, abandonment is one way to extinguish an easement. In that instance, the original rights revert to the property owner(s).

This sounds straightforward enough, but, as with many legal matters, sometimes straightforward things get complicated.

Case in point: the 2023 South Carolina Court of Appeals case Myers v. Town of Calhoun Falls (read it here). In short, a railroad line built on properties through the use of easements was abandoned and dismantled, and property owners sought to regain their property rights approximately thirty years later.

Questions the court looked at:

Was the railroad properly abandoned, thus giving the court subject matter jurisdiction and authority to declare the easements terminated?
Did the property owners wait too long to attempt to regain their rights, and should the doctrine of laches have barred them?

(For a refresher on easements in South Carolina, read more here on our blog.)

Brief Background of Myers vs. Town of Calhoun Falls (2023)

The railroad

Way back in 1878, South Carolina chartered the Savannah Valley Railroad Company to construct a railroad. This necessitated several easements on properties in McCormick County and Abbeville County, SC.

Over the years, the rights to the properties have been conveyed to successors of the Savannah Valley Railroad Company and have been recorded in deeds on the affected properties. The wording in a sample deed presented to the court included language stipulating that the easement was for the purpose of a railroad.

By the 1970s, the railroad was owned and operated by Seaboard Systems Railroad, Inc. (Railroad), which eventually sought permission from the Interstate Commerce Commission to close down the track. Permission was granted, and the railroad was entirely dismantled and removed by the end of February 1980.

Part of the Railroad’s interests in the properties eventually ended up in the possession of the Town of Calhoun Falls and another part in the possession of Savannah Valley Trails, Inc. (SVT), together the Appellants in this case.

The lawsuits

SVT began construction of a walking trail where the railway used to be. Not long after, Annie L. Myers and many other present-day owners of the affected properties (Respondents) took legal action, requesting declaratory relief as to the property rights of the easements. (Separate but similar actions by property owners in McCormick County and Abbeville County were consolidated by the trial court.)

In February 2020, the trial court found that Railroad had abandoned the line, and consequently the easements terminated and the associated property rights reverted to the property owners.

The matter then went to the South Carolina Court of Appeals in 2023.

Proving Abandonment – Which Party Has the Burden of Proof?

SVT argued that the trial court did not have subject matter jurisdiction because Respondents failed to prove the railroad was properly abandoned, meaning the issue was still under the jurisdiction of the Surface Transportation Board (previously the Interstate Commerce Commission, or the ICC).

The railroad had been abandoned as a matter of fact: the track was dismantled and removed, and Railroad sent a letter to the ICC stating that the line was officially abandoned on February 15, 1980. But SVT argued that Respondents did not produce Railroad’s journal entries documenting the abandonment of the line as requested by the ICC, so the abandonment was incomplete.

The appeals court stated that the burden of proof was on SVT to show that the abandonment was incomplete, not on Respondents to show the abandonment occurred in a particular manner. True, the appeals court noted, the record did not include journal entries as requested by the ICC. But neither did the record contain evidence that Railroad did not comply with its requests. SVT did not meet the burden of proof.

Therefore, the appeals court found that the trial court did have subject matter jurisdiction and had the authority to make a judgement on the easements.

Waiting Too Long – Should Laches Have Barred the Respondents’ Claim?

SVT also argued that Respondents’ claims should have been barred by the trial court by the doctrine of laches.

Laches is an equitable doctrine stemming from common law. It is, as described in Hallums v. Hallums (1988) and quoted by the court in the current opinion, “neglect for an unreasonable and unexplained length of time, under circumstances affording opportunity for diligence, to do what should have been done.” In other words, if a party waits too long to take action on a legal issue – like asserting or regaining their rights – they may have lost their chance for good.

Respondents waited approximately 30 years to seek declaratory relief regarding their property rights, despite having the opportunity to do so. The trial court did find this delay unreasonable.

But “The failure to assert a right ‘does not come into existence until there is a reason or situation that demands assertion’” (citing Mid-State Tr., II v. Wright, 1996, quoting Ex parte Stokes, 1971). Additionally, “the party asserting laches must show it has been materially prejudiced by the other person’s delay” (citing the same case).

On this last point, the trial court found that SVT failed to provide evidence demonstrating how Respondents’ delay affected them financially or made them liable if the walking trail were not completed. Since SVT was not able to prove material prejudice due to Respondents’ delay, the appeals court agreed with the trial court that the doctrine of laches did not apply. Respondents were not barred from making a claim.

Get Legal Help from Gem McDowell and His Team

The South Carolina Court of Appeals ultimately affirmed the trial court’s decision granting declaratory relief. The court found that the rights to the properties reverted to the property owners (Respondents) at the time the railroad was abandoned and the easements terminated.

Note that it wasn’t until the property owners took legal action that they secured their rights again. If you are in a similar situation looking to regain full rights to your property after the termination of an easement, don’t expect it to happen automatically. You will likely have to take affirmative action to regain your rights just like Respondents did in this case.

For help with easements and more, contact attorney Gem McDowell at the Gem McDowell Law Group in Myrtle Beach and Mt. Pleasant, SC. Gem has over 30 years of experience handling legal matters in South Carolina, including easement disputes commercial real estate, business law, and estate planning. Call Gem and his team to schedule a free consultation at 843-284-1021 or fill out this form today.

South Carolina Rejects the Mortgage Replacement Doctrine

The Supreme Court of South Carolina rejected the mortgage replacement doctrine in the 2023 case ArrowPointe Federal Credit Union v. Bailey (PDF), upholding the decision of the SC Court of Appeals.

Under the replacement mortgage doctrine, if an older (original) mortgage is released and replaced with a new mortgage in the same transaction, the newer mortgage maintains the same priority for repayment as the original.

But the replacement mortgage doctrine is not part of South Carolina law, and the SC Supreme Court rejected it. Here’s some brief background on the case and the court’s main points.

The Background of ArrowPointe Federal Credit Union v. Bailey (2023)

In late October 2009, Jimmy Eugene Bailey and Laura Jean Bailey took out a mortgage from Quicken Loans on their Winnsboro, SC home in the amount of $256,500. In early November, they took out an equity line of credit with ArrowPointe Federal Credit Union (ArrowPointe), secured by a mortgage, with a maximum principal amount of $99,000.

Less than three weeks later, in December 2009, the Baileys refinanced and got a new mortgage from Quicken Loans in the amount of $296,000. At closing, they signed a document saying the only lien on the property was the original Quicken Loans mortgage. Quicken didn’t have ArrowPointe sign a subordination agreement to ensure that it (Quicken Loans) would be paid back before ArrowPointe. It appears the ArrowPointe loan was not discovered during a title search, even though it had been properly recorded and Quicken Loans had constructive notice.

Sometime later, the Baileys defaulted on their ArrowPointe loan, which stood at $187,201.60 in March 2017.

Who Gets Paid First?

In 2017, ArrowPointe filed this action seeking a declaration that its line of credit had priority over the second Quicken Loans mortgage – now held by U.S. Bank – and should be paid first.

U.S. Bank argued it was entitled to priority over ArrowPointe under the replacement mortgage doctrine. ArrowPointe argued that it was entitled to priority, as Quicken Loans had recorded notice of the ArrowPointe line of credit at the time the second mortgage was signed.

A special referee agreed with ArrowPointe, finding that South Carolina does not recognize the replacement mortgage doctrine and that ArrowPointe had priority over U.S. Bank under South Carolina’s race-notice statute (discussed below). The referee ordered the foreclosure of the mortgage and the sale of the Bailey home. The SC Court of Appeals affirmed the special referee’s decision. The matter then went to the Supreme Court in May 2022.

The SC Supreme Court Rejects the Mortgage Replacement Doctrine

The SC Supreme Court affirmed the lower court’s decision. Here are some takeaways from its opinion.

South Carolina Statute is Clear, and the Court is Not a “Superlegislature”

U.S. Bank’s argument for priority was based on the replacement mortgage doctrine, but that is not part of current South Carolina law. The Supreme Court agrees with the SC Court of Appeals that whether South Carolina should adopt the replacement mortgage doctrine is an issue for the General Assembly, not the court, saying, “We do not sit as a superlegislature to second-guess the General Assembly’s decisions.”

Current law is clear. South Carolina has a race-notice recording statute, which is one way of determining the lawful owner of a piece of property when more than one party makes a claim to it. In states with a race statute, the party that records the sale with the recording office first is the legal owner. In states with a notice statute, a subsequent buyer who is not aware of a previous sale of the property, through actual or constructive notice, is considered the owner. The buyer may be made aware of a prior conveyance either through actual notice or constructive notice, such as the recording of a deed which is public record.

In a race-notice statute state like South Carolina, a subsequent buyer must have no actual or constructive notice of a prior conveyance and must record the purchase before the prior buyer. Under this statute, ArrowPointe has priority over U.S. Bank.

Equitable Subrogation Doctrine and Replacement Mortgage Doctrine Are Not the Same

U.S. Bank also argued that because the South Carolina Supreme Court has adopted the equitable subrogation doctrine as an exception to the race-notice statute in the past, it may also adopt the replacement mortgage doctrine.

But the two are different, says the court. With equitable subrogation doctrine, a new party essentially “steps into the shoes” of the existing mortgagee, to use the court’s analogy. The party has changed, but the loan itself has not. With the mortgage replacement doctrine, however, the old mortgage is satisfied and replaced with a wholly new mortgage that may or may not have similar terms. In the present case, the second mortgage the Baileys took out was substantially more than the first – $39,500 more – so the two mortgages were significantly different. The second mortgage was not an exact replacement for the first.

A Thorough Title Search is a Better Solution

A thorough title examination is “inherent” in our state’s race-notice statute, says the court. Quicken Loans should have discovered the ArrowPointe line of credit in a title search and addressed it during refinancing, but it didn’t.

“We conclude the replacement mortgage doctrine invites needless litigation that could be avoided by a simple examination of the title to the real property,” says the SC Supreme Court. “We see no reason to adopt a doctrine that excuses the failure to conduct such a title examination—or, when a title examination is conducted, the failure to ascertain the existence of an intervening lien.” (Emphasis added by Gem McDowell Law Group.)

Don’t take chances or shortcuts when it comes to real estate deals. Work with an attorney who can help you cover all your legal bases so there are no surprises in the future.

Call South Carolina Attorney Gem McDowell

For help with contracts, commercial real estate transactions, and other estate planning and business law needs, call Gem and his team at his Mt. Pleasant office. Gem has over 30 years of experience helping individuals and businesses in South Carolina to protect their interests and avoid potentially costly mistakes. Call 843-284-1021 today to schedule your free consultation.

What is a Lady Bird Deed? Are Lady Bird Deeds Legal in South Carolina?

A lady bird deed, like other kinds of deeds, determines how ownership of a property is transferred and to whom. It’s similar to a life estate deed in that it allows the transfer of property outside of probate. But the big difference is that a lady bird deed gives the life tenant rights to the property that are restricted by a traditional life estate deed, such as the right to mortgage or sell the property.

A lady bird deed – also known as a ladybird deed or an enhanced life estate deed – can be a useful tool in the right estate plan. But it’s not right for everyone, and using a lady bird deed can lead to serious unintended consequences.

Let’s look at what a lady bird deed is and what it does, the advantages and disadvantages of the lady bird deed, and lady bird deeds in South Carolina.

What Is a Lady Bird Deed? What Does a Lady Bird Deed Do?

The lady bird deed was created by Florida attorney Jerome Ira Solkoff in the early 1980s; the name comes from Solkoff’s book and is not a reference to First Lady “Lady Bird” Johnson. Solkoff started using the lady bird deed to address an issue with the traditional life estate.

In a typical life estate, a piece of property (often but not always real estate) is owned by a “life tenant” for the duration of their life only. When the life tenant dies, the property automatically passes to a “remainderman” or “remaindermen.” The life tenant may be the grantor (the original owner of the property), the grantor’s spouse or child, or someone else.

One big advantage of a life estate deed is that the property is not subject to probate. But one big disadvantage – to the life tenant, at least – of the traditional life estate is that the life tenant does not have full rights to the property during their lifetime. The life tenant cannot, for example, sell or take out a mortgage on the property without the permission of the remainderman. Understandably, selling or mortgaging the property goes against the best interests of the remainderman, who would prefer for the property to remain intact with its full value. This clash of interests between the life tenant and the remainderman effectively means that, in most cases, the life tenant is unable to sell or mortgage the property, even if it is legally theirs.

Enter the lady bird deed. With a lady bird deed, the life tenant has full rights to the property during their lifetime, including the right to mortgage, sell, or otherwise dispose of the property without the permission of the remainderman. This is why the term “enhanced life estate” is also used for a lady bird deed, since it’s essentially a life estate deed that gives the life tenant additional rights to the property. Upon the death of the life tenant, the property, or what remains of it, automatically goes to the remainderman (or remaindermen).

Another important difference between a lady bird deed and a life estate deed is that a lady bird deed can be revoked or changed by the grantor alone. By contrast, a life estate deed can only be revoked or changed by the grantor with the permission of the life tenant and the remainderman.

Benefits of a Lady Bird Deed

As covered above, the main benefits of a lady bird deed over a life estate deed include:

Full property rights to the life tenant including the right to sell or mortgage the property without the remainderman’s permission.
Ability for grantor to revoke or change the lady bird deed without the remainderman’s permission.

Other benefits of a lady bird deed are the same as a typical life estate deed, which include:

Avoiding probate. Because the lady bird deed (or life estate deed) directs where the property should go after death, the property passes automatically to the heir without needing to go through probate.
Help with Medicaid eligibility. If the grantor is also the life tenant, then the property is not considered an asset when the grantor applies for Medicaid. Lady bird deeds aren’t considered a transfer for Medicaid eligibility purposes.
Prevent property from being used to repay Medicaid. Lady bird deeds (and life estate deeds) prevent the property from being used to repay the state for Medicaid costs related to long-term care after the individual’s death.
Avoid federal gift tax. Importantly, it does not help you avoid applicable estate taxes.

This list is not exhaustive. Depending on your specific circumstances, you may derive other benefits from a lady bird deed or life estate deed.

Drawbacks of a Lady Bird Deed and Potential Consequences

Lady bird deeds sound great. They provide all the benefits of a life estate deed but without the major drawback of restricting the life tenant’s rights. Plus, they can be changed or revoked by the grantor at will.

But there are two major drawbacks specific to lady bird deeds that can create unintended consequences. These are:

Drawback 1: Lack of widespread recognition

Lady bird deeds are not as common and widespread as life estate deeds and many other estate planning tools. As of now, only five states fully recognize lady bird deeds (usually called enhanced life estate deeds): Florida, Michigan, Texas, Vermont, and West Virginia.

While this doesn’t mean you are prohibited from having a lady bird deed if you live in one of the other forty-five states, it does mean that doing so is taking a risk. Your wishes may not be carried out as you want, because the law still isn’t clear on how to handle lady bird deeds in most states.

Drawback 2: Difficulty obtaining title insurance

One of the great benefits of a lady bird deed is that the life tenant does not require permission from the remainderman to mortgage, sell, or otherwise encumber or dispose of the property. But this can cause a problem when it comes to title insurance if the life tenant ever decides to sell or take out a mortgage on the property.

A title insurance company in a state where lady bird deeds are not routinely recognized may refuse to issue title insurance unless it has the “joinder of the remainder,” that is, the agreement of the remainderman or remaindermen to the sale or mortgage. Since, as discussed above, doing so goes against the remainderman’s best interests, it may be impossible to obtain the joinder of the remainder. At that point, the enhanced life estate created by the lady bird deed is no different than a typical life estate.

What if you simply don’t get title insurance and go ahead with the sale? It’s true that title insurance is not required for every sale. But skipping the title insurance doesn’t address the underlying problem, which is that the remainderman has a vested interest in the property and can bring a claim in the future. Fighting such claims in and out of court can be costly and time consuming, and they can irreparably damage relationships among heirs.

Are Lady Bird Deeds Legal in South Carolina?

Lady bird deeds are not codified into law in South Carolina, nor have they been officially recognized by the courts.

However, in at least two instances, South Carolina higher courts have agreed with the intention of an enhanced life estate, or, in its words, a “life estate with the power of disposition,” as far back as 1971. That is, it recognized the right of a life tenant to dispose of the property as they wish without the consent of the remaindermen when this wish was explicitly expressed in the original property owner’s last will. See Blackmon v. Weaver (2005) (here) and Johnson v. Waldrop (1971) (here).

This may be reassuring to those who wish to take advantage of the benefits of a lady bird deed in South Carolina, but it’s still a long way from being widely used and recognized here. Plus, it still doesn’t change the fact that title insurance companies may refuse to issue title insurance without the joinder of the remainder, which could hamper real estate deals. Finally, it’s worth noting that both of the “life estates with the power of disposition” recognized by the courts were created in last wills, not through deeds, meaning that the properties in question were subject to probate.

Alternatives to Lady Bird Deeds in South Carolina

At this time, the most prudent thing to do may be to find an alternative to the lady bird deed if you live in South Carolina or another state where enhanced life estate deeds are not routinely recognized. Some possible alternatives to a lady bird deed, depending on your objectives, include a life estate deed, a transfer-upon-death deed, or a revocable living trust.

If you have questions about your estate plan and are concerned about avoiding probate or ensuring that your property is inherited according to your wishes, call estate planning attorney Gem McDowell at the Gem McDowell Law Group. He and his team can help you create, review, or update your estate plan so it reflects your current life circumstances and future wishes. He can also help you understand the possible consequences of how your estate plan will play out and how that can affect your family members and heirs and prevent friction in the future.

Call Gem today at his office in Mount Pleasant, SC, at 843-284-1021 to schedule your free consultation today.

What is a Right of First Refusal and When Is It Enforceable?

The right of first refusal sounds simple on the surface. A right of first refusal (ROFR) gives the right-holder the opportunity to enter into a business transaction with another party before anyone else. It’s most commonly seen in real estate contracts, such as when a lessor signs a contract giving them the ROFR to put in an offer to purchase the property if it ever comes up for sale.

But as straightforward as it sounds on paper, it’s not always so straightforward in the real world. Contracts that include an ROFR must be clear and detailed in order to be enforceable.

The Supreme Court of South Carolina addressed this issue in the 2023 case Clarke v. Fine Housing, Inc. (here). We’ll look at the factors required for an enforceable right of first refusal in South Carolina and how they played out in this recent case.

The Pros and Cons of a Right of First Refusal

An ROFR can benefit both parties. In the example of a lessor with the ROFR to purchase the property, if and when it comes up for sale, they can be sure not to miss out on the opportunity to put in an offer. There’s no downside for the potential buyer; if they don’t want to buy the property, they simply refuse.

The property owner can benefit by having a potential buyer already lined up when it’s time to sell, which may help them in negotiations with other potential buyers. However, the downside for the property owner is that a ROFR can restrict their power of alienation, which is their ability to dispose of property.

“South Carolina law prohibits enforcement of unreasonable restraints on alienation of real property,” the court says in the Clarke opinion. The key word here is “unreasonable.” Whether a particular ROFR is enforceable depends on whether the restraints on alienation are considered unreasonable.

Unreasonable Restraints on Alienation of Property: What is Unreasonable?

In the Clarke opinion, the SC Supreme Court turns to the Restatement (Third) of Property. The Restatements of the Law (Third) are a comprehensive set of legal treatises widely referenced and relied upon by courts, judges, lawyers, and others across the U.S. On the subject of the ROFR, it says, “Reasonableness is determined by weighing the utility of the restraint against the injurious consequences of enforcing the restraint.”

The Supreme Court of South Carolina uses the factors listed in the Restatement (Third) of Property (Comment f) to determine, on a case-by-case basis, whether a right of first refusal is enforceable. The factors are:

The legitimacy of the purpose of the right,
The price at which the right may be exercised, and
The procedures for exercising the right

These factors are not exclusive.

Let’s look at each one of the factors and how they figure into the Clarke case.

Background of Clarke v Fine Housing (2023)

First, the pertinent background of 2023 Supreme Court of South Carolina case Clarke v. Fine Housing, Inc.: Barry Clarke owned a strip club in Charleston. In 1999, he entered into a lease agreement with the owners of another strip club across the street to use part of their unimproved land for parking. The lease contained the following language:

Section 5.2. Right of First Refusal: Lessor grants the Lessee the right of first refusal should it wish to sell.

Note that there’s no mention of price, timing, how to exercise the right, or any other specifics – not even which property this right of first refusal applies to.

In 2013, then-owner RRJR conveyed the property in question to Fine Housing, Inc. Clarke learned of the sale in 2014 after it was a done deal, having had no opportunity to exercise what he believed to be his enforceable right of first refusal (Right).

In 2015, Clarke brought this action for specific performance against Fine Housing and RRJR. The case eventually came before the Supreme Court of South Carolina, which agreed with the SC Court of Appeals that the Right was not enforceable because it constituted an unreasonable restraint on alienation.

Factors for an Enforceable Right of First Refusal

Here are the three factors the Supreme Court of South Carolina uses to determine enforceability of a right of first refusal on a case-by-case basis and how they show up in Clarke.

Factor 1: Legitimacy

In Clarke, Fine Housing didn’t challenge the legitimacy of the purpose of the Right, so the court didn’t address the issue.

Factor 2: Price

Price may or may not be an unreasonable restraint on alienation. If, for example, the ROFR were dependent on a fixed price, that could restrain alienation. If the price were to be matched to a third party’s offer, there would be less restraint.

In Clarke, Clarke argued that the Right left the price to be determined entirely by RRJR and required him to match any offer from a third party. He also argued that exercising the Right would have started a bidding war that would have benefitted RRJR.

The court agreed with Fine Housing that the absence of any method for determining the purchase price in the lease constituted an unreasonable restraint on alienation. Absence of specifics on how to determine price may not be as restraining as a fixed price, says the court, but it is still a restraint, and “a right of first refusal should contain some method for determining the price at which it may be exercised.” The lease Clarke signed had no method, and therefore this factor worked against him.

Factor 3: Procedures governing the exercise of the right

Comment f to the Restatement stresses the importance of provisions governing the exercise of the right, stating, “Lack of clarity may cause substantial harm by making it difficult to obtain financing and exposing potential buyers to threats of litigation. Lengthy periods for exercise of rights of first refusal will also substantially affect alienability of the property.”

Time is also an important consideration. How soon after the owner decides to sell does the right holder have to exercise their right? An extended period of time can be a restraint on the property owner, while a “reasonable” time frame does not impose unreasonable restraint and is generally enforceable.

In Clarke, Clarke argued that a ROFR does not require detailed instructions on how to exercise it to be valid, but this directly contradicts the Restatement (Third) of Property. He also argued that the lease provided satisfactory procedures regarding the exercise of the right. The court disagreed “because the Right contains no such procedures whatsoever.”

As for timing, Clarke argued that if there’s no mention of a timeline in the language of the agreement, then it must be done within a “reasonable time.” The court disagreed, saying that the point of the Restatement is to include a predetermined time limit so as to protect the property owner’s power of alienation, rather than having the owner rely on a “judicially implied ‘reasonable time.’”

Because of the total lack of provisions regarding timing and procedures on how to exercise the Right, the court found again in favor of restraint on alienation.

Additionally: Which Property?

The court also addressed a matter specific to Clarke: to which property did the Right ostensibly apply? The entire property that includes the unimproved land Clarke leased for parking, or the unimproved land only?

Clarke argued that the Right applied to the entire property, but the court disagreed because the language in the lease was not clear. That uncertainty constitutes an additional unreasonable restraint on alienation.

Takeaway: Rely on Clear, Specific Contracts

The SC Supreme Court affirmed the appeals court’s decision, finding in favor of Fine Housing and against Clarke, stating “The Right does not identify the property it encumbers, contain price provisions, or contain procedures governing the exercise of the Right. We conclude the Right is an unreasonable restraint on alienation. We therefore affirm the court of appeals’ holding that the Right is unenforceable.”

An important takeaway for anyone entering into a contract with a right of first refusal in South Carolina: Make sure the language in your contact is clear and specific and that it addresses the three factors discussed above. It must contain language on how the price should be determined and how the right should be exercised. Language that unreasonably restrains the property owner’s power of alienation may render it unenforceable, so the right cannot be construed too favorably to the would-be buyer.

Call Gem McDowell for Contracts, Strategic Business Advice, and Commercial Real Estate

Many legal disputes come down to the language in a contract. Is it clear? Is it enforceable? Would the courts side with you if the matter were ultimately litigated? It’s critical to get the contract right before signing it, so you lessen the chances of complications and litigation down the road.

For help with business contracts and commercial real estate, call business attorney Gem McDowell at the Gem McDowell Law Group. Gem has over 30 years of experience working with business owners to help them start, grow, and protect their businesses. He and his team can help you with contracts, corporate governance documents, strategic advice, and more. He also has extensive experience in commercial real estate transactions in South Carolina. Call the Gem McDowell Law Group today to schedule a free consultation at 843-284-1021.

How is Joint Tenants with Rights of Survivorship Created and Severed in South Carolina?

One of the key benefits of holding property with someone as joint tenants with rights of survivorship is that when one cotenant dies, his/her share in the property automatically passes to the surviving cotenant(s). The property doesn’t pass through probate and it’s not subject to the decedent’s last will.

This makes joint tenancy with rights of survivorship (JTWROS) a popular choice for married and partnered couples. A common scenario is when one spouse dies, the surviving spouse stays in the home they had shared together, which is what most couples intend.

But JTWROS is no guarantee that this scenario will play out. If the joint tenancy is severed, the surviving cotenant automatically loses his/her rights of survivorship. He/She may even find himself/herself forced out of the home he/she shared for years with his/her partner/cotenant, if a court orders the partition and sale of the property.

That’s exactly what happened to Bradford Q. Jeffcoat, Jr., as described in Williams v Jeffcoat (find it here) which went before the South Carolina Court of Appeals in 2021. It’s an interesting case that delves into how JTWROS can be created and severed in South Carolina. If you currently own, or plan to own, property with another person as joint tenants, you should be aware of the court’s ruling in this case.

Williams v Jeffcoat Background

Jeffcoat and Sandra P. Perkins were domestic partners for twenty years. Together, they owned some real estate in Charleston that they held “jointly with right of survivorship, and not as tenants in common,” as per the deed. They lived there together from 2000 to 2015.

Starting in 2009, Perkins began suffering advanced dementia. By 2015, her condition had deteriorated to the point where Jeffcoat asked Perkins’ only child, Vanessa Williams, for help. Williams cared for her mother and took her back with her to her home in Alabama in June 2015.

Williams petitioned the Alabama Probate Court to appoint her conservator and guardian of her mother, which it did in September 2015. (Perkins had previously made Williams her agent in a durable power of attorney and a health care power of attorney.)

In November, Williams transferred her mother’s one-half interest in the Charleston property to herself in her capacity as her mother’s conservator. She then sought the partition and sale of the property. Her mother died this same month.

Both Williams and Jeffcoat filed motions for summary judgment. The case was heard by a master who granted Williams’ motion for summary judgment in June 2018 compelling the partition and sale of the Charleston property. Jeffcoat appealed.

Two issues were up for review: One was whether the Alabama Probate Court had subject matter jurisdiction to appoint Williams guardian and conservator for her mother; the SC Court of Appeals affirmed that it did. We won’t go into that issue further here, since our focus is joint tenancy with rights of survivorship. The other issue was whether the master erred in granting Williams’ motion for summary judgment compelling partition and sale.

To answer this second issue, the SC Court of Appeals went into detail in its opinion on how JTWROS are created and severed in South Carolina.

Creating Joint Tenancy with Rights of Survivorship in South Carolina

Joint tenancy can be established in SC either through statute or common law, states the SC Court of Appeals in the Williams v Jeffcoat opinion. People or parties that wish to own property together as joint tenants can do so by including the following words in the deed after their names: “as joint tenants with rights of survivorship, and not as tenants in common.” (“Tenants in common” is the other main way to hold property jointly in South Carolina, and there is also a third, less used alternative called “tenants in common with a right of survivorship” which you can read about on our blog here.)

Ending or Severing Joint Tenancy with Rights of Survivorship Under Statute in South Carolina

A joint tenancy with rights of survivorship can be severed in a number of ways under South Carolina law. Here are relevant parts of in SC Code 27-7-40 (and the full text is copied at the bottom of this blog post for reference as well):

(a) In addition to any other methods for the creation of a joint tenancy in real estate which may exist by law, whenever any deed of conveyance of real estate contains the names of the grantees followed by the words “as joint tenants with rights of survivorship, and not as tenants in common” the creation of a joint tenancy with rights of survivorship in the real estate is conclusively deemed to have been created. This joint tenancy includes, and is limited to, the following incidents of ownership:

(i) In the event of the death of a joint tenant, and in the event only one other joint tenant in the joint tenancy survives, the entire interest of the deceased joint tenant in the real estate vests in the surviving joint tenant, who is vested with the entire interest in the real estate owned by the joint tenants.

[…]

(v) If real estate is owned by only two joint tenants, a conveyance by one joint tenant to the other joint tenant terminates the joint tenancy and conveys the fee in the real estate to the other joint tenant.

[…]

(vii) Any joint tenancy in real estate held by a husband and wife with no other joint tenants is severed upon the filing of an order or decree dissolving their marriage and vests the interest in both the parties as tenants in common, unless an order or decree of a court of competent jurisdiction otherwise provides.

(viii) The interest of any joint tenant in a joint tenancy in real estate sold or conveyed by a court of competent jurisdiction where otherwise permitted by law severs the joint tenancy, unless the order or decree of such court otherwise provides and vests title in the parties as tenants in common.

(ix) If real estate is owned by two or more joint tenants, a conveyance by all the joint tenants to themselves as tenants in common severs the joint tenancy and conveys the fee in the real estate to these individuals as tenants in common.

[…]

(c) Except as expressly provided herein, any joint tenancy severed pursuant to the terms of this section is and becomes a tenancy in common without rights of survivorship. Nothing contained in this section shall be construed to create the estate of tenancy by the entireties. Nothing contained in this section amends any statute relating to joint tenancy with rights of survivorship in personal property but affects only real estate. The provisions of this section must be liberally construed to carry out the intentions of the parties. This section supersedes any conflicting provisions of Section 62-2-804.

In short, death, divorce, or sale/conveyance of a joint tenant’s interest in the property are the ways in which a JTWROS can be severed under SC law. The joint tenancy then converts to tenancy in common (if multiple cotenants remain) or sole ownership (if just one owner remains).

The Williams v Jeffcoat Decision Allows JTWROS to be Severed Under Common Law in South Carolina

In South Carolina, JTWROS can also be severed under common law, ruled the SC Court of Appeals in Williams v Jeffcoat.

Jeffcoat argued that SC Code 27-7-40 prohibits one cotenant from conveying his/her interest in the property to a third party, which would mean that the joint tenancy he shared with Perkins was not extinguished and that the master erred in granting Williams’ motion for summary judgment.

If you read the above statute closely, you might have noticed that conveyance of a joint tenant’s interest to a third party was not one of the methods for severing a joint tenancy listed under subsection (a). Furthermore, the last line of subsection (a) states “This joint tenancy includes, and is limited to, the following incidents of ownership” (emphasis added).

The SC Court of Appeals concedes that the statute does contain “limiting language” but finds that this “does not prohibit common law methods of severance but rather addresses the language below detailing a cotenant’s rights in the property upon a cotenant’s death and subsequent to any conveyances between the cotenants themselves.” In its decision, the court stresses the need to interpret language not in isolated phrases but as part of the whole statute and in light of the intent of the General Assembly. The court also relies on precedent set previously by the South Carolina Supreme Court in Smith v Cutler (2005), in which it stated, “Unlike a tenancy in common with a right of survivorship, a joint tenancy with a right of survivorship is capable of being defeated by the unilateral act of one joint tenant.”

Under common law, the court writes, a JTWROS requires the four unities to be valid: the unities of interest, title, time, and possession. Unity of interest means all joint tenants have an equal interest in the property. Unity of title means all joint tenants are made cotenants and owners by the same document. Unity of time means all joint tenants receive their interest in the property at the same. Unity of possession means all joint tenants have a right of possession of all parts of the property without restriction.

If one of those elements is destroyed, so is the joint tenancy – and the rights of survivorship along with it.

Therefore, under common law, when a cotenant conveys their interest in the property to a third party, the joint tenancy is severed. Williams’ conveyance of her mother’s one-half interest in the Charleston property did sever the joint tenancy and extinguish Jeffcoat’s rights of survivorship, and the SC Court of Appeals affirmed the master’s decision to grant Williams’ motion for summary judgment compelling the partition and sale of the Charleston property.

Note that this is a decision from the South Carolina Court of Appeals, and so there is still a possibility that it could be appealed to the South Carolina Supreme Court.

Protecting Your Interests with Smart Estate Planning

Smart estate planning can help you protect your assets now and ensure that your wishes are carried out once you’re gone. One challenge is to think through all the possible ways things could go wrong in the future and protect against them now. It’s probable that Jeffcoat assumed he would inherit Perkins’ half of the property they shared together, and he never considered the possibility of her interest in the property being conveyed away before her death. Otherwise, he might have been able to take steps to protect against that happening.

For smart estate planning in South Carolina, call estate planning attorney Gem McDowell. He and his team at the Gem McDowell Law Group can help you with important estate planning documents like last wills, trusts, powers of attorney, and more, all tailored to you and your specific circumstances. More importantly, he’s a problem solver who can help you understand difficulties that could arise in the future and what can be done now to avoid them. To schedule a free consultation, call Gem at his office in Mt. Pleasant, SC at 843-284-1021 today.

Addendum: Full Text of SC Code 27-7-40 Creation of joint tenancy; filing; severance

(ii) In the event of the death of a joint tenant survived by more than one joint tenant in the real estate, the entire interest of the deceased joint tenant vests equally in the surviving joint tenants who continues to own the entire interest owned by them as joint tenants with right of survivorship.

(iii) The fee interest in real estate held in joint tenancy may not be encumbered by a joint tenant acting alone without the joinder of the other joint tenant or tenants in the encumbrance.

(iv) If all the joint tenants who own real estate held in joint tenancy join in an encumbrance, the interest in the real estate is effectively encumbered to a third party or parties.

(vi) If real estate is owned by more than two joint tenants, a conveyance by one joint tenant to all the other joint tenants therein conveys his interest therein equally to the other joint tenants who continue to own the real estate as joint tenants with right of survivorship.

(b) The surviving joint tenant or tenants may, following the death of a joint tenant, file with the Register of Deeds of the county in which the real estate is located a certified copy of the certificate of death of the deceased joint tenant. The fee to be paid to the Register of Deeds for this filing is the same as the fee for the deed of conveyance. The Register of Deeds must index the certificate of death under the name of the deceased joint tenant in the grantor deed index of that office. The filing of the certificate of death is conclusive that the joint tenant is deceased and that the interest of the deceased joint tenant has vested by operation of law in the surviving joint tenant or tenants in the joint tenancy in real estate.

Source: South Carolina Legislature website

Tenants in Common with a Right of Survivorship: A Third Alternative in South Carolina

If you’ve bought property in South Carolina with another person or multiple people, then you might be familiar with the terms “tenants in common” and “joint tenants with rights of survivorship.” These are the two standard alternatives that determine the way multiple parties can own real property together in the state.

But did you know that in South Carolina there’s a third option? It’s so rarely used that not even the SC Court of Appeals knew about it when it heard Smith v Cutler, which then went to the SC Supreme Court in 2005. In its opinion (here), the SC Supreme Court goes into detail about this third option, called “tenants in common with a right of survivorship,” and how it came to be.

Tenants in common with a right of survivorship has elements of both tenants in common and joint tenants with right of survivorship. We’ll look at the latter two (the most common) first, then get into Smith v Cutler.

“Tenants in Common” versus “Joint Tenants with the Right of Survivorship”

What’s the difference between tenants in common and joint tenants with a right of survivorship? In South Carolina, this is what it means to own property with another party or parties:

As tenants in common:

Each party owns a share of the property, and that share can be unequal
When one party dies, their share of the property goes to an heir as directed by their will (or according to state law, if they die intestate)
A party may sell or convey their share of the property without permission of the other party or parties
The property is subject to partition

As joint tenants with rights of survivorship:

All parties own the whole property together (i.e., the property is not divided into shares)
When one party dies, their interest passes automatically to the other party or parties (without going through probate), and the property remains undivided and intact
A party may sell or convey their interest in the property at any time before their death, but at death their interest will still pass to the other party or parties
The property is subject to partition

Married couples in South Carolina most commonly own property together as joint tenants with rights of survivorship. The advantage is that when one spouse dies, the surviving spouse automatically takes ownership of the property without it being subject to probate. When a couple that owns property together as joint tenants divorces, the ownership converts to a tenancy in common.

“Tenants in Common with a Right of Survivorship”

The third and less well-known option combines elements of both of the above. When parties own property together as tenants in common with a right of survivorship:

Each party owns a share of the property, and that share can be unequal
When one party dies, their interest passes automatically to the other party or parties (without going through probate), and the property remains undivided and intact
Parties may not sell or convey their interest in the property without the consent of the other party or parties
The property is not subject to partition

The last two points are what distinguish this type of ownership from the two above. It’s similar to “tenancy by the entirety” which is a way for multiple parties to own property together in some other states but not in South Carolina.

Smith v Cutler Reaffirms Tenancy in Common with a Right of Survivorship

As stated above, this third type of ownership is so rare in South Carolina that even the SC Court of Appeals didn’t seem to know about it. But the SC Supreme Court reaffirmed the validity of the tenancy in common with a right of survivorship in Smith v Cutler.

Ernest J. Smith, Sr. and Joanne Rucker Smith married in June 2000 when he was in his 80s and she was in her 70s. Joanne owned a parcel of land in its entirety until she deeded a 50% share to her husband in August 2000. She wanted to ensure that if she died before him, he would inherit the property.

The language in the deed stated that the property was to be owned “for and during their joint lives and upon the death of either of them, then to the survivor of them, his or her heirs and assigns forever in fee simple.”

A few years later, family conflict led to the following legal action. Ernest J. Smith, Sr. became incapacitated and his son (the Respondent in this case), as personal representative of his father, brought a partition action to divide the property. If successful, the action would force the sale of the property that Joanne had owned most of her life and that had been her home since 1958. At the time the action was brought, Ernest Sr. and Joanne were still married and there was no evidence that they intended to divorce.

The case went to the master-in-equity who granted the Respondent’s motion for summary judgment allowing the partition, ruling that the deed was consistent with the laws of joint tenants with rights of survivorship. The SC Court of Appeals affirmed the decision.

Joanne’s personal representative, Verne E. Cutler (the Petitioner in this case), appealed, and the case went to the Supreme Court of South Carolina in 2005.

The SC Supreme Court’s Answer to Tenancy by the Entirety

The supreme court found in favor of the Petitioner, meaning that the partition action was denied, and the property would remain intact.

That’s because the deed did not contain language consistent with joint tenants with a right of survivorship. The language was consistent with tenancy in common with a right of survivorship, which the SC Supreme Court “created” (in its own words) in 1953 in the case Davis v Davis (find the opinion here). Property owned in this manner cannot be compelled to partition by the act of one owner – all owners must agree – and when a party dies their interest automatically goes to the survivor. This effectively allows married couples to own property together in a manner similar to tenancy by the entirety which is otherwise not recognized under South Carolina law.

For Complex Matters of Estate Planning, Work with Gem McDowell

Estate planning can be complex, and changing laws can affect the way your estate plan plays out. For help with wills, trusts, powers of attorney, and other estate planning documents, call Gem McDowell of the Gem McDowell Law Group in Mt. Pleasant. He and his team help people in the Charleston area and across South Carolina create an estate plan that will carry out their wishes and reflects current inheritance and tax laws. Gem is a problem solver who can advise you on how to protect your assets, divide your estate, and avoid problems. Call the office today at 843-284-1021 to schedule a free, no obligation consultation.

Accretion and Property Rights on Sullivan’s Island

Imagine you own beachfront property in South Carolina just steps away from the ocean. Now imagine that over time, the distance between your home and the ocean gets larger and larger as the beach grows, putting you further and further from the water.

This was the situation for homeowners on Sullivan’s Island, a small island town just outside Charleston, SC. They sued the town in a case that was heard by the South Carolina Supreme Court in November 2019, Bluestein vs. Town of Sullivan’s Island. At the center of the case was the concept of accretion.

Accretion

South Carolina’s coastline is subject to a number of natural phenomena including erosion and accretion. Erosion occurs when sand, sediment, and other land matter is carried away from the coast, causing the beach to shrink as the high-water line creeps further in. It’s caused by strong waves, storm surge, and coastal flooding.

The contrary of this is accretion, where sand, sediment, and other land matter is deposited on the coast by the waves. Over time, this causes the beach to grow bigger.

Sullivan’s Island experiences both of these forces, with erosion affecting the coastline in the northern part of the island and accretion affecting the southern and central areas.

Suing Over the Town’s Approach to Managing Accretion

Accretion is a natural phenomenon, so what’s the basis for someone to sue over it? While accretion is something that can’t be controlled by humans, the consequences of it can be.

In the case at hand, two couples – Nathan Bluestein and Ettaleah Bluestein, MD, and Theodore Albenesius and Karen Albenesius (collectively, the Petitioners) – brought a suit against the Town of Sullivan’s Island and Sullivan’s Island Town Council (collectively, the Town).

The Petitioners separately bought front-row property on Sullivan’s Island, the Bluesteins around 1980, the Albenesiuses around 2009. Their properties were considered oceanfront when purchased and were a short distance from the shoreline. Today, due to accretion, the shoreline is much further away from their homes, approximately 500 feet or more. (In a footnote in its opinion, the court notes that the rate of accretion is approximately 17 feet per year.)

This does not mean that the Petitioners’ properties have increased – the land between their properties and the shoreline doesn’t belong to them. That property is subject to a 1991 deed, created in the aftermath of Hurricane Hugo, under which the Town has duties to upkeep the land.

How to interpret the deed was the main issue in the case, with the court noting “The parties have cherrypicked language from the 1991 deed which ostensibly supports their respective interpretations of the deed.”

The Town’s Duties to the Land

The Petitioners argue that the 1991 deed means the Town should keep the vegetation on that land between their properties and the shoreline in the same condition as it was in 1991. In 1991, the vegetation was mostly sea oats and wild flowers, no taller than 3 feet high. In contrast, the Town argues that the deed gives it unfettered license to allow the vegetation to grow unchecked, which is what it has done.

Over the years, a maritime forest has grown up on that land. The tall and thick vegetation harbors coyotes, snakes, and other “varmints” (in the word of the court) and is a fire hazard, complain the Petitioners. The Petitioners also complain that their homes are taxed like beachfront property, but they now have no ocean views or ocean breezes due to the vegetation growth and are farther away from the ocean. In the case heard by the Court of Appeals, they claimed their properties have lost more than $1,000,000 in value because of this.

The Court of Appeals affirmed summary judgment for the Town in its decision, which the Supreme Court reversed in its February 2020 decision, remanding the case. The Supreme Court stated that this case can’t be settled as a matter of law, as the 1991 deed is too ambiguous, and there are still issues of material fact that must first be resolved.

Just recently, in October 2020, the parties reached a settlement resolution together, ending further litigation. As described in the settlement, the Town will “implement selective thinning of the Accreted Land” zone by zone using funds from the Town, Plaintiffs, and Homeowners. This should mitigate the effects of accretion on the property in question. Read about the full settlement resolution here.

Caring for Land in the Public Interest

As South Carolina residents, we all have an interest in the health of our coastlines, even if we live far from the beach. Just as we saw in the case covered on this blog about the Public Trust Doctrine, it’s up to the entities in charge of these precious stretches of land to balance the needs of the individuals who live there with the public good, while respecting Mother Nature.

What Happens If You Sell the Same Land to Two Separate Parties? Specific Performance as a Remedy

When seeking justice through the courts, a person or party who has been wronged may receive compensation to help right that wrong. That compensation may be a “legal remedy,” which means it can take the form of monetary damages, or it may be an “equitable remedy,” which includes remedies that don’t involve money. Specific performance is one such equitable remedy.

Specific performance was at the heart of a case that was heard by the South Carolina Court of Appeals in February 2020, Shirey v Bishop, in which a woman entered into two agreements to sell the same piece of land to two parties.

Specific Performance as an Equitable Remedy

Specific performance is a legal concept where the court can order a party to perform a specific act. The performance of the specific act is the equitable remedy that compensates the injured party for the wrong done to them.

Usually, the specific act is the completion of a contract they were already party to and is most commonly seen in cases involving the sale or purchase of land. That’s because the law considers land unique; even if the injured party were awarded monetary damages, they would not be able to purchase a piece of land identical to the one in question, because every piece of land is different.

Specific performance may also be compelled in cases not relating to real estate. For example, the Uniform Commercial Code (UCC), a set of laws adopted by all 50 states and D.C. that standardizes commerce laws between the states, does allow for specific performance as a remedy to the buyer in some cases. “Specific performance may be decreed where the goods are unique or in other proper circumstances” (SC Code Section 36-2-716). However, in practice, specific performance as a remedy is rarely used in cases not involving the conveyance of land.

Selling the Same Land to Two Separate Parties

We can see specific performance in action in Shirey v Bishop.

The background: Gwen G. Bishop and her husband ran a grave digging and burial vault business together for over 30 years from a property (the Property) located in Newberry County, SC. After her husband’s death in 2010, Bishop ran the business by herself, but soon decided she no longer wanted to continue.

In April 2012, Bishop agreed to sell the Property to her niece, Cassandra Robinson. They entered into a contract under which Robinson agreed to pay Bishop’s mortgage until it was satisfied. (The mortgage holder, TD Bank, was not notified of this arrangement and did not agree to it.) The contract was never recorded.

A few years later, in late 2014 or early 2015, Bishop then entered into an agreement to sell the Property to Robert G. Shirey, even though she had already previously entered into a contract to sell it to her niece.

Shirey and Bishop signed a contract (the Shirey Contract) in which Shirey agreed to buy the land for $125,000, including $1,000 in earnest money. The contract included a provision that the closing must occur “no earlier than Aug 3, 2015 [,] and no later than Aug 12, 2015.”

They set the date of closing for August 12, 2015. Shirey brought a check for $122,976.92 to his attorney’s office and waited for Bishop to arrive for the closing to complete the transaction. She never showed up.

Shirey’s attorney then called Bishop and asked if the closing period could be extended to the following day, the 13^th. Bishop agreed, and a new appointment for the closing was set.

Once again, Bishop did not show up. Her doctor sent a note to Shirey’s attorney asking to excuse Bishop from the closing.

But that same afternoon, when she should have been closing the deal with Shirey, Bishop entered into a second contract to sell the Property to Robinson. Robinson agreed to purchase the Property for $33,000 and assume the mortgage. Bishop executed a deed conveying the Property to Robinson, and Robinson recorded the deed the same day.

The Case is Heard by a Special Referee

On August 20, 2015, Shirey filed a complaint against Bishop requesting specific performance of the Shirey Contract plus attorney’s fees. He later amended his complaint to add TD Bank (the mortgage holder) and Robinson after he discovered the deed conveying the land from Bishop to Robinson.

In March 2017, the case was heard by a special referee. (A special referee is lawyer who has expert knowledge in a particular field and may hear cases where the law is clear but the facts are in dispute. They judge on the facts and bind the parties to a decision.)

In May 2017, the special referee found in favor of Shirey, setting aside the deed to Robinson, awarding attorney’s fees to Shirey, and ordering specific performance of the Shirey Contract. This means that Bishop and Shirey would need to carry out the terms of their contract and Robinson would lose the Property.

Bishop and Robinson appealed.

Requirements for Specific Performance

Quoting another case, the SC Court of Appeals states in its opinion:

“In order to compel specific performance, a court of equity must find (1) clear evidence of an agreement; (2) that the agreement has been partly carried into execution on one side with the approbation of the other; and (3) that the party who comes to compel performance has performed on his part, or has been and remains able and willing to perform his part of the contract.” (Gibson v Hrysikos, 1987)

The Appellants raised a few arguments against the validity of the special referee’s awarding of specific performance, including these two: 1, there was no valid contract for the conveyance of the land from Bishop to Shirey and 2, Shirey had not demonstrated that he was able to perform the contract.

Contract Validity and the Statute of Frauds

The Statute of Frauds (SOF) requires certain types of agreements to be in writing and signed in order to be enforced by law. Under this statute, contracts involving land must be written down. Furthermore, modifications or amendments to the agreement must also be in writing to be enforceable.

In this case, the Appellants argue that the special referee erred in finding Shirey was entitled to specific performance because there was no valid contract, a valid contract being the first of three requirements to compel specific performance, as stated above.

They argue that the Shirey Contract was no longer valid because the closing did not happen within the period specified in the contract. After Bishop failed to show up at the closing on August 12^th – the last day that the deal could go through, according to the Shirey Contract – Shirey’s attorney called her and they agreed to extend the closing period by one day. This was an oral agreement and was not written down.

So, does this make the Shirey Contract invalid under the SOF? It’s a very interesting legal question but unfortunately, we don’t get an answer. It’s well established that an issue cannot be brought up anew on appeal, and that’s what happened here. The SC Court of Appeals dismisses the argument because the Appellants did not bring it up to the special referee nor did they bring it up in their answers to Shirey’s complaint.

Capability of Performing the Contract

The Appellants also argue that Shirey did not demonstrate he was capable of performing his obligations under the Shirey Contract both at the time of closing and when he brought the legal action. Ability and willingness on the part of the complainant to perform their part of the contract is the third of three requirements to compel specific performance, as stated above.

Shirey argues that he fulfilled his obligations under the Shirey Contract by tendering the purchase price on August 12, 2015, the original closing date, when he brought a check for the purchase price to his attorney’s office. He had also put down $1,000 in earnest money. At the time of the appeal, he was still ready, willing, and able to go through with the Shirey Contract. Therefore, the SC Court of Appeals agreed with Shirey.

The Importance of Legal Help for Real Estate Contracts

Finding that all three requirements to compel specific performance were satisfied, the SC Court of Appeals affirmed the special referee’s grant of specific performance. The deed from Bishop to Robinson will be set aside and the Property will be sold to Shirey.

Most people know better than to enter into multiple contracts to sell the same piece of land to different parties. Still, real estate law can be complex, and getting the right help with real estate transactions, particularly in business, is crucial.

Gem McDowell is a commercial real estate attorney and business attorney with nearly 30 years of experience in the law. He has closed over $1 billion worth of real estate deals, including a single deal of $270,000,000. Along with his extensive experience, he’s also a problem solver who can help you grow and protect your business. To schedule an appointment or a free 20-minute consultation on your issue, call Gem and his team at his Mount Pleasant, SC office at 843-284-1021 today.

Can Your HOA Foreclose on Your Home for Non-Payment of Dues?

Losing your home in a foreclosure because you missed a $250 HOA payment – can that actually happen? Is it even legal?

Yes and yes. This exact situation happened to Tina and Devery Hale. Our past two blogs went into detail on their case, Winrose Homeowners’ Association v Hale (read the opinion here), which went before the South Carolina Supreme Court in 2019. Those blogs are linked here and here.

But we’re not done yet because there’s even more to it. This case exposes bad parties acting in bad faith that every homeowner should be aware of.

Can Your HOA Take Your Home for Non-Payment of Dues?

Did you know that it’s not only the bank that has the power to foreclose on your home? It may seem absurd that your HOA can foreclose on your home because you missed paying your assessment, but it is legal in South Carolina and it does happen.

In the Winrose case, the Hales agreed to the following covenants and restrictions when they bought their house:

“If the [HOA dues] assessment is not paid within thirty (30) days after the delinquency date, the assessment shall bear interest from the date of delinquency at the rate of eight percent per annum, and the [HOA] may bring legal action against the owner personally obligated to pay the same or may enforce or foreclose the lien against the lot or lots […]”

The HOA was within their legal rights to do what they did. However, that doesn’t mean the SC Supreme Court was happy about it.

HOAs Making a Buck Off Unsuspecting Homeowners

Typically, once the court has stated its decision, that’s the end of the opinion. But not here. Writing the opinion for Winrose v Hale, Justice Kittredge had more to say. “We note our concern about this foreclosure proceeding,” he begins.

Recognizing the right of the HOA to pursue a lien and a foreclosure on the Hales’ house, the court characterizes this as a tactic to “capitalize on a small debt.” Though the amount past due was small, the HOA’s attorney went straight to the strongest measures possible as a next step – placing a lien and foreclosing on a house valued at $128,000 for a past due amount of $250.

Why? “The true nature of this foreclosure action is illustrated by the service and filing fees (which are more than double the amount of the principal due) and attorney’s fees (which were eight times the amount of the principal due),” writes the court (emphasis original). “A foreclosure proceeding is a last resort, not a business model to be swiftly invoked for the purpose of exploiting property owners.”

The Hales’ HOA was willing to let them lose their home and their equity in it in order to make some money in fees. Luckily for The Hales, they got their house back in the end, but that’s not always how this scenario plays out. Many people have lost their homes to HOA foreclosures.

Buyers Extorting Homeowners

The HOA was not the only bad actor here; the court was also “especially troubled” by the actions of the party that bought the Hales’ home, Regime Solutions, LLC.

In the majority of judicial sales, like the kind that was used to sell the Hales’ home, the purchaser of the foreclosed home takes on the property’s mortgage and other debts. This is necessary because the house is only free and clear once the associated debts are settled.

But Regime never took on the Hales’ mortgage. Not only that, but their business model appears to be based on not assuming the mortgage of the properties it purchases. After buying a foreclosure at a very low price, Regime either lets the bank foreclose on the property or it negotiates with the homeowners to let them have their house back for a large fee.

Between 2013-2016, Regime bought 38 properties that were later foreclosed on by the bank and 15 properties that it gave back to the original owners through a quitclaim deed for a profit of between $2,911-$13,984 per property. In the present case, the Hales offered to pay Regime $9,000 to settle the matter, but Regime asked for $35,000. The Hales didn’t pay it.

Summing up this section, the court states, “We do not countenance the improper use of foreclosure proceedings by the HOA, its attorney, or Regime” (emphasis original).

Could This Happen to You?

Yes, possibly. Depending on what covenants and restrictions you agreed to with your own HOA or regime, you could potentially find yourself in a similar situation as the Hales.

What can you do to avoid it?

First, make good decisions. Towards the end of its opinion, the court states “Our decision today should not be read as a shift toward providing relief to homeowners despite their own poor choices, in particular here, falling behind on a minimal amount of HOA dues and subsequently failing to respond to the summons and complaint.”

So take action on any and all legal matters that come your way. Fulfill your legal obligations as you promised to do in a timely manner by paying your mortgage and dues on time every month. Don’t assume that there could be no legal ramifications to paying late just because it’s a relatively small amount of money. This thinking can get you in trouble.

Next, review the paperwork you signed with your HOA or regime. It’s common for buyers to skim over these documents during a long real estate closing and therefore have no idea what it is they’re actually agreeing to. But you can take the time now to look at your covenants so you’re aware of the powers your HOA or regime has to charge you interest, place a lien on your property, pursue a foreclosure, and so on.

Finally, contact an attorney if you have any questions, especially if you’ve been served with papers.

Smart Legal Advice

If you need help with estate planning, business documents, commercial real estate, or strategic advice in a legal matter, contact Gem and his associates at the Gem McDowell Law Group in Mt. Pleasant, SC. Gem is a problem solver with over 35 years of experience helping families and business owners alike protect their interests and make smart decisions for peace of mind. Schedule a free consultation by calling 843-284-1021 today.

What Makes a “Grossly Inadequate” Sales Price: The Debt Method vs. the Equity Method

In South Carolina, a judicial sale of a property can be set aside if the sales price is “inadequate.” Either the sales price must be “inadequate” and also involve fraud, or the price must be “so grossly inadequate so as to shock the conscience of the court.”

What makes a sales price “grossly inadequate”? Just how low does it have to be? In South Carolina, there is no set amount or percentage that a court must apply to make that determination. However, looking back at past cases in the state, courts have consistently determined that sales prices of 10% or less of the property’s value are “grossly inadequate.”

Based on this, the 10% threshold was used as a benchmark in Winrose Homeowners’ Association v Hale (read the opinion here) which went before the South Carolina Supreme Court in 2019, and which we discussed in a previous blog.

How to Calculate the Sales Price: Debt Method vs Equity Method

In Winrose, Tina and Devery Hale’s home was sold in a judicial sale after they missed an HOA payment of $250 and their HOA foreclosed. Regime Solutions, LLC, bought it with a high bid of $3,036. The fair market value of the house was $128,000, with an unpaid mortgage balance of $66,004.

Since fraud was not an issue in this case, the question for the court to decide was whether the sales price of the house in question was “so grossly inadequate” that the sale could be set aside. If so, the foreclosure could be vacated and the home returned to the Hales. If not, the judicial sale would stand and Regime would retain the house.

With the 10% benchmark in place, the court needed to determine what the sales price was. There are two methods for determining whether a bid price is so grossly inadequate as to shock the conscience:

The Debt Method. This assumes that the party that purchases the foreclosed property will become responsible for the mortgage and other associated debts. This method focuses on how much the foreclosure purchaser must pay before having a free-and-clear title to the property, so the value of the outstanding mortgage is added to the bid price.

In this case, Regime would have paid ($3,036 bid) + ($66,004 mortgage balance) = $69,040. This is 53.9% of the Property’s fair market value of $128,000.

The Equity Method. This method focuses not on the debt the foreclosure purchaser is taking on, but the equity they would gain through the transaction. Instead of adding the outstanding mortgage balance to the bid, the balance is subtracted from the fair market value and compared to the bid.

In this case, Regime would stand to gain ($128,000 fair market value) – ($66,004 mortgage balance) = $61,996. The amount Regime paid, $3,036, is 4.9% of the equity it would stand to gain.

The majority of the time, the party that purchases the foreclosure does take on the obligations of the mortgage, because associated debts needs to be settled in order to have a free-and-clear title. For these situations, the Debt Method is appropriate.

But in the present case, Regime never took on the Hales’ mortgage and never took any positive steps to do so. As Justice Lockemy pointed out in his dissenting opinion in the Court of Appeals decision, it didn’t make sense to credit Regime with having taken on the mortgage. Furthermore, the Hales continued to pay their mortgage, substantially reducing the outstanding debt on the house over time. Therefore, using the Equity Method in this case is, in the words of the SC Supreme Court decision, “the only logical option.”

Since 4.9% is clearly below the 10% threshold, the court concluded that the bid was, indeed, “so grossly inadequate as to shock the conscience of the court.” The court set aside the foreclosure sale.

Get Strategic Legal Advice

For guidance and legal help on business matters, estate planning, and commercial real estate in South Carolina, call Gem of the Gem McDowell Law Group in Mount Pleasant, SC. Gem and his associates are experienced problem solvers who are here to help you and your family. Call 843-284-1021 today to schedule a free consultation at the Mount Pleasant office.

How A South Carolina Couple Missed an HOA Payment and Lost Their Home

Imagine this situation:

You miss an HOA payment. Then you receive some legal documents in the mail, put them in a drawer, and forget about them. When the HOA sends a bill for the outstanding amount, you pay it and later receive confirmation that the situation is resolved.

The next thing you know, you discover that your house has been foreclosed on, someone bought it at auction, and now they are trying to evict you.

Though this may sound crazy, this is exactly what happened to Tina Hale and her husband Devery Hale. Their case, Winrose Homeowners’ Association v Hale (read it here), went all the way to the Supreme Court of South Carolina. It’s a good cautionary tale about what can happen when you ignore legal proceedings and an eye-opening look at the way some parties try to take advantage of unsuspecting homeowners.

The Hales Miss an HOA Payment

Tina and Devery Hale bought their home (the Property) in 1998 for $104,250. In addition to paying their mortgage regularly, they were also obligated to pay a monthly assessment of $250 to their HOA, Winrose Homeowners’ Association, Inc.

In January 2011, the Hales fell behind in HOA dues. In response, the HOA first filed a lien against the Property and then pursued a foreclosure, seeking $556.41, which was the amount of the late dues plus accrued interest. The right of the HOA to charge interest on late payments, put a lien on the lot, and pursue foreclosure was part of the covenants and restrictions that the Hales agreed to when they bought their house.

The Hales didn’t respond to the complaint (in an affidavit, Tina Hale said that she simply put it in a drawer and forgot about it), so the HOA submitted an affidavit of default. From then on, the Hales didn’t receive any further notices of what was going on with respect to the foreclosure and sale.

It was here that the HOA sent the Hales a bill for the outstanding $250, which they paid. The HOA’s law firm then sent the Hales a letter saying that the lien had been satisfied, and the Hales thought that was the end of it. But the HOA didn’t withdraw their suit.

Foreclosure and Sale

The matter first went to a master-in-equity (Master), who entered a default judgment of foreclosure and sale against the Hales. He calculated an amount due of $2,898.67, comprised of $250 in principal, $80.87 in interest, and $2,025 in attorney’s fees. The Master noted that the sale of the property would be subject to the existing mortgage.

The Property sold at public auction two weeks later to Regime Solutions, LLC (Regime) with the high bid of $3,063. At that time, the fair market value of the Property was approximately $128,000, with an outstanding mortgage balance of approximately $66,000.

The Hales remained unaware of all of this. It wasn’t until Regime tried to evict them from their house – which they continued to make mortgage payments on – that they discovered what was happening.

The Hales Fight Back

Upon discovering what was going on, the Hales filed a motion to vacate the foreclosure sale on the basis of the sale price being “so grossly inadequate as to shock the conscience of the court.” Vacating the sale would give the Hales back ownership of their house.

The Master denied the motion to vacate. Though the amount of $3,063 is low, when taking into account the outstanding mortgage amount of $66,004, he calculated an effective sales price of $69,0404. At a little over half the fair market value of $128,000, this is a great deal for the buyer but is not low enough to shock the conscience of the court.

The matter next went to the South Carolina Court of Appeals, where a majority of the panel affirmed the Master’s decision. Notably, Chief Justice Lockemy dissented, saying it didn’t make sense to consider the outstanding mortgage amount in the effective sales price, since Regime had not, in fact, assumed the Hales’ mortgage and never took any steps to do so.

The South Carolina Supreme Court’s Decision

The matter then went to the South Carolina Supreme Court, where it was heard in September, 2019. The issues at hand were whether the judicial sale of the Property should be set aside due to an inadequate sales price and how to calculate that price.

Ultimately, the SC Supreme Court agreed with Chief Justice Lockemy’s take that it wasn’t right to credit Regime with having taken on the debt of the mortgage. Using the Debt Method, the court determined that the sales price of $3,036 on a house with a fair market value of $128,000 was, indeed, so grossly inadequate so as to shock the conscience of the court. The court set aside the foreclosure sale and remanded the case back to the Master.

(Read more on how the court determined the sales price and what exactly constitutes a “grossly inadequate” price in this follow-up blog.)

Take Care of Legal Matters Promptly

Though the Hales ultimately won, it took over eight years to get a verdict in their favor and surely caused a lot of stress and expense in the meantime. While they weren’t in control of the actions of their HOA or Regime, there are a couple lessons to be learned here.

First, do not ignore a summons, lawsuit, or any other legal document, and don’t put it in a drawer and forget about it; speak to an attorney right away about it. Second, understand the contracts you’re involving yourself in. Most people would probably find it inconceivable that their HOA would foreclose on their house for a simple missed payment of $250. But that’s exactly what happened here, and it was because of the terms in the contract both parties agreed to. It’s important to understand what you’re agreeing to anytime you sign a contract.

For help or advice on contracts, or for issues of business law or estate planning, contact Gem McDowell. Gem and his associates at the Gem McDowell Law Group can give you the strategic advice you need to make smart, informed decisions. Call 843-284-1021 today to schedule a free consultation or to book an appointment at the Mount Pleasant office.

Knowing Your Property Rights: Easements and Trespassing

We’ve talked about easements before, when a party has limited legal rights to land owned by someone else. Examples of common easements include an individual’s right to enter someone’s property in order to gain access to a public area like a beach, or a utility company’s right to dig up a yard in order to lay pipes or cables.

Drainage easements are another common type. It’s this type of easement that was at the center of a South Carolina Court of Appeals case, Ralph v. McLaughlin, 2019, which we’ll look at today. This case shows how important it is to fully understand the limits and the extent of your property rights when an easement is – or historically has been – involved.

Ralph v. McLaughlin: Facts and Background

The background to this case is long and quite complex, and for the full story, you can read the court’s decision here.

It starts in 1984, when E. M. Seabrook prepared and recorded a plat of a section of Seabrook Island that contained lots 21 through 28. The plat records a 20-foot-wide drainage easement and no-build area across the back of those lots, plus a drainage easement running along the property line between lots 21 and 22 from the front to the back.

Fast forward decades later, and Richard and Eugenia Ralph (the Ralphs) own lot 23 and Paul Dennis and Susan Rode McLaughlin (the McLaughlins) own lot 22. The McLaughlins purchased the lot from Carroll and Lorraine Gantz, who had previously approached the Seabrook Island Property Owners Association (SIPOA) about eliminating the 20-foot drainage easement and no-build area on the back of their lot. The SIPOA agreed, and in September 2002 a new plat was drawn up, documenting that the drainage easement and no-build area were both abandoned with respect to lot 22.

In 2006, the McLaughlins wanted to build a house that would partially be built on the area of the drainage easement and no-build area. The SIPOA’s architectural review board agreed, with a number of stipulations.

This was followed by a lot of back and forth between the McLaughlins who wanted to remove the drainage pipe and begin construction, their neighbors who didn’t want the pipe removed for fear of flooding and drainage issues, and the SIPOA who wasn’t able to get all parties to come to an agreement. In October 2008, the SIPOA sent a letter saying it was out of options and was rescinding the previous resolution to abandon the easement.

The McLaughlins still insisted there was no easement and went ahead with the removal of the drainage pipe and construction of their building in late 2008. In fall 2011, the Ralphs filed a complaint seeking actual and punitive damages, alleging the McLaughlins’ actions led to flooding and poor drainage in the Ralphs’ yard. They said the loss of the drainage pipe meant they had severe flooding issues and the value of their house was significantly lower because of it. They also filed a trespass claim.

In May 2016, the matter went to trial and the jury in the circuit court found in favor of the plaintiff (the Ralphs), ordering the defendant (the McLaughlins) to pay $1,000 in nominal damages. The case came to the SC Court of Appeals, where it was ultimately reversed and remanded.

Rights, Abandonment, and Dominant Tenement Versus Servient Tenement

With respect to easements, a dominant tenement (or dominant estate) is the party gaining the benefit of the easement, while the servient tenement (or servient estate) is the party bearing the burden and/or granting the benefit of the easement. It’s understandable that in some instances, the servient tenement may not want to bear that burden anymore and want to free themselves of the easement. That’s what the McLaughlins’ predecessors-in-title did when they approached the SIPOA about removing the easement from their lot.

As stated above, the SIPOA agreed. But it was wrong to do so. It was not the SIPOA’s place to unilaterally abandon the easement, since other parties had special property interest in it – namely, the owners of lots 21-28 that benefitted from the drainage easement. To abandon the easement legally, it would require the agreement of all parties with property interest in it. That agreement was never sought, let alone attained.

Trespassing

Because the Ralphs had ownership interest in the drainage pipe that was part of the drainage easement, and because the dominant tenement had the right to have the pipe on the servient tenement’s property, Mr. McLaughlin trespassed when he removed the drainage pipe. Though the drainage pipe was in his yard, his actions were considered trespassing because he did not wholly own it and by removing it, he destroyed the easement. This was the basis of the Ralphs’ claim of trespass.

Mr. McLaughlin admitted he told the contractors to remove the drainage pipe and construct the building over part of the no-build area, and he didn’t get the Ralphs’ permission to do so. In its decision, the court states, “the owner of a servient estate commits trespass by intentionally destroying an easement without the consent of the easement holder.”

This case still isn’t settled, as the Court of Appeals remanded it back to the circuit court. The McLaughlins maintain that they were not subject to the easement because it had been abandoned by the SIPOA before they purchased their property. Yet the SIPOA didn’t have the authority to abandon the easement the way it did. The circuit court will need to determine, among other things, whether the McLaughlins owe compensatory or punitive damages to the Ralphs.

You Need to Know What You’re Getting

Things like easements come up during a title search, which is one reason it’s so vital to have a thorough title search done before purchasing a piece of real estate. You should also know what’s in the deed to the land you’re purchasing, whether you read it yourself or rely on your attorney to tell you what it contains. Interestingly, in this case Mr. McLaughlin said his real estate agent insisted the easement had been abandoned, but the deed to the land did specify that it was subject to the easement. If the McLaughlins were so intent on buying property without an easement, that should have been a red flag.

If you’re planning on purchasing commercial land in South Carolina, talk to commercial real estate attorney Gem McDowell. Gem has been practicing in South Carolina since 1992 and has closed several multi-million-dollar transactions for a total of more than $1 billion in real estate deals. He and his associates at the McDowell Law Group in Mt. Pleasant, SC can help you understand your rights, limits, and opportunities with respect to your land purchase and offer strategic advice to help you grow your business. Call 843-284-1021 today to schedule a free consultation to discuss your commercial real estate deal with Gem.

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