Why Is The Mortgage Invalid? Closing Real Estate Transactions in S.C. Post - Matrix & Coffey
South Carolina Constitution vests the duty to regulate the practice of law in the state supreme court S.C. Const. Art. V 4 Statutory Authority S.C. Code Ann. 40-5-10, et. seq.
UPL is not just an ethical issue Crime in all 50 states S.C. Code Ann. 40-5-310 Felony Fine of five thousand dollars or Imprisonment for five years or Both
Corporations and Voluntary Associations Cannot practice law S.C. Code Ann. 40-5-320 Cannot represent itself pro se except in civil magistrate s court S.C.Code Ann. 40-5-80
Supreme court opted to make UPL rules on a case by case basis: We are convinced that it is neither practicable nor wise to attempt a comprehensive definition by way of a set of rules. Instead, we are convinced that the better course is to decide what is and what is not the unauthorized practice of law in the context of an actual case or controversy.
Purpose of laws and rules prohibiting UPL: Not to protect licensed attorneys from losing business to unlicensed individuals To protect the public from Erroneous preparation of legal documents Inaccurate legal advice given by those untrained in S.C. law Incompetent, unethical, or irresponsible representation
Court has identified as the practice of law: Giving advice, consultation, explanation or recommendations on matters of law Instructing other individuals in the manner in which to prepare and execute such documents Matters entailing specialized legal knowledge and ability
In the context of real estate transactions, the court has identified specific areas that must be conducted, supervised by or performed in association with a licensed S.C. attorney
Five components of a real estate transaction requiring attorney supervision: Performing a title search Preparing title and loan documents Closing a loan Disbursing the closing proceeds (after 01/22/07) Recording documents
Real estate and mortgage loan closings should be conducted only under the supervision of attorneys, who have the ability to furnish their clients legal advice should the need arise Includes refis Chief Justice Toal has said these cases apply to residential and commercial transactions
Lender may prepare legal docs for financing/refinancing real property if: An independent attorney reviews and makes necessary corrections to ensure compliance with law
Lender only representation appears to conflict with McMaster and Buyers Service Seller only representation is risky per EAO, especially if there is financing Whether there is payment for services rendered is irrelevant.
Recent opinions held that those engaging in UPL come before the court with unclean hands and are therefore, denied any requested remedy Wachovia v. Coffey Matrix v. Frazer
Wachovia v. Coffey Bank closed HELOC in-house without attorney supervision Husband/borrower was not on title to property Majority held unclean hands is bar to legal and equitable remedies Summary judgment affirmed for defaulting borrower Cert granted
Matrix v. Frazer Lender hired title company to examine title, prepare closing docs and close refi transaction without supervision of attorney Majority held lender came to court with unclean hands because of UPL Lender denied equitable relief in foreclosure
Matrix opinion substituted on August 8, 2011 following a petition for rehearing: Without explanation, majority removed unclean hands rationale Prospective-only application Vague wording sure to be litigated Reinforced bar to remedies
Enforcing this requirement will come as no surprise to any lender [w]e take this opportunity to definitively state that a lender may not enjoy the benefit of equitable remedies when that lender failed to have attorney supervision during the loan process as required by our law.
Matrix being used as a shield Can it be used successfully as a sword? Courts have previously declined to recognize a private cause of action for enforcement of UPL rules
Proposed legislation H.3988 UPL would not impair validity of mortgage or availability of legal or equitable remedies Concerns about passage in light of robo-signing Kidder v. Jim Walter Homes Petition for Original Jurisdiction in Supreme Court Dismissed and remanded mere days before Wachovia v. Coffey decided
Opinions have created uncertainty concerning UPL in S.C. Current ethics opinions dictate that a S.C. attorney shall not rely upon assurances of non-licensed S.C. attorney Compliance with S.C. law must be certified
S.C. Attorney Supervision Attorney Certification or other evidence
Title Insurance requirements created, suffered or assumed
Teri K. Stomski teri.stomski@rtt-law.com