Bulletin: SC2014002

Dear Associates:

In Matrix Fin. Services Corp. v. Frazer, 394 S.C. 134, 714 S.E.2d 532 (2011), the Supreme Court of South Carolina held that mortgage lenders who close their own real estate transaction are committing the unauthorized practice of law and come to the court with "unclean hands". Thus, the mortgage lender was barred from seeking equitable relief, specifically, equitable subrogation. It should be noted that this equitable relief was sought not against the mortgagor, but against a lienor, which was not directly involved in the mortgage transaction. The court states that real estate and mortgage loan closings must be supervised by an attorney licensed in South Carolina, citing Doe v. McMaster, 355 S.C. 306, 585 S.E.2d 773 (2003). That decision held that performing a title search, preparing title and loan documents and closing a loan without an attorney licensed in South Carolina constitutes the unauthorized practice of law. Case law in South Carolina has held that a mortgage foreclosure is an equitable remedy. Therefore, it is likely that the courts could refuse the remedy of foreclosure to any lender that closes its loans without the services of a South Carolina licensed attorney.

Besides the impairment of the enforceability of the mortgage, "Matrix" raises the issue of aiding and abetting the unauthorized practice of law. Knowledgeable parties to real estate transactions, such as seller's counsel or lender's counsel, have begun requiring a certification from an attorney licensed in South Carolina as to the attorney's involvement on behalf of the purchaser in certain aspects of the transaction. They recognize that their participation in an unlawful transaction may give rise to sanctions by the Supreme Court of South Carolina.

In BAC Home Loan Servicing, L.P. v. Kinder, 398 S.C. 619, 731 S.E.2d 547 (2012), the court clarified its decision in Matrix. The Court held that, when the mortgage loan is closed without the supervision of a licensed South Carolina attorney, lenders are not barred from enforcing the mortgage or seeking other equitable relief if the mortgage was recorded prior to the Matrix decision (August 8, 2011).  

UNDERWRITING GUIDELINES: You should not issue a policy insuring South Carolina real property unless the closing transaction is supervised by a licensed South Carolina attorney. The commitment must require that the closing be supervised by a licensed South Carolina attorney.

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