On July 25th, the South Carolina Supreme Court issued its opinion in BAC v. Kinder, Op. No. 27146 (S.C. Sup. Ct. filed July 25, 2012) (Shearouse Adv. Sh. No. 25 at 18).  The Court used that opinion to clarify some of the confusion regarding mortgage enforceability created by its opinion in Matrix Financial Services Corp. v. Frazer, 394 S.C. 134, 714 S.E.2d 532 (2011).  Fortunately, the clarifications provide some good news for mortgage lenders and assignees.

First, the Court clarified that the Matrix opinion had prospective application only.  In Matrix, the Court announced a rule that prevented a mortgage lender from obtaining equitable relief if the lender violated South Carolina’s unauthorized practice of law rules by closing a mortgage loan without supervision of licensed South Carolina attorney.  The Court stated this new prohibition applied “to all filing dates after the issuance of the opinion.”  The meaning of this language became the subject of numerous foreclosure actions in South Carolina.

The BAC opinion addressed this Matrix language.  The opinion clarified that the filing date of the mortgage, not the filing date of the foreclosure action, controls the application of the Matrix rule.  In short, if the mortgage was recorded on or before August 8, 2011, then any claimed unenforceability due the unauthorized practice of law during the closing of the mortgage will not bar the lender from seeking foreclosure or other equitable relief.  Since the majority of foreclosures being challenged on the Matrix grounds relate to mortgages filed prior to August 8, 2011, the BAC opinion eliminates the Matrix defense from those foreclosure actions.  Matrix will continue to bar a lender from obtaining equitable relief on mortgages closed without an attorney after August 8, 2011.

The Supreme Court also used the BAC opinion to address whether an assignment of a mortgage must be filed in order for the assignment to be enforceable.  Borrowers frequently argue assignees cannot foreclosure if the assignment was not filed.  The Supreme Court had not offered a position on this issue for some time before BAC.  The Court clarified that "the assignment of a mortgage does not need to be recorded, and failure to do so has no effect on the rights of the assignee."  This holding should be useful in many cases against mortgage lenders in South Carolina.