The definition of the unauthorized practice of law in South Carolina loan closings just got a little clearer. The South Carolina Supreme Court recently issued its decision in BAC Home Loan Servicing, L.P. v. Kinder. This new decision clarifies, in part, the court’s earlier decision in Matrix Financial Services Corp. v. Frazer.
In Matrix, the court reiterated that real estate and mortgage loan closings completed without the supervision of a licensed South Carolina attorney during the title search, loan document preparation and closing constitute the unauthorized practice of law. Engaging in the unauthorized practice of law during the closing process bars the lender from equitable relief, including foreclosure. The ruling applied to “all filing dates after the issuance of the opinion.” This language left uncertainty and spawned litigation over whether the court was referring to the filing date of the foreclosure action or of the mortgage.
The BAC decision also involved a mortgage loan allegedly closed without the supervision of an attorney. The court clarified its ruling in Matrix by saying it applies prospectively to all mortgages filed after August 8, 2011. In other words, the date the foreclosure action was filed is not dispositive. Because the lender’s disputed mortgage in BAC was recorded on April 20, 2007, the court ruled that the lender would not be barred from foreclosing due to the unauthorized practice of law, even if there was no South Carolina licensed attorney involved in the closing.
The court answered another important question for lenders in the BAC decision. Previously, parties debated whether an assignee of a South Carolina mortgage could proceed with foreclosure if the assignment of the mortgage from the prior holder had not been recorded. Thankfully, the court ruled 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."
Now lenders can rest assured that if their South Carolina mortgage was recorded before or by August 8, 2011, even if the closing was conducted without the supervision of a South Carolina licensed attorney, the mortgage is protected from challenge based on the unauthorized practice of law. However, for South Carolina mortgages filed after August 8, 2011, lenders should expect that borrowers who seek to avoid the mortgage will question whether the closing was conducted under the supervision of a South Carolina licensed attorney. Lenders may want to conduct an audit of their post August 8, 2011 mortgages recorded in South Carolina to identify potential challenges, and retain counsel to take corrective action if needed.