I was doing some legal research in South Carolina for an investor property there. I was searching for some legal guidance on a particular issue when I stumbled upon and incredible case. The South Carolina Supreme Court had a remarkable decision in Matrix Financial Services Corp. vs Frazer, et al. In Matrix, The Supreme Court of South Carolina has enunciated a rule (albeit in dicta) that could prevent a mortgage lender from foreclosing on a mortgage if the lender closed the loan without a lawyer’s supervision of the title search, document preparation, and closing. I can tell you that it would be EXTREMELY rare that an attorney supervised the title search, document preparation and closing.
This decision caps a long line of unauthorized practice of law cases arising from real estate loan closings, the South Carolina Supreme Court has published a decision that may produce “chaotic unintended consequences” according to some real estate lawyers in South Carolina.
The essence of the case was that the South Carolina Supreme Court held that closing a loan without a lawyer’s supervision constituted unclean hands (because of the unauthorized practice of law), thus barring the lender from seeking equitable relief (foreclosure).
A quote from the case pretty much sums this up, “ Thus, Matrix has committed the unauthorized practice of law in closing the refinance mortgage, clearly violating South Carolina law. The dissent’s protestations aside, a party cannot violate the law and expect not to bear the consequences of its actions. This Court will not grant a discretionary, equitable remedy to a party who refused to follow the laws of this state.
Folks, this was a Supreme Court case – the highest court in the state. Can you imagine this?? Virtually every defendant in a foreclosure will be able to assert as an affirmative defense that the lender’s actions constituted the unauthorized practice of law since virtually every loan closing would not have been supervised by an attorney. Remember, this case indicated that an attorney must supervise the title search, document preparation and the closing itself. The effect of this case means that most foreclosures in South Carolina can be stopped dead in their tracks by asserting this defense. Even if a lender can prove that an attorney supervised all of these functions, it will take months of research to prove it!