S.C. Supremes: Bankster Loan Modifications Conducted, Supervised By Non-Attorneys Not An Unauthorized Practice Of Law

Housing Wire reports:

• On June 19, 2013, the South Carolina Supreme Court issued its long-awaited opinion in Crawford v. Central Mortgage Co., determining that mortgage lenders and servicers may continue modifying mortgage loans without requiring supervision by a South Carolina-licensed attorney.
  
  Under this ruling, a loan modification conducted by a non-attorney does not constitute the unauthorized practice of law.
  
  This petition was filed as a result of the South Carolina Supreme Court’s original and subsequent substitute opinion in Matrix Financial Services Corporation v. Frazer.
  
  In Matrix, the court held that any mortgage transaction unsupervised by a South Carolina-licensed attorney constitutes the unauthorized practice of law and may bar a mortgage holder from obtaining equitable relief, including foreclosure. Subsequently, in BAC Home Loan Servicing, L.P. v. Kinder, the court clarified that the holding in Matrix would be prospective only and applies for all mortgages filed after August 8, 2011.
  
  On March 8, 2012, the court in its original jurisdiction agreed to hear oral arguments in Crawford as to whether modifying a mortgage loan without the participation of an attorney constitutes the unauthorized practice of law.
  
  Crawford involved two cases consolidated for review.
  
  In the first case, Cassandra Crawford purchased a home, subject to a mortgage loan from Central Mortgage Company. When Crawford became delinquent on payments, she received a loan modification, which reduced the interest rate and extended the time for repayment.
  
  Subsequently, Crawford received a second loan modification, further reducing the interest rate in the short term.
  
  Crawford executed the second loan modification in the presence of a notary with no attorney present. In the second case, James Warrington, a real estate investor, purchased property, subject to a commercial loan with the Bank of South Carolina. Warrington subsequently received three loan modifications to extend the time to repay the loan. The bank prepared each modification, using standard forms, without attorney participation.
  
  In both cases, the borrowers defaulted and foreclosure actions were filed. Both borrowers sought to prevent foreclosure and to have their loan modifications and the mortgages they modified declared void, arguing that the lenders engaged in the unauthorized practice of law by modifying the loans – the crux of the argument being that the loan modifications had a “legal effect” and changed the legal rights of the parties by altering the interest rate and repayment terms.
  
  The Supreme Court, however, rejected this argument, holding that mortgage lenders and servicers may modify mortgage loans absent supervision from a South Carolina-licensed attorney. The Court distinguished from two previous cases that addressed the unauthorized practice of law in real estate mortgage loan closing transactions: State v. Buyers Service Co., Inc. and Doe v. McMaster.
  
  Buyers Service established that a South Carolina-licensed attorney must supervise four stages of residential real estate closings: (1) title search, (2) preparation of the loan documents, (3) closing, and (4) recording of title and mortgage. McMaster extended this holding to include mortgage loan refinances. In this case, however, the Court drew a distinction, stating:
  
  A loan modification is an adjustment to an existing loan to accommodate borrowers who have defaulted. In contrast, refinancing is the issuance of an entirely new loan, often used by home owners to take advantage of lower interest rates. Thus, the same public policy that requires attorney supervision for home purchases and refinancing does not apply to loan modifications.(1)
  
  The court also cited increased costs to the consumer, the existence of a robust regulatory regime, and the presence of competent non-attorney professionals as additional reasons for not requiring attorney supervision in the preparing, mailing to borrowers, and recording of executed loan modifications.

Source: S. Carolina Supreme Court: Non-attorneys can modify home loans.

For the ruling, see Crawford v. Central Mortgage Company, Opinion No. 27273 (June 19, 2013).

(1) In its ruling, the court appears to assume that the typical "loan modification" involves nothing more than a simple adjustment in the financial terms of the loan (ie. interest rate and payment terms).

In fact, the South Carolina describes the distinction between a loan modification and a refinancing as follows:

• A loan modification is an adjustment to an existing loan to accommodate borrowers who have defaulted.
  
  In contrast, refinancing is the issuance of an entirely new loan, often used by home owners to take advantage of lower interest rates.

However, banksters have been notorious for making changes in the substantive, non-financial terms as well (ie. changes & waivers of certain legal rights, for one) such that the "modified" loan, in form, is still the same loan but, in substance, constitutes an entirely new loan. Bankster loan modifications generally do not involve a simple alteration in the borrower's interest rate and payment terms.

From the ruling:

• Previously, in State v. Buyers Service Company, Incorporated, 292 S.C. 426, 357 S.E.2d 15 (1987) and Doe v. McMaster, 355 S.C. 306, 585 S.E.2d 773 (2003), this Court addressed the unauthorized practice of law in the context of real estate transactions. In Buyers Service, we divided the purchase of residential real estate into four steps: (1) title search; (2) preparation of loan documents; (3) closing; and (4) recording title and mortgage, and held that a licensed attorney must supervise each of these steps.[3] Id. at 430-34, 357 S.E.2d at 17-19 (emphasizing protection of the public as the paramount concern).
  
  In Doe v. McMaster, 355 S.C. 306, 312, 585 S.E.2d 773, 776 (2003), the Court mandated attorney supervision for the refinancing of mortgages.[4] In that case, the lender attempted to distinguish Buyers Service by arguing that in McMaster the transaction centered on refinancing an existing mortgage rather than dealing with the purchase of a new property. Id. at 312, 585 S.E.2d at 776. We held this essentially a distinction without a difference because refinancing a mortgage entails the same four steps involved in purchasing a property. Id.
  
  McMaster, like Buyers Service, emphasized the public policy of advancing consumer interests. Id. at 311 n.3, 585 S.E.2d 776 n.3 (citation omitted) ("[T]his Court grounds its unauthorized practice rules in the State's ability to protect consumers in the state and not as a method to enhance the business opportunities for lawyers.").
  
  Petitioners argue loan modifications "change the existing terms of the legal rights of the parties" by altering interest rates and repayment terms.
  
  Petitioners further assert that because the modification agreements have a "legal effect," the agreements must constitute the unauthorized practice of law. We disagree.
  
  This case is distinguishable from both Buyers Service and McMaster. A loan modification is an adjustment to an existing loan to accommodate borrowers who have defaulted.
  
  In contrast, refinancing is the issuance of an entirely new loan, often used by home owners to take advantage of lower interest rates.
  
  Thus, the same public policy that requires attorney supervision for home purchases and refinancing does not apply to loan modifications. Requiring attorney supervision over a loan modification would create a cost to the consumer outweighed by the benefit. Additionally, the existence of a robust regulatory regime and competent non-attorney professionals militates against extending the attorney supervision requirement to loan modifications.
  
  Thus, we hold that lenders do not engage in the unauthorized practice of law by preparing and mailing loan modifications to borrowers and recording the executed documents without participation of a licensed attorney.
  
  Given our rejection of the allegation that Respondents practiced law without authorization, it is unnecessary to reach Petitioners' issue as to whether this Court should deem their mortgages void. See Futch v. McAllister Towing of Georgetown, Inc., 335 S.C. 598, 613, 518 S.E.2d 591, 598 (1999) (holding an appellate court need not address remaining issues when resolution of a prior issue is dispositive).