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Unauthorized Practice of Law: Commercial Real Estate Transactions

June 1, 2018

It is vital that you have a South Carolina licensed attorney supervise your real estate closing in South Carolina. South Carolina is an “attorney closing state,” meaning a South Carolina licensed attorney must either conduct or supervise each step in the closing process, including: the title examination; drafting any documents that concern an interest in real property to include mortgages; the escrow process; the closing; updating title and recording documents at closing; and disbursement of funds.[1] Performing any of these steps without the supervision of a South Carolina licensed attorney constitutes the unauthorized practice of law (UPL), which is a felony punishable by a fine of up to $5,000 and/or up to 5 years behind bars.[2] South Carolina takes this very seriously.

 

On top of that, South Carolina courts have found that mortgages created without the proper supervision of a South Carolina licensed attorney are void ab initio, meaning there is no recovery available for the bank in many of these cases. In 2010, Wachovia Bank was barred from foreclosing on the mortgage for a home equity line of credit because the bank had closed the deal without attorney supervision.[3] The next year, Matrix Financial Services was precluded from any equitable relief for a refinance loan after Matrix hired a third party to perform the title search, prepare the documents, and close the loan, all without the supervision of a South Carolina licensed attorney.[4]

 

Lenders aren’t the only ones at risk, either. The South Carolina Supreme Court, through the Office of Disciplinary Counsel (ODC), has the authority and power to suspend or even disbar an attorney for participating in a transaction where each step is not properly supervised, and many attorneys have been disciplined for participating in real estate closings where they failed to verify that the attorney supervision requirement was being met. Of note is the case of In re Pstrak, in which an attorney was hired only to supervise the closings in place of another attorney whom Pstrak understood to be the actual closing attorney. In fact, the other attorneys involved were not properly supervising the other aspects of the closing, and Pstrak’s failure to verify that each step was properly supervised resulted in his public reprimand by the Supreme Court.[5] The other two attorneys involved were ultimately disbarred for their misconduct in the closings.[6]

 

With all of that being said, it is actually much easier and more effective to simply handle the transaction the right way throughout the process. Partnering with licensed South Carolina Counsel gives you a local presence, expert knowledge of the rules and local customs, and can save you and your clients a lot of serious headaches.

Our team works with you to be sure your transaction is appropriately handled under South Carolina law in an expert and efficient manner, so that you can serve your clients with excellence. Contact us today to discuss how we can assist you with your next South Carolina commercial deal.

 

 

 

[1] South Carolina v. Buyers Serv. Co., 357 S.E.2d 15 (S.C. 1987)

 

[2] S.C. Code Ann. § 40-5-310.

 

[3] Wachovia Bank v. Coffey, 389 S.C. 68, 698 S.E.2d 244 (Ct. App. 2010).

 

[4] Matrix Fin. Services Corp. v. Frazer, 394 S.C. 134, 714 S.E.2d 532 (2011).

 

[5] In re Pstrak, 357 S.C. 1, 591 S.E.2d 623 (2004).

 

[6] See In re Arsi, 357 S.C. 8, 591 S.E.2d 627 (2004); In re McMillian, 359 S.C. 52, 596 S.E.2d 494 (2004).

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