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South Carolina High Court Rules Loan Modifications Are Not Unauthorized Practice of Law - Crawford v. Central Mortgage Co.

June 25, 2013

Vincent Howard and our San Bernardino County foreclosure defense attorneys help clients file lawsuits seeking loan modifications, or seeking consequences for a lender that misused the loan modification process to railroad a client into foreclosure. Rarely have we seen homeowners argue that a loan modification should not have been granted at all. But that was the argument in Crawford v. Central Mortgage Co., in which two South Carolina borrowers alleged that their lenders engaged in the unauthorized practice of law by modifying their loans. The Cassandra Crawford and James Warrington made this argument after their loan modifications didn't work out and foreclosures were filed. The South Carolina Supreme Court agreed to hear the case, but ruled that lenders don't need attorneys to modify loans.

Crawford bought a home in 2005 with an adjustable-rate loan; Warrington bought commercial property in 2006 with a variable-rate commercial loan with interest payments due starting in 2008. As is common in South Carolina, attorneys attended the closings. Crawford received two loan modifications; Warrington received three. Only one of the five modifications was attended by an attorney. Both lenders subsequently started foreclosures, and the court took up both of the borrowers' requests for review at the same time. The issues it agreed to decide were 1) whether lenders engage in unauthorized practice of law by preparing loan modification documents and recording the executed documents without an attorney, and 2) whether the court should void the mortgages if the answer to the first question is yes.

The South Carolina Supreme Court ultimately decided there was no unauthorized practice of law here. The court had ruled in 2003 that a licensed attorney must oversee the title search, loan documents, closing and registration of the mortgage--including during refinances. The borrowers argued that, like refinances, loan modifications require an attorney because they change the terms of the legal agreement between the parties and have a legal effect. But the high court found that refinancing creates an entirely new loan, while loan modifications make changes to an existing loan. Requiring supervision by an attorney during a loan modification would create a substantial extra cost to the consumer, the high court said, without conferring enough extra benefit. The court also found that there is a "robust regulatory regime" and there are competent non-attorney professionals, further arguing against such a requirement. The court then declined to reach the mortgage-voiding issue.

This issue would likely not arise here in California, because state law here does not require an attorney to attend the closing. Vincent Howard and our Tustin foreclosure defense lawyers sometimes wish each party did have an attorney's advice, however, because an experienced professional might have been able to protect individuals from the predatory lending that took place during the mortgage boom. The mortgage process is complicated, and ordinary people are not always well suited to understand complicated loan documents, especially under time pressure. Vincent Howard and our Norco foreclosure defense attorneys frequently see the aftereffects of this situation: borrowers stuck with loans they didn't understand and couldn't afford, by someone who made money and then immediately securitized the loan.

If you believe you were a victim of predatory lending or you're fighting a foreclosure you think could have been prevented, Howard Law, P.C., can help. To learn more, call us today at 1-800-872-5925 or send us a message online.

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