South Carolina Supreme Court Sides with Innovation in Real Estate Lending Law
A strongly worded decision from the South Carolina Supreme Court has surprised many real estate lawyers and lenders by firmly validating a new competitor that has become a gamechanger in the marketplace.
The case Boone v. Quicken Loans centered on whether internet-based residential refinance closings by Quicken Loans and Title Source constituted the unauthorized practice of law.
South Carolina requires a lawyer to close residential real estate transactions, but laws vary in other states where lawyers may have limited involvement and professional title abstractors or a title insurance company are permitted to handle closings.
The five steps that South Carolina lawyers must supervise in a residential closing were established in the 1987 state Supreme Court case, State v. Buyer Services Company. Those steps where a lawyer must be involved meaningfully are document preparation, title search, closing, recording and disbursement.
But in its ruling, the state Supreme Court cited an earlier opinion that said its duty is to protect the public, not lawyers:
"[T]he policy of prohibiting laymen from practicing law is not for the purpose of creating a monopoly in the legal profession, nor for its protection, but to assure the public adequate protection in the pursuit of justice, by preventing the intrusion of incompetent and unlearned persons in the practice of law."
In the Quicken case, the high court found that lawyers were involved in the internet-based transactions and used their professional judgment in each step. The declaratory judgment reversed the special referee’s decision earlier that said no lawyer was involved in a way that protected the interests of the borrower.
The court noted the existence of significant federal regulations, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act, Truth in Lending Act and Real Estate Settlement Procedures Act, which provide consumer protection. It said requiring more attorney involvement would not benefit the public or justify the increase in costs, which in turn could result in a reduction of consumer choice and access to affordable services.