Alert June 25, 2013

South Carolina Supreme Court Holds Loan Modification is Not Practice of Law

The South Carolina Supreme Court rejected borrowers’ claim that a lender engaged in the unauthorized practice of law by entering into a loan modification agreement with the borrowers. After defaulting on their mortgage loans, the borrowers entered into loan modification agreements with their lender. However, the borrowers defaulted on the mortgage and the lender initiated foreclosure proceedings. The borrowers petitioned the South Carolina Supreme Court for declaratory relief.

The South Carolina Supreme Court dismissed the borrowers challenge, holding 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. To hold otherwise, according to the Court, would "create a cost to the consumer outweighed by the benefit." The Court rejected the borrowers’ reliance on Doe v. McMaster, 585 S.E.2d 773 (2003), in which the Court mandated attorney supervision for refinancing of mortgages. The Court distinguished the loan modification process with refinancing of a loan noting that a loan modification is an adjustment to an existing loan to accommodate borrowers who have defaulted; whereas a refinancing is the issuance of an entirely new loan.