We have a new attorney preference case

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…and dirt lawyers are not going to like it

The South Carolina Court of Appeals ruled recently in favor of Quicken Loans, Inc. in a foreclosure case where the defendants argued the lender was not entitled to foreclose because it had violated the attorney preference statute during the application process.* My friend and classmate, Special Referee James Martin Harvey, Jr., had granted partial summary judgment in favor of the defendants, and Quicken appealed.

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Quicken telephonically takes information for loan applications from borrowers, according to the recited facts. Quicken’s system prompts Quicken’s banker to ask the borrower: “Will the borrower select legal counsel to represent them in this transaction.” If the borrower responds “no”, the attorney preference form is populated to read, “I/We will not use the services of legal counsel.”  No list of acceptable closing attorneys is provided to borrowers who answer “no” to this question, and the file is sent to Quicken’s affiliate company, Title Source, Inc., which acts as settlement agent in the transaction and subcontracts with attorneys to perform the settlement services.

If the borrower answers “yes”, Quicken’s system populates the attorney preference form to read, “Please contact lender with preference.” The system does not allow an attorney’s name to be entered at this stage of the application process.

The borrowers in this case declined legal representation during the initial telephonic application process.

The Court of Appeals indicated the form used by Quicken is identical to the form promulgated by the South Carolina Department of Consumer Affairs (DOCA) except that Quicken’s form is prepopulated with responses. Like the DOCA form, Quicken’s form states, “I/We have been informed by the lender that I (we) have a right to select legal counsel to represent me (us) in all matters in this transaction relating to the closing of the loan.” Unlike the DOCA form, however, Part 1(a) of the Quicken form is prepopulated to read, “I/We will not use the services of legal counsel.”

Under Part 1(b) the Quicken form, like the DOCA form, initially states, “Having been informed of this right, and having no preference, I asked for assistance from the lender and was referred to a list of acceptable attorneys. From that list I select…” Unlike the DOCA form, which provides blank lines to fill in an attorney’s name and the borrower’s signature, the Quicken form is prepopulated with the response, “Not Applicable.”

Quicken produced the affidavit of closing attorney Carlton D. Robinson, who said it was his practice to explain the legal effect of the attorney preference to borrowers and that he would not have closed if the borrowers had expressed any dissatisfaction with having him act as closing attorney.

The Attorney Preference Statute (S.C. Code §37-10-102(a) provides that when the primary purpose of a loan secured by real estate is for personal, family or household purpose, the creditor must ascertain prior to closing the preference of the borrower as to the legal counsel employed to represent the borrower in the closing. The purpose of this statute is to protect consumers.

DOCA filed an Amicus Brief arguing that Quicken had violated the statute. The Court of Appeals held that Quicken complied with the statute because an agent of Quicken asked the borrowers if they would be using preferred legal counsel and only populated the form after the borrowers responded that they did not have counsel of preference. Quicken sent the form to the borrowers, who signed and returned it without asking further questions.

Will the Supreme Court agree with the Court of Appeals given the opportunity? My guess that the current Justices will agree. My guess would have been different before the retirement of Chief Justice Jean Toal. Will the legislature tighten the language of the statute? That is always a possibility, but we have heard nothing on that front to date. I hate to be the bearer of such bad news for South Carolina real estate practitioners.

*Quicken Loans, Inc. v. Wilson, South Carolina Court of Appeals Opinion No. 5613, January 9, 2019.

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We hope you have a wonderful holiday season!

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And if the holidays make you blue, please ask for help!

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Our office pledges to give our agents all the CLE they need free of charge, that is, if they are South Carolina practitioners and only practice real estate law. Don’t ask us for litigation education…we don’t know anything about litigation! We have an impressive calendar of webinars and “brunch and learns”, and we have one grand “annual seminar” where all of our agents are invited to one place to network, to be wined and dined by us, and to learn the latest and greatest issues affecting the practice of real estate law.

We typically hold this seminar in October or November, well before year-end. For 2018, we planned our grand finale in Myrtle Beach in early October, the Monday after the horrible flood that affected our coast and Pee Dee area.

The hotel kept telling us that Myrtle Beach was fine!  Our speakers flying in from other states would have no problem with air or ground transportation. Our agents, however, coming from all over South Carolina, would have been hard pressed to get to Myrtle Beach from the South because Georgetown was flooded or from the West or North, where the Pee Dee was almost entirely unpassable.

So, we punted!  We convinced the hotel to let us reschedule and had a great cocktail party on Sunday, December 16 and an all-day seminar on Monday, December 17. We were thrilled when our agents responded and attended one week prior to Christmas vacation. And we thoroughly enjoyed celebrating with the lawyers and their staff members who work with us all year long.

We were able to hug our agents and wish for them the best during the holiday season in person, which was great fun for us!

Why am I going on and on about seminars and lawyers and holidays?  I have been impressed this year with the fact that some people, and especially some lawyers, don’t enjoy this time of year, and I wanted to encourage everyone, especially, every lawyer, who needs help to get help now.

You may have read a recent heartbreaking news story in American Lawyer where a lawyer’s widow blamed “biglaw” for her husband’s suicide. She admitted that her husband had a deep, hereditary mental health disorder and lacked essential coping mechanisms. But she said she believed his high-pressure job and culture where it is shameful to ask for help, shameful to be vulnerable, and shameful not to be perfect, created a perfect storm.

And our church held a “Blue Christmas” service in early December. This service brought home to me the sad point that many people are unusually sad during the holidays.

This story and this service encouraged me to read statistics on lawyer suicide, and I learned that there is apparently an epidemic. In a period of 18 months in South Carolina, six lawyers committed suicide. We, as lawyers, are supposed to be problem solvers. We are supposed to be strong. We are not supposed to have problems. But lawyers do have these problems. I read one statistic that indicated lawyers are 3.6 times more likely to suffer from depression than non-lawyers.

In order to pass our “character and fitness” check to become lawyers and in order to keep our licenses for the long haul, we tend to hide our mental health problems. Having problems and hiding the problems can create perfect storms in our own lives.

I encourage any lawyer who is particularly unhappy this time of year to call South Carolina Bar’s Lawyers Helping Lawyers toll free helpline at (866) 545-9590 or contact any Lawyers Helping Lawyers member directly.

And I refer everyone to Stuart Mauney’s excellent article, “The Lawyers’ Epidemic: Depression, Suicide and Substance Abuse”, which is located on the Bar’s website. This article outlines the problem and the symptoms and explains how important asking for help can be. This article is valuable to all of us because if we don’t suffer ourselves, we probably know someone who does. I am going to keep a copy of it at my desk for future reference.

I wish for all of you very happy holidays and a happy, healthy and prosperous 2019!

Did your 2019 Bar dues give you sticker shock?

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The United States Supreme Court signals possible First Amendment violation

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The United States Supreme Court may be considering upending the system bar associations in about thirty states use to support themselves, mandatory bar dues paid to private associations.  David G. Savage of the Los Angeles Times reported on December 3 that the more conservative high court may have an appetite to address this issue. You can read the article here.

Bar associations in most states regulate the legal profession by licensing and disciplining lawyers. The LA Times article reports: “In a brief order on Monday, the court overturned a ruling last year by the U.S. 8th Circuit Court of Appeals that had upheld mandatory bar dues in North Dakota and sent the case back ‘for further consideration in light of Janus.’”

Janus v. AFSCME is a 5-4 case from June where the Supreme Court struck down California law that required teachers and other public employees to pay fees to support unions.

The current case, Fleck v. Wetch, began when Arnold Fleck, a North Dakota lawyer, sued his state bar association after he learned it had contributed $50,000 to support a state ballot measure. When the 8th Circuit rejected his constitutional argument, the Goldwater Institute assisted him in filing an appeal.

The article quotes Justice Alito as calling it a “bedrock principle” that “no person in this country may be impelled to subsidize speech by a third party that he or she does not wish to support.”

The lawsuit challenges private associations, not state agencies that regulate lawyers. We will always pay bar dues. We just may not pay them to a private bar association.

Deadline approaching for new HOA recording requirement

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“Governing documents” should be recorded by January 10

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The South Carolina Homeowners Association Act, an amendment to Title 27 of the South Carolina Code which included new §27-30-130, was signed into law by Governor Henry McMaster and became effective on May 17.

The act states that in order to continue to be enforceable, a homeowners association’s governing documents must be recorded in the county where the property is located by January 10, 2019 for associations in place on the effective date of the legislation. For new associations or for amendments to governing documents, recording must take place by January 10 of the year following the adoption or amendment of the documents.

The requirement to record Master Deeds is, of course, not new to South Carolina practitioners. We have recorded Master Deeds and their required attachments since the creation of Horizontal Property Regimes became possible in South Carolina. The new requirement applies to rules, regulations and bylaws of associations, including amendments to rules, regulations and bylaws. Practitioners have not routinely recorded these documents. It is interesting that recording rules, regulations and bylaws will not be subject to the requirement of witnesses and acknowledgements of §30-5-30.

A memorandum from the Register of Deeds of Horry County states that these documents will be accepted electronically and across the counter. Documents recorded across the counter must contain an original wet signature plus the printed name and title of the signatory. Horry County will also require contact information (address, email address or telephone number) of the person recording the document, the Homeowners Association’s name and the physical address or legal description of the property. Horry County also highly recommends, but does not require, the book and page number of the recorded Master Deed. This additional information may be included in a cover sheet.

The law also creates a new duty to disclose whether real property being sold is part of a homeowners association and a duty to disclose the condition of floors, foundations, plumbing, electrical and other components of the property. Real estate practitioners may be called upon to assist with these newly-created disclosures.

Another requirement of the legislation includes a 48-hour notice for meetings that are intended to increase budgets by more than ten percent. A requirement for access to community documents by owners was also added. This requirement was previously in place for associations that are created as non-profit corporations. The new law makes it clear that all homeowners associations must provide similar access to documents for owners. The law also gives magistrate’s courts concurrent jurisdiction for monetary disputes of up to $7,500 involving homeowners association disputes.

SC Court reverses itself on “active energy” judgment issue

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South Carolina dirt lawyers seldom breathe a sigh of relief when our Supreme Court decides a real estate case. But the November 21 opinion in Gordon v. Lancaster* was greeted with a collective “thank goodness”!  We were living with a less-than-exact term for the viability of a judgment, and we didn’t like it.

The question in this case was whether a creditor may execute on a judgment more than ten years after enrollment when the ten-year statutory period for execution** expires during the course of litigation. The Court overturned its 2010 decision in Linda Mc Co. v. Shore***, which held that, despite the passage of more than ten years, the judgment continued to have “active energy” because the judgment creditor had filed for supplemental proceedings.

In the current case, a judgment was enrolled in 2002 against Rudolph Drews, the now-deceased uncle of the Petitioner Donald Lancaster, in connection with a civil action for violating securities laws in an investment scheme for a new business venture in Charleston. Frank Gordon, the creditor, filed a petition for supplemental proceedings in 2006. During the hearing, Gordon’s counsel became suspicious that Drews’ wife and Lancaster were attempting to shield Drews’ assets from creditors. The hearing was continued when Drews failed to produce tax and financial documents.

Drews died in 2007. Gordon sought to continue supplemental proceedings, but there were delays in the estate administration. In 2010, suspicions were confirmed about hiding assets when Lancaster was deposed. Soon after, one day before her scheduled deposition, Drews’ wife died. Gordon filed this action, asserting Lancaster assisted Drews is hiding assets in violation of the Statute of Elizabeth. In 2011, Drews’ estate confessed judgment in the approximate amount of $300,000, and his wife’s estate settled with Gordon for $60,000.

During a bench trial in 2013, Lancaster moved for a directed verdict based on Gordon’s prior concession that the suit was based on the earlier judgment, which was obviously older than ten years. The trial court and the Court of Appeals disagreed, relying on the holding in Linda Mc: If a party takes action to enforce a judgment within the ten-year statutory period of active energy, the resulting order will be effective even if issued after the ten-year period has expired.

The Court noted that Linda Mc represented a departure from its historic approach and created confusion in what was formerly a well-settled area of the law. (To that I would like to very politely reply “duh”.) The Court overruled itself and returned to the bright-line ten-year rule.

In a footnote, the Court stated that it is overruling Linda Mc prospectively. The same footnote referred to Justice Pleicones’ dissent in Linda Mc, which predicted confusion in a previously settled area of the law.

Justice Few concurred in the result but disagreed with overruling Linda Mc, which he said created a narrow exception to the bright-line ten-year rule for the issuance of an execution on a judgment. There was a discussion in the opinion and the concurring opinion about dictum vs. holding, but, thankfully, nothing concrete came out of that. Justice James concurred in part and dissented in part, agreeing that Linda Mc should be overruled, but believing that Gordon should have received relief because of the prospective nature of the decision.

Pennsatucky AmenAs a title insurance lawyer and title examiner from way back, I am happy to see us return to a common sense, bright-line approach to the ten-year rule. Can I get an “Amen”?

* South Carolina Supreme Court Opinion 27847, November 21, 2018.

** South Carolina Code Section 15-39-30.

*** 390 S.C. 543, 703 S.E.2d 499 (2010).

Nat Hardwick convicted on 23 counts

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Nat HardwickMany South Carolina real estate lawyers know the name Nat Hardwick.

Nathan E. Hardwick IV, 53, described himself as the face of Morris Hardwick Schneider, an Atlanta residential real estate and foreclosure firm that grew into sixteen states, including South Carolina. The firm once had more than 800 employees and boasted of offices in Charleston, Hilton Head, Columbia and Greenville.

On October 12, Hardwick was convicted in federal court in Atlanta of 21 counts of wire fraud, one count of conspiracy to commit wire fraud, and one count of making false statements to a federally insured financial institution. In federal court, sentencing is typically delayed, and the convicted person is released and allowed to get his affairs in order. In this case, however, Hardwick had been released pending trial on bond. After his conviction, he was described by the U.S. Attorney who prosecuted him as a flight risk and was handcuffed and taken to jail immediately.

This story hits close to home. My company was one of the victims of the crimes.

The prosecutor described an extravagant lifestyle that Hardwick enjoyed at the expense of others. The case was said to be particularly troubling because the illegal activity was orchestrated by a lawyer who swore an oath to uphold the law and represent his clients with integrity. The U.S. Attorney said he hoped the case sent the message that the FBI and the U.S. Attorney’s office will not tolerate this type of white-collar crime.

According to the evidence, from January 2011 through August 2014, Hardwick stole more than $26 million from his law firm’s accounts, including its trust accounts, to pay his personal debts and expenses. The firm’s audited financial statements showed that the firm’s net income from 2011 through 2013 was approximately $10 million. During that time, according to the evidence, Hardwick took more than $20 million from firm accounts.

Asha Maurya, who managed the firm’s accounting operations, was also charged. She reached an agreement in May with the U.S. Attorney’s office and pled guilty. She was expected to testify at the trial, but was unexpectedly not called as a witness.

Hardwick did take the stand in his defense and attempted to blame Maurya with the theft. He said that he trusted her to his detriment, that he was entitled to the funds, and that he was unaware that the funds were wired from trust accounts. Hardwick testified for more than a day and explained that he believed Maurya followed proper law firm procedures.

On the stand, Hardwick, described as the consummate salesman, said that he gave his cellphone number to almost everyone. He said he returned calls and messages within a few hours and instructed his employees to do the same. He apparently believed himself to be a master in marketing and customer service and prided himself in focusing on the firm’s expansion strategy. He hoped to expand to all fifty states and make money through a public stock offering.

With his ill-gotten gains, Hardwick bought expensive property, made a $186,000 deposit for a party on a private island, spent $635,000 to take his golfing friends to attend the British Open in 2014, paid off bookies, alimony obligations, and sent more than $5.9 million to various casinos, all according to trial evidence. Hardwick’s activities lead to the loss of his law license and the bankruptcy of his firm.

Dirt lawyers: here’s a book you need to read!

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A lot of time has passed since I’ve written book reports, but I felt compelled to write this one after just completing the 2018 ABA Law Practice Division book, The Lean Law Firm, How to run your firm like the world’s most efficient and profitable businesses.

I learned about this book from, of all places, Facebook, when my friend and very techy Columbia lawyer, Jack Pringle, expressed anger that he hadn’t written this book himself. And I was thrilled to learn that one of the authors is also a very techy Columbia lawyer, Dave Maxfield. I don’t know Dave, but I’ve told his sister-in-law, my co-worker Dorothy Boudreaux, to warn Dave that I will be reaching out to him at some point to pick his brain, to ask him to speak at a seminar, and to otherwise figure out how I can relay his very creative and valuable ideas to the dirt lawyers in South Carolina who need the advice this book sets out so well.

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What is a lean law firm?  In the words of Larry Port, the other author, from the book’s foreword, being lean is not about cost cutting. “It’s more about creating systems and then finding the constraints and inefficiencies that impede them. Lean lawyers believe in measurement, reducing waste, and producing as much value as they can for their clients. And more than anything else, Lean is about experimentation and continuous improvement.” Would you like to increase your income and, at the same time, reduce your stress? The processes set out in this book are intended to teach you how to accomplish those goals simultaneously.

Unfortunately, most lawyers have little or no awareness of the value of creating systems. We are not taught to run businesses in law school. The lawyers I know and love are so busy practicing law that they don’t take the time to modernize, to focus on processes, and to create the systems that will allow them to run their firms like efficient and profitable businesses.

This book explains in detail how the science of management can be translated to law firms.

Does this sound like very dry reading to you? It is not that at all. In fact, it is the first book published by the ABA to employ the graphic novel approach. It is written in the form of a story about Gray Law Firm, a small struggling firm, it’s newly-hired, former big law lawyer, Carson Wright, who wants to help  “fix” the law firm, and Carson’s friend, Guy Chaplin, who runs an extremely successful racing bicycle manufacturing and distribution company.  Guy slowly teaches Carson the business principles that make his company successful. And Guy helps Carson figure out how to apply those principles to his law firm.

I have to warn you that the book contains a lot of math. But I am not a math scholar by any stretch of the imagination, and I was able to follow the formulas and to see how they would work well in a law firm that handles real estate, especially residential real estate. In fact, my only complaint about this book is that it is not geared specifically to real estate practitioners. Thus, my need to pick Dave Maxfield’s brain.

The book gives very specific advice about the basics of management, standardization, written procedures, checklists, marketing, goal setting and technology. A South Carolina real estate lawyer might find that some of the advice doesn’t apply, but I’m betting that most of it does apply, and I am encouraging everyone to order a copy of this book at www.ShopABA.org and to take its advice to heart.