The Quicken decision is out

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It’s not what dirt lawyers wanted or expected

The South Carolina Supreme Court never ceases to amaze when it decides real estate cases. Dirt lawyers seldom know what to expect. We read the precedents. We attend the hearings. We listen to the Justices’ questions. We believe we get a glimpse of what they may be thinking. But we miss the mark. Last week, the South Carolina Supreme Court decided the much anticipated Quicken case*, and if I had predicted the top five possible outcomes, I would not have come close to the actual decision.

I fully expected a 3-2 decision in either direction. But it is a 5-0 strongly written decision. It is a decision that was written to dispose of the controversy. It is a decision that was written to deny the possibility of reconsideration.

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This is an unauthorized practice of law case brought in the Court’s original jurisdiction. The case was assigned to Circuit Court Judge Diane Goodstein as Special Referee to take evidence and issue a report. Judge Goodstein held a two-week trial and issued a report finding, essentially, that no South Carolina licensed lawyer quarterbacked (my word) the mostly Internet-based residential refinance closings. In the facts recited in Judge Goodstein’s report, lawyers were peripherally involved in all of the steps required by State v. Buyers Service Co.** and its progeny, but no lawyer was actually involved in a way that the interest of the borrower was protected.

(Summarizing the prior decisions, the steps requiring lawyers are: (1) document preparation; (2) title search; (3) closing; (4) recording; and (5) disbursement.)

The Supreme Court somehow reviewed the same record and found that lawyers were involved and used their professional judgment in each step. The facts recited in the Court’s decision were not recognizable from the facts recited by Judge Goodstein’s report. The Court completely rejected the report and apparently decided that a finding of UPL under the circumstances would “mark an unwise and unnecessary intrusion into the marketplace”. “Simply put,” the Court stated, “we believe requiring more attorney involvement in cases such as this would belie the Court’s oft-stated assertion that UPL rules exist to protect the public, not lawyers.”

Most South Carolina dirt lawyers were hoping the Court would find a South Carolina licensed lawyer must be at the center of each closing, overseeing each step, and insuring that the consumer client’s interests were protected in each step. That is definitely not what we got.

There is, however, some good news in this decision. The Court made the clearest implication to date (without an explicit holding) that Buyers Service and its progeny may not apply in the commercial arena. The Court repeatedly stated that the context of this case is the residential refinance arena. I have discussed this case with several commercial lawyers to ascertain whether they are now comfortable to forego certifications that other South Carolina licensed lawyers are involved in the closing steps that are not under their control. They seem to feel slightly more comfortable, but not comfortable enough to let go of that step. Perhaps the passage of time will help.

Other good news is that, despite the facts recited by Judge Goodstein to the contrary, the Court clearly stated that lawyers were involved and used their professional judgment in each required step. The out-of-state entities who do business here should make sure their processes include this professional judgment in each step of the closing.

After reading this case a dozen times, I’ve decided that no law has changed. Nothing will change in our local processes. Nothing will likely change dramatically in the processes of the out-of-state entities who do business here. If I had not read Judge Goodstein’s report and if I had not attended the Supreme Court’s hearing, I would probably not be shocked with this result.

I would love hear what you think.

*Boone v. Quicken Loans, Inc., South Carolina Supreme Court Opinion 27727, July 19, 2017

** State v. Buyers Serv. Co., 292 S.C. 426, 357 S.E.2d 15 (1987)

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How to employ a suspended lawyer

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Supreme Court offers guidance

Have you ever wanted to hire your suspended lawyer buddy?  What if your best friend from law school gets suspended and is desperate for work?  What if she is a great title abstractor? Now you can, under limited circumstances, hire her, and if you’re careful, you’ll keep your own license safe.

In February of 2015, the South Carolina Supreme Court softened its long-standing rule barring lawyers from employing disbarred or suspended lawyers, directly or indirectly, in any capacity. Under the former version of Rule 34* a lawyer without a current license could not be employed as a paralegal, investigator or in any capacity connected with a law practice.

Rule 34 was amended in 2015 to allow the employment of a lawyer suspended from practice for less than nine months under limited circumstances. The new version of Rule 34 allows these suspended lawyers to engage in:

  • Clerical legal research and writing, including document drafting, library or online database research, and searching titles, including obtaining information in the recording office; and
  • non law-related office tasks, including but not limited to, building and grounds maintenance, personal errands for employees, computer and network maintenance, and marketing or design support.

These suspended lawyers who are employed by a lawyer or law firm are forbidden from:

  • Practicing law in any form;
  • Having contact or interaction with clients, former clients or potential clients;
  • Soliciting prospective clients;
  • Handling client funds or trust accounting;
  • Holding himself or herself out as a lawyer; or
  • Continuing employment with the lawyer, law firm, or any other entity where the misconduct resulting in the suspension occurred.

The suspended lawyer must be supervised by a lawyer in good standing, and the two must submit a written plan to the Commission on Lawyer Conduct to outline the scope of the employment, anticipated assignments and procedures in place to insure no further misconduct.

After the amendment of Rule 34, the South Carolina Bar filed a petition with the Supreme Court to amend Rule 5.1 of the Rules of Professional Conduct, to detail the responsibilities of a supervising lawyer who elects to employ a suspended lawyer. By its order dated May 17, 2017, the Court adopted the Bar’s proposal and amended Rule 5.3 in addition to Rule 5.1.  You can read the entire order here.

If you have a heart of gold and want to help out a friend down on his luck, you now have the Court’s blessing and guidance. But, use caution and meticulously follow the rules to avoid finding yourself in your friend’s unfortunate position!

Court decides timeshare owners can sue developers

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Real Estate Commission does not have exclusive jurisdiction

The South Carolina Supreme Court, answering questions certified to it by the Federal District Court, held last week that the South Carolina Real Estate Commission (REC) does not have exclusive jurisdiction to determine violations of the South Carolina Vacation Time Sharing Plans Act.*

The Court also stated that the REC’s determination of a violation of the Time Act** is not a condition precedent to a private cause of action to enforce the Act and that the determinations of the REC are not binding on the courts.

These questions arose from two sets of litigation in the federal court involving individuals who entered into contracts with developers to purchase timeshare interests.

One set of plaintiffs, the Fullbrights, brought a purported class action against a timeshare developer, Spinnaker Resorts, Inc., seeking the return of money paid under a contract to purchase, plus interest, as well as a declaration that the contract was invalid.

The other set of plaintiffs, the Chenards, brought suit against another timeshare developer, Hilton Head Island Development Co., LLC, alleging fraud, negligent representation and violations of the Unfair Trade Practices Act as well as violations of the Timeshare Act.

In answering the questions, the Supreme Court stated that it was not taking any positions on the merits of the cases, which remain under the jurisdiction of the federal court.

The Court found that §27-32-130 unambiguously allows for lawsuits by stating that the provisions of the Act do not limit the right of a purchaser to bring a private cause of action. The developers had argued that this statute is ambiguous and that public policy evidenced by the Timeshare Act as a whole requires the REC’s jurisdiction to be exclusive.

These determinations will no doubt clear the way for class action lawsuits against timeshare developers.

 

* Fullbright v. Hilton Head Island Development Co., LLC, South Carolina Supreme Court Opinion No. 27220 (May 17, 2017).

** S.C Code §27-32-10 et seq.

SC Supreme Court publishes new commentary on social media

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Real estate lawyers are involved in two disciplinary cases

Two disciplinary cases* were published by the South Carolina Supreme Court on April 19 concerning lawyers involved in multi-state mortgage modification practices. Stay tuned for a blog on the mortgage modification issues because Palmetto State dirt lawyers should steer clear of the unauthorized practice of law and other prickly issues these practices may trigger.

But ostensibly even more pressing, the Court provided ample guidance on lawyer marketing in the context of social media. Using websites and social media in marketing effort is common in 2017 for most lawyers.

The lawyers in these cases failed to adequately monitor the individuals (staff members and third parties) who handled these marketing efforts for their practices.  Failure to properly supervise these effort resulted in running afoul of the Rules of Professional Responsibility.

Dirt lawyers, here are some practices you should avoid taking in your marketing efforts:

  • You should not “cut and paste” from other lawyers’ websites without scrutinizing the materials.
  • If you are a sole practitioner, your website and other marketing materials should not indicate your practice includes “attorneys” or “lawyers”.
  • You should not exaggerate your years of experience.
  • You should not use the word “expert” except in those areas where you are certified as a specialist by the Supreme Court.
  • You should not advertise practice areas where you have no experience in those areas and where you do not intend to take cases in those areas.
  • You should not congratulate clients on their closings without obtaining the clients’ permission to post their names and other information about their legal matters on social media. I see (and “like”) lots of these congratulatory messages on Facebook, and these messages are not objectionable if the lawyer has obtained the clients’ consent.
  • Your marketing materials should not refer to your legal services as “best”.
  • You should not advertise special discounted rates for legal services without disclosing whether or not these rates include anticipated costs.
  • You should not compare your services to other attorneys in ways that cannot be factually substantiated.
  • You should not allow third party vendors to identify themselves as employees of your firm when communicating with prospective clients.

Not many of us are “experts” in the area of attorney advertising, but I strongly recommend that you pay close attention to the Rules in all aspects of website development and social media use. Unlike most areas of the law, the Rules of Professional Responsibility that control advertising appear to be somewhat “black and white”. And failure to follow these Rules will anger your fellow lawyers and will likely to land you in the Advance Sheets. Be careful out there!

 

In the Matter of Bacon, S.C. Supreme Court Opinion 27710, April 19, 2017; In the Matter of Emery, S.C. Supreme Court Opinion 27712, April 19, 2017.

Hot off the presses UPL case!

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(But it only affects real estate peripherally)

The South Carolina Supreme Court handed down a UPL decision in a declaratory judgment action in its original jurisdiction on February 22.*

The Court accepted the action to determine whether Community Management Group, LLC and its employees engaged in the unauthorized practice of law while managing homeowners’ associations. The Court found that the respondents did, in fact, engage in UPL. At the outset of the case, the Court had issued a temporary injunction halting the offending activities.

Community Management Group, without the involvement of an attorney, prepared and recorded notices of liens and related documents; brought actions in magistrates’ courts to collect debts; and filed the resulting judgments in circuit courts. The entity also advertised that it would perform these services “in house”.

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In a 1992 administrative order entitled In re Unauthorized Practice of Law Rules Proposed by South Carolina Bar**,  the Court had modified prior case law to allow a business to be represented by a non-lawyer officer, agent or employee. The Court had also promulgated South Carolina Magistrate Court Rule 21, which provides, “A business…may be represented in a civil magistrates’ court by a non-lawyer officer, agent or employee…”

The central question in the action at hand was whether the word “agent” in these authorities includes third party entities and individuals like Community Management Group and its employees. The Court held it does not and was never intended to.

The Court had earlier held that filing claims in probate courts does not amount to UPL, but stated in the present case that it is the character of the services rendered that determines whether the services constitute the practice of law. Filing claims in Probate Court, according to the Court, does not require the professional judgment, specialized knowledge or ability of an attorney. The Court found that the services required to represent a business in magistrates’ courts are not comparable to filing claims in probate courts.

Community Management Group conceded that it prepared a lien document for the purpose of putting a cloud on title so property could not be sold unless the homeowner paid overdue assessments. This stated purpose demonstrated to the Court that the lien documents were “instruments”, that is, written legal documents that define rights, duties, entitlements or liabilities.

Citing a 1987 case near and dear to the hearts of all South Carolina dirt lawyers, State v. Buyers Service***, the Court reminded us that preparing and recording legal documents is the practice of law.

This current case is a Per Curiam decision, but acting Justice Pleicones did not participate. We are holding our collective breath to learn the results of a Quicken Loan case pending in the original jurisdiction of the Court, and the present case may give us at least a small hint.

stay tunedWe have already received an underwriting question about this case in our office. We were asked whether our attorney agents can ignore the liens filed in contravention of this case. The answer is that we can discuss the specifics on a case-by-case basis, but it appears that although the liens may be invalidated by a court, dirt lawyers and title companies should not generally take this risk without the involvement of a court. If you run into this issue in connection with your closings, call your title insurance underwriter to discuss your options!

*Rogers Townsend & Thomas, PC v. Peck, South Carolina Supreme Court Opinion 27707 (February 22, 2017)

**309 S.C. 304, 422 S.E.2d 123 (1992)

***292 S.C. 286, 468 S.E.2d 290 (1987)

SC Dirt lawyers: check your documents

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SC Supreme Court issues opinion that may keep us up at night!

Are the words “developed” and “improved” used interchangeably in your form real estate documents?  You might want to pull your documents to check based on a recent South Carolina Supreme Court case.*

The Supreme Court affirmed a Court of Appeals decision finding property had not been developed into discrete lots entitling them to voting rights under a set of restrictive covenants. While the two courts agreed on that determinative point, the Supreme Court felt the need to clarify the Court of Appeals’ opinion that may be read to “conflate” the terms “developed” and “improved”. (The only word that was unclear to me was “conflate”, which I now know means to combine two or more concepts into one.)

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The Supreme Court cited a 2007 Washington state opinion for the definition of “developed”: conversion of raw land into an area suiting for building, residential or business purposes. Improving land is subject to a higher threshold, according to the Court, and would require such actions as installing utilities or buildings.

Chief Justice Pleicones and Justice Few concurred, and the Chief wrote a separate opinion for the sole purpose of expressing concern that dictating the meanings of the terms “developed” and “improved” may inadvertently alter the meaning of documents or create a conflict with legislative enactments. He used a subsection of a statute dealing with mechanics’ liens as an example.

South Carolina Code Section 29-6-10 (2) contains the following definition of “Improve”:

 “Improve means to build, effect, alter, repair, or demolish any improvement upon, connected with, or on or beneath the surface of any real property, or to excavate, clear, grade, fill or landscape any real property, or to construct driveways and roadways, or to furnish materials, including trees and shrubbery, for any of these purposes, or to perform any labor upon these improvements, and also means and includes any design or other professional or skilled services furnished by architects, engineers, land surveyors and landscape architects.”

That definition is written as broadly as possible to protect the interests of any professional who provides labor or services in connection with developing, I mean improving, real estate.

The underlying Court of Appeals opinion** indicated that platting separate lots on paper without further steps did not rise to the level of the term “develop”, which, according to the Supreme Court, is a lower threshold than the term “improve”, which, according to the statute, includes platting. Do you see the Chief’s concern? I certainly do! Good luck with those documents!

*Hanold v. Watson’s Orchard Property Owners Association, Inc, South Carolina Supreme Court Opinion 27702 (February 15, 2017)

**Hanold v. Watson’s Orchard Property Owner’s Association, 412 S.C. 387, 772 S.E.2d 528 (2016)

Just in Time for Halloween, SC Supreme Court Declines Frightening Request to Compel Random Lawyer Trust Account Audits

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The South Carolina Supreme Court amended the rules that govern lawyer discipline on October 25.* The big news here is not the very minor amendments that were adopted but rather the major requested amendments the Court declined to adopt.

The Commission on Lawyer Conduct and the Commission on Judicial Conduct proposed a rule amendment that would have imposed mandatory random audits of lawyer trust accounts. Without comment, the Court declined to adopt this rule change after “careful consideration”.

The Court also declined without comment an amendment that would have required a new position, a presiding disciplinary judge to act as a hearing officer to preside over disciplinary and incapacity hearings.

I have no idea why the Court made these decisions, but my guess is that the motivation revolved around the additional funds that these proposals would have required.

*Appellate Case No. 2015-0002336