Refinanced Mortgage Does Not Qualify For Equitable Subrogation; Remedy Would Not Be Available Anyway Because Lender Used A Non-attorney To Prepare Loan Documents And Close The Loan Which Constitutes The Unauthorized Practice Of Law In South Carolina

In 1998, the Appellant in Matrix Fin. Services Corp. v. Frazer, Opinion No. 26859, 2011 WL 3452078 (S.C. Aug. 8, 2011) defaulted the mortgagors in a lawsuit filed in California where they lived at the time. The mortgagors then purchased a home in South Carolina in January 2001 financed by a loan that was later assigned to the Plaintiff-Mortgagee. About a year later the mortgagors and the Mortgagee refinanced the loan but the new mortgage was not recorded until five months after the closing. Meanwhile, the Appellant obtained a default judgment against the mortgagors in California, and properly enrolled that judgment on October 31, 2001, before the refinanced loan with the Mortgagee had closed. The Mortgagee then foreclosed the refinanced November 2001 mortgage and the Appellant counterclaimed alleging priority because his lien was recorded first. The Mortgagee invoked the principle of equitable subrogation to gain the primary priority position which the trial court accepted in granting judgment to the Mortgagee. The court of appeals reversed. It found, first, that the Mortgagee did not meet the requirements to qualify for equitable subrogation. The court was bound by prior case law in holding that a bank could not be subrogated to the rights of its own prior mortgage. The court noted that the Mortgagee could possibly attain priority under a theory of replacement or modification but did not decide that question because the Mortgagee did not advance those theories. The court also found that even if the Mortgagee met the requirements for equitable subrogation, relief would be unavailable because of its unauthorized practice of law. The Mortgagee hired a non-attorney, Land America, to perform the title search, prepare the documents, and close the refinance loan, all admittedly without the supervision of a licensed attorney and all constituting the unauthorized practice of law. By closing the re-financed loan the Mortgagee committed the unauthorized practice of law and therefore is barred from seeking equitable relief. The court used this case to definitively state that a lender may not enjoy the benefit of equitable remedies when that lender failed to have attorney supervision during the loan process as required by our law. We apply this ruling to all filing dates after the issuance of this opinion.

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