By John S. Kay
Hutchens Law Firm – USFN Member (SC)
n 2017, the South Carolina Supreme Court issued a decision finding that the loan closing process used by Quicken Loans, Inc. (Quicken) in South Carolina did not constitute the unauthorized practice of law. Boone v. Quicken Loans, Inc., 803 S.E. 2d. 707 (S.C. 2017). Now, in its recent decision in Quicken Loans, Inc., v. Wilson, (S.C. Appellate Case No. 2016-001214 2019) the South Carolina Supreme Court has weighed in on whether the loan application process utilized by Quicken in the context of a residential real estate mortgage transaction violates the South Carolina Attorney Preference Statute (“SCAPS”), S.C. Code section 37-10-102 (2017).
In the Wilson case, Quicken brought a foreclosure action against the borrowers based upon a default on the note and mortgage. The borrowers objected and alleged the Quicken loan application process utilized at loan origination failed to comply with the requirements of SCAPS. SCAPS requires a lender to ascertain a borrower’s preference for an attorney to represent him or her in the upcoming loan closing. The lender can comply with the statute in one of two ways. This preference information can be included on or with the credit application on a form similar to the one distributed by the South Carolina Department of Consumer Affairs. Otherwise, the lender must provide written notice to the borrower of the preference information with the notice being delivered or mailed to the borrower no later than three business days after the application is received or prepared.
The telephonic process used by Quicken to ascertain the borrower’s attorney preference during the loan application process prompts the banker to ask the borrower as to whether the borrower will select an attorney to represent him or her in the transaction. If the borrower indicates that he or she does not have an attorney preference, the attorney preference form used by Quicken is prepopulated to specify that the borrower will not be using the services of legal counsel. If the borrower indicates that he or she does wish to use a specific attorney, the form prepopulates requesting the borrower contact the lender with his or hers preference of attorney. The Quicken system cannot generate a loan application without the attorney information being listed. If no attorney preference is listed, Quicken’s affiliate company receives the referral to act as the settlement agent and subcontracts with an attorney to perform those services.
The Special Referee assigned to hear the case granted the borrowers’ motion for summary judgment and found that the process used by Quicken did violate SCAPS. In addition, the Special Referee found that the process was “unconscionable”, as defined by the statute which would have the potential for forfeiture of finance charges and other penalties.
On appeal, the South Carolina Department of Consumer Affairs appeared in the case and filed an Amicus brief urging the Court to find that the attorney preference ascertainment process used by Quicken was a violation of SCAPS. The Supreme Court disagreed and held that the Quicken process did not violate SCAPS. The Court found that the banker/agent asked the borrowers about their attorney preference and only prepopulated the form after ascertaining that the borrowers did not have a preference. Quicken then sent the attorney preference form to the borrowers within the required time period and the borrowers signed and returned the form without any questions. The Court also added that SCAPS did not require Quicken to provide a list of attorneys to choose from, nor require Quicken to ascertain that initial preference in writing. The Court further pointed out that that the process ascertained the borrowers’ preference information and obtained confirmation of that information in writing.
This case marks the second time that the loan origination process used by Quicken has been challenged in state court in South Carolina and Quicken has prevailed in both cases. Interestingly, the borrowers in Boone had also filed an action against Quicken in state court alleging a similar violation of SCAPS as that alleged in Wilson. The case was removed to Federal Court and Quicken prevailed in that case on summary judgment. In Boone and Wilson, the Court took steps to point out that the borrowers had stated that they had no objection to the application process itself and, more importantly, did not state any objection to the attorneys assigned by the lender to handle the loan closing process. These two cases appear to show that the South Carolina Supreme Court is keeping its focus on protecting the consumer, but the Court will not find a violation of law if the lender is in compliance with the intent of the applicable case or statute, and there is clear evidence that the consumer has not been harmed in the transaction.
Published by John S. Kay on January 14, 2019.