Bank's Loan Closing Without Attorney Supervision Bars Any Relief Against Borrower

On May 6, 2010, the South Carolina Court of Appeals issued a ruling affirming a harsh result against Wachovia for its failure to have loan closing documents reviewed, and the closing supervised by, an independent attorney.

In Wachovia v. Coffey, borrower Dr. Coffey took out a $125,000 home equity line of credit with Wachovia. Wachovia closed the loan directly without the involvement of counsel. Dr. Coffey’s wife was unaware of the closing. Dr. Coffey signed a mortgage document purporting to secure the line of credit with their home, despite the fact that Mrs. Coffey was the sole owner on the title. Wachovia wired the loan proceeds for the purchase of a thirty-six-foot boat.

Dr. Coffey paid monthly payments for the boat for the rest of his life, and Mrs. Coffey continued those payments temporarily after his death. Mrs. Coffey believed the loan was secured by the boat, not the home. After Dr. Coffey passed away, Mrs. Coffey sold the boat, with the help of a boat broker. During the sale, Wachovia informed the broker that there was no lien on the boat. Mrs. Coffey kept the proceeds of the sale.

Wachovia moved to foreclose on the property after Mrs. Coffey discovered and refused to pay the mortgage on the home. Wachovia also alleged causes of action for ratification, unjust enrichment, equitable lien, and equitable mortgage. Cross-motions for summary judgment were filed and Mrs. Coffey prevailed on her motion for summary judgment. The Master reasoned that Wachovia was barred from seeking relief in the courts due to its unauthorized practice of law (closing the loan without attorney supervision) in the transaction with Dr. Coffey.

The Court of Appeals upheld the Master’s determination. The Court agreed that Mrs. Coffey sufficiently demonstrated Wachovia had "unclean hands" because it processed and closed the loan without the supervision of an attorney. Because the unauthorized practice of law is an illegal act in South Carolina, Wachovia could not recover under any of its legal and equitable causes of action.

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