Should HOAs, POAs and Condominium Associations prepare and file their own liens without using an attorney, after the February 2017 S.C. Supreme Court decision in Rogers Townsend & Thomas, PC v. Peck?

INTRODUCTION

It is common and frequent for HOAs, POAs, Condominium Associations and other community associations (collectively, “Associations”) to have a need to file liens against homeowners when assessments, regime fees and other amounts owed pursuant to the recorded covenants are unpaid and past due. In South Carolina, an Association in the position of needing to file such liens typically has undertaken this task one of three ways: (1) by retaining an attorney to prepare and file the liens; (2) by having its third-party property manager to do so if the Association has one; or (3) by doing it “in-house,” often by a Board member. The method numbered (1) above is clearly lawful and is thus the safe route. However, many Associations have sought to avoid incurring legal fees where possible; they may consider themselves too small to afford that cost, or they might simply view it as an optional and thus avoidable expense. So instead, some Associations opt for methods numbered (2) or (3) above. The key question is, are methods (2) and (3) above lawful in South Carolina? Could an Association that utilizes methods numbered (2) or (3) above be found to be engaging in unauthorized practice of law, a misdemeanor or felony[1] in South Carolina? And, importantly, are liens prepared and filed by third party property managers or by Associations in-house potentially void and subject to being considered a legal nullity, meaning they would not operate as a valid lien upon the homeowner’s property?

In February 2017, in Rogers Townsend & Thomas, PC v. Peck, 419 S.C. 240, 797 S.E.2d 396 (February 22, 2017), the South Carolina Supreme Court expressly held in the that having a third-party property manager prepare and file liens for an Association is unlawful, as such action constitutes the unauthorized practice of law if done without the supervision of an attorney. But the Supreme Court left some questions unanswered in its decision. This article explores the legality of the frequent practice of method (3) above — the recording of liens by Associations in South Carolina without the supervision of an attorney. In short, if your Association is preparing and in recording liens “in-house,” such as by having a Board member do it, the answer to the question posed in the title of this article is: most likely yes—your Association is most probably acting unlawfully by engaging in unauthorized practice of law. Further and importantly, in so doing, such Associations are running the risk that any liens prepared and/or filed either by third party property managers or by Associations in-house could be deemed by a court as void and subject to being considered a legal nullity, meaning they do not operate as a valid lien upon the homeowner’s property if such a lien were to be challenged by the homeowner or her/his attorney.

UNAUTHORIZED PRACTICE OF LAW IN SOUTH CAROLINA

In South Carolina, our Supreme Court has a constitutional power to regulate and define the practice of law. Since the early 1990s, the S.C. Supreme Court specifically encouraged “interested individuals” to bring declaratory judgment actions to the Court in order to further clarify what conduct is defined as unauthorized practice of law. The Court has been defining and clarifying what exactly is the practice of law for over 100 years. Throughout this period, the Court on several occasions explained that the practice of law is not limited to appearance in the courtroom; it includes activities which require “specialized legal knowledge and ability.” As far back as 1909, the court stated that the practice of law comprises of “… conveyancing, the preparation of legal instruments of all kinds, and in general, all advice to clients, and all action for them in matters connected with the law.” In re Duncan, 65 S.E. 210 (S.C. 1909). On other occasions, the Court held specifically that the practice of law includes activities include the drafting and preparation of legal documents such as recording deeds, mortgages, and liens. State v. Buyers Serv. Co., Inc., 357 S.E.2d 15, 17 (S.C. 1987). Nevertheless, the Court acknowledged that there is not bright line rule and to what amounts to unauthorized practice of law, and each case must be decided in its individual context. In re Unauthorized Practice of Law Rules Proposed by the South Carolina Bar, 422 S.E.2d 123, 125 (S.C. 1992).

Generally, anyone who conducts the above stated activities without an attorney license or supervision of a licensed attorney is engaging in unauthorized practice of law and is subject to being guilty of a crime, penalized by a fine or even imprisonment of up to three years. The Court explained that the policy behind this rule is not to create a monopoly or for the economic benefit of the legal profession; rather, it is “for the protection of the public from the potentially severe economic and emotional consequences…” which can result from flawed drafting of a legal documents or untrue legal advice. Buyers Serv. Co., Inc., 357 S.E.2d at 18; Franklin v. Chavis, 640 S.E.2d 873, 875 (S.C. 2007) (“The amateur at law is as dangerous to the community as an amateur surgeon….”) (citing In re Baker, 85 A.2d 505, 514 (N.J. 1951)). Additionally, the Court refused to allow corporations and entities to be represented by one of its nonlawyer officers. In re Unauthorized Practice of Law Rules Proposed by the South Carolina Bar, 422 S.E.2d at 124 (modifying State ex rel. Daniel v. Wells, 5 S.E.2d 181 (1939)). The rule now appears in Section 40-5-320 of the South Carolina Code. This is significant for Associations since it means that they must hire an attorney to conduct any legal business.

There are a number of important exceptions to these general rules. First, an individual is allowed appear pro se—to represent himself or herself in court or to draft any documents. For example, if a person is being sued in any court, although it is often not recommended, that person can always represent himself in any court. Second, a nonlawyer individual could represent another individual in court if the nonlawyer individual is not compensated and the court approves the representation. This means that if an individual is being sued, her friend who is a law student, for instance, could appear on her behalf if she is not being paid for it and if the court approves such representation. But, as stated above, a nonlawyer individual cannot appear on a corporation’s or entities’ behalf. This means a third party property manager cannot prepare liens or deeds or take any other actions that the Court defined as the practice of law on behalf of an Association. The only exception to this rule is magistrate court—which is the third exception—an “agent” of a corporation or entity can appear on its behalf in magistrate court. This exception was first articulated by the Supreme Court in 1992, In re Unauthorized Practice of Law Rules Proposed by the South Carolina Bar, 422 S.E.2d at 124, and later promulgated Rule 21 of the South Carolina Rules of Magistrate Court. It is particularly significant for Associations since it means that Board members or a third party property manager may lawfully appear in magistrate on behalf of the Association.

It should be noted that the S.C. Supreme Court did not explicitly rule that the recording of liens by third party property managers is the unauthorized practice of law — it only ruled that third party property managers that record liens on behalf of Associations without the supervision of an attorney engage in unauthorized practice of law. However, in examining the S.C Supreme Court’s rules and precedents, it seems clear that nonlawyer property managers for Associations are violating the law if they record liens or related documents on behalf of an Association without attorney involvement. Therefore, if recording liens “in-house” has been the practice in your Association, you should be wary of continuing that practice, and should consult with your attorney about whether your Association should discontinue handling lien preparation and filing in that manner.

CONSEQUENCES OF ENGAGING IN THE UNAUTHORIZED PRACTICE OF LAW

What would be the consequences for a third party property manager he were found to have prepared and filed a lien without attorney supervision, after the decision in Rogers Townsend & Thomas, PC v. Peck? The property manager could be criminally charged. If convicted, the property manager could be fined in the discretion of the judge, or imprisoned for up to three years, or both. How severely these potential penalties might actually be applied would be a matter of speculation, and it’s likely that much would depend on the individual facts and circumstances of a given case.

What about the Association – is the lien or related document enforceable? This is a more complex question. In 2011, the Supreme Court ruled that a lender cannot bring and action in court when it failed to obtain an attorney to supervise the process. Matrix Fin. Serv. Corp. v. Frazer, 714 S.E.2d 532 (S.C. 2011). The Court came to this conclusion by using the well-established maxim of equity “one who seeks equity must do equity,” also known as the “unclean hands doctrine.” Id.; see also Wachovia Bank, N.A. v. Coffey, 746 S.E.2d 35 (S.C. 2013) (“Petitioner is the architect its own problem”). In short, under this doctrine, an individual who committed a wrong or illegal act cannot then come to a court of law and seek a remedy. The 2011 ruling stands for the proposition that a legal document recorded without the supervision of an attorney is not enforceable. Based on this jurisprudence, it is certainly possible that if a lien is prepared and recorded in South Carolina without the supervision of an attorney, that upon a later challenge to the validity of that lien, a court would find it not to be a valid encumbrance and would refuse to enforce it.

CONCLUSION

Associations and their property managers should be cautious and prudent when it comes to handling any business involving recording liens, deeds, mortgages, and other related documents. Best practice is to consult with the Association’s attorney in regard to the implications of the Rogers Townsend & Thomas, PC v. Peck and the legal issues discussed in this article. By engaging in such activities without attorney involvement, Associations and property managers could potentially expose themselves to criminal penalties. Further and importantly, it is possible that a lien prepared and recorded by a nonlawyer might be found invalid and not enforceable. To avoid these pitfalls, the best practice for preparing and filing liens and any other legal documents is the method numbered (1) above – have the Association’s attorney do it. It is almost surely worth that relatively small amount of extra cost.