We’ve recently heard this question from several Georgia lenders. They called us after reading our post about Georgia’s 2012 Good Funds law. They were primarily curious about closing HELOCs in-house. Our earlier post explained that the Good Funds law, in part, codified the Georgia Supreme Court holding that attorneys are required to close residential loans in most circumstances. We briefly mentioned that lenders can close certain transactions, and we wanted to expand on that here.
Who can close a lender-funder, residential loan in Georgia?
Georgia’s Good Funds law is found in O.C.G.A. § 44-14-13. While that statute is commonly associated with funding requirements, it also defines who may act as the “settlement agent” in a residential, lender-funded transaction.
For loans secured by a 1–4 family residence, Georgia law allows only two parties to settle and disburse loan proceeds:
- the lender, or
- an active member of the State Bar of Georgia.
Under these limitations, third-party non-attorneys—such as settlement companies or “witness-only” closers—are not permitted under Georgia law to conduct or participate in the settlement of a residential, lender-funded loan. See In re UPL Advisory Opinion 2003-2, 588 S.E.2d 741 (2003) and Formal Advisory Opinion No. 13-1 (State Bar of Georgia, 2014).
Note that when lenders close their own loans (such as HELOCs or second mortgages), the lender is representing its own interests and is not engaged in the unauthorized practice of law. During the closing, the lender can walk the borrower through the procedural steps and show them where to sign. But the lender can’t charge for that service, advise the borrower on their rights, or hold itself out as providing legal guidance. See O.C.G.A. § 15-19-52.
Of course, even though the lender is permitted to close its own loans, there are some loans that will benefit from having an attorney close them.
When would a lender want an attorney to close a HELOC or second mortgage loan?
Even though a lender is permitted to close its own loan, if the lender wants title insurance, the lender will often turn to an attorney who can issue title insurance. In practice, we primarily see two instances in which a lender requests a lender’s title insurance policy when closing a HELOC or home equity loan:
1) if the HELOC or home equity loan will be a first position mortgage, and
2) if the loan amount is such that their internal guidelines call for a title policy. For instance, many lenders will want a title insurance policy for any loans over $150,000 regardless of whether they are first or second position mortgages.
Occasionally, lenders will also ask us to issue a title policy when they obtain a third-party title report that shows a potential issue with title. We can then review the title, and explain the issue. Depending on that review, the lender may decide it would like the additional protection offered by title insurance.
How can Sherman & Phalen assist lenders with HELOCs and second mortgages?
We offer our clients several levels of service depending on their needs. For our clients that use a third-party service for title searches, we will help review issues identified in the search and clear title. This includes preparing necessary deeds such as deeds transferring the property from a trust or LLC to the borrower. For other clients, we perform the title search and provide them with an Attorney’s Certificate of Title.
We have some clients that prefer to close HELOCs in-house and others who outsource that to us, even if they don’t require title insurance. Others may send the HELOC closing to us if there’s a title issue to resolve or insure over. And we can help in other ways by:
- reviewing title reports ordered by the lender to give an opinion on whether title insurance would be recommended,
- reviewing or drafting the HELOC documents that are used in-house that the lender can tailor to each transaction, or
- advising on best practices for recording and signing deeds.
If you have questions about the most efficient and compliant structure for a particular loan or other mortgage product, we’re always happy to talk through it.