REAL ESTATE CLOSINGS AND
THE PRACTICE OF LAW
Sponsor: Real Property Law Section
CLE Credit: 1.0
Thursday, May 12, 2016
2:35 p.m. - 3:35 p.m.
Rooms 207-211
Kentucky International Convention Center
Louisville, Kentucky
A NOTE CONCERNING THE PROGRAM MATERIALS
The materials included in this Kentucky Bar Association Continuing Legal
Education handbook are intended to provide current and accurate information about the
subject matter covered. No representation or warranty is made concerning the
application of the legal or other principles discussed by the instructors to any specific
fact situation, nor is any prediction made concerning how any particular judge or jury will
interpret or apply such principles. The proper interpretation or application of the
principles discussed is a matter for the considered judgment of the individual legal
practitioner. The faculty and staff of this Kentucky Bar Association CLE program
disclaim liability therefore. Attorneys using these materials, or information otherwise
conveyed during the program, in dealing with a specific legal matter have a duty to
research original and current sources of authority.
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TABLE OF CONTENTS
The Presenters................................................................................................................. i
Real Estate Closings and the Practice of Law ................................................................. 1
UPL Advisory Opinion No. 2003­2
State Bar Programs / Part XIV – Rules Governing the Investigation and
Prosecution of the Unlicensed Practice of Law / Unlicensed Practice of
Law Advisory Opinions / UPL Advisory Opinion No. 2003-2 .......................................... 19
Authorized Practice Advisory Opinion 2002-1 ............................................................... 23
THE PRESENTERS
Brent J. Eisele
Foundation Title and Escrow Series, LLC
2417 Regency Road, Suite A
Lexington, Kentucky 40503
(859) 899-2025
[email protected]
BRENT J. EISELE has been in private practice since graduating from law school in May
of 1996. From 1996 to October 2000 he was part of a legal practice that included civil
litigation, domestic, criminal defense, probate, real estate, and business transactions.
From 2001 to present his practice has been focused in the areas of residential and
commercial real estate transactions, business transactions, and real estate related
litigation, including more than ten years where he was a managing partner at the
Lexington firm of McConnell Eisele & Case. Mr. Eisele is presently an attorney for
Foundation Title and Escrow Series, LLC in Lexington. He received his B.A. from
Georgetown College and his J.D. from Salmon P. Chase College of Law. In law school
Mr. Eisele was a member of the Moot Court Board and at Georgetown he was a three
year varsity football letterman. He is a member of the Fayette County and Kentucky Bar
Associations. He currently serves as legislative chair of the Real Property Law Section
of the Kentucky Bar Association, and is chair elect of that section. He is a member of the
Kentucky and American Land Title Associations; Kentucky Association of Independent
Land Title Agents; Commercial Property Association of Lexington and has served as an
agent for Old Republic Title Company, Commonwealth Land Title Company, and First
American Title Company.
Billy Sherrow
Sherrow Sutherland & Associates, PSC
200 Southland Drive
Lexington, Kentucky 40503
(859) 685-0035
[email protected]
BILLY W. SHERROW is the founding member of Sherrow Sutherland & Associates,
PSC. His primary area of practice is real estate transactions. Mr. Sherrow is a graduate
of Eastern Kentucky University and received his J.D. from the University of Kentucky
College of Law. He represents the Lexington-Bluegrass Association of Realtors and is
currently serving a two-year term as chair of the Real Property Law Section of the
Kentucky Bar Association. Mr. Sherrow is also serving on the board of directors of The
Southland Association and the advisory board of the Bank of the Bluegrass & Trust
Company.
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ii
REAL ESTATE CLOSINGS AND THE PRACTICE OF LAW
Billy W. Sherrow and Brent J. Eisele
I.
COUNTRYWIDE HOME LOANS INC v. KENTUCKY BAR ASS'N REVIEWED
The Countrywide Home Loans Inc. v. Kentucky Bar Ass'n, 113 S.W.3d 105 (Ky.
2003) opinion was officially handed down on August 21, 2003. The case was a
review by the Supreme Court of Advisory Opinion U-58 adopted by the KBA
Board of Governors in November 1999, which declared that performance of a
real estate closing by a lay closing agent was the unauthorized practice of law.
The case involved a number of players. Countrywide, LandSafe Services,
Kentucky Land Title Association, Kentucky Association of Realtors and Home
Builders Association, all jumped into the fray requesting the Court to vacate U58. Evidence was taken, hearings were held and oral arguments were heard.
Even the United States of America got involved when the Department of Justice
filed an amicus curiae brief in support of those parties objecting to U-58. In an
opinion written by Justice James Keller, the Court vacated U-58 and ruled that U31 accurately stated the law on the subject.
The question submitted to the committee that resulted in U-31 was:
Does a real estate mortgage lender, or a title insurance company
on behalf of a real estate mortgage lender, commit the
unauthorized practice of law by performing the ministerial acts
necessary in the closing of a real estate loan?
The answer was a qualified no. The committee ruled that:
A "real estate closing" is at best ministerial in nature. Some
lawyers will allow secretaries and paralegals to participate in
closings. The closing, which consists mainly of financial matters,
payments, schedules of payment, and insurance, is basically a
non-legal function. So long as the lay person avoids the giving of
legal advice, there is no problem with a lay employee closing a
real estate transaction.
The committee did make the following observation:
The rub which frequently arises in a real estate closing situation is
that often questions of a legal nature are posed to the layman who
is closing the transaction. Any response would constitute legal
advice and would be the unauthorized practice of law by the
person answering the questions. In such an instance, the lay
person should discontinue the closing and seek proper legal
advice. It should be observed that many Federal loans involve
significant knowledge of the law, and questions as to what is
meant in the documents would certainly involve the unauthorized
practice of law.
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The specific question asked of the committee in U-58 was:
May real estate closings be conducted by persons who are not
real parties in interest without direct supervision of a licensed
attorney?
In an opinion that was lengthy for the committee, it reached the following
conclusions:
A distinction must be made as to lay settlement agencies such as
title companies and title insurance companies which are not real
parties in interest to the real estate or loan transactions. Their only
interest is the payment of settlement fees.
They act only as a conduit to exchange funds and documents. A
lay settlement agency may compile and report factual information
from the public records, including abstracts of title, but may not
render title opinions. They may act as an agent or broker in
connection with the issuance of title insurance commitments and
policies, and may provide clerical services for a closing. KBA U21; U-31. They do not conduct a closing or examine the required
documents with an eye for protecting the independent legal rights
of the seller buyer, or lender. Such agencies are not regulated and
owe no legal duties to the parties other than those imposed by
agency or tort law. Their employees have no mandated
educational prerequisites for real estate transactions or
disciplinary oversight. A title agency may not conduct real estate
closings or mask legal fees for closing services under the guise of
a "settlement fee" or other charge. Their conduct of a closing
absent independent legal counsel constitutes the unauthorized
practice of law. Virginia UPL Opinion #183 (1996); Annotation, 85
A.L.R. 2d 184.
Countrywide and LandSafe, a Countrywide subsidiary, argued that the
committee, in its ruling of U-58, lacked sufficient input from interested parties
outside of the members of the state bar and was merely an attempt by the real
estate bar to thwart competition.
KLTA argued that real estate closings are ministerial or administrative in nature,
particularly since it has become so standardized and that closings rarely, if ever,
present real legal questions requiring individualized legal advice. They argued
that barring lay persons would actually harm the public unnecessarily, that title
companies do good work, held closings remain affordable and that title
companies are sufficiently regulated by title insurers and lenders.
The realtors and homebuilders claimed that not allowing lay persons to conduct
closings would result in higher closing costs, decreased housing affordability, and
delay home purchases. They characterized U-58 as an effort of lawyers to
monopolize real estate closings.
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The Department of Justice insisted it was in the best interest of the public to
allow them to choose a lay person because it encourages competition. They
argued that the Board of Governors failed to identify any specific harm to the
public.
The KBA maintained that their position was motivated by concern for the public.
It was their position that closings abound with legal issues and that despite all the
cautions and warnings of the various authoritative sources, lay persons do not in
fact refrain from answering legal questions, often incorrectly. They argued that
their position was comparable to many other jurisdictions. They requested that
they be allowed to produce evidence and took sixteen depositions and tendered
more than 1,000 pages of exhibits.
KLTA, in turn took seven depositions including a law professor, a real estate
agent, attorney, a sales manager of a lender and title insurance company
research director. They of course took the opposite view and among other
things, maintained that legal questions rarely arise at closings.
The Court, in analyzing the evidence, identified six major issues as follows: (1)
the origination of U-58; (2) the nature of a real estate closing; (3) the types of
changes, if any, that the advent of the secondary mortgage market has had upon
real estate transactions; (4) the types of questions that arise at closings; (5)
closing fees; and (6) professional accountability.
The Court seemed to put a great deal of emphasis on separating the real estate
transaction from the actual closing, which according to the testimony of Carolyn
Bratt, a law professor, was nothing more than an exercise of point and sign. The
Court ruled that many of the events leading up to the closing were unmistakably
the practice of law, including title examinations, and preparing real estate
mortgages did constitute the practice of law. The Court also agreed with a
Virginia court which made the following statement:
We believe, for example, the contract of sale must be reviewed
and interpreted to determine whether all the conditions expressed
therein have been met. Where a survey has been ordered, a
determination must be made of whether the legal description and
the plat are compatible; and the plat must be reviewed and
interpreted to determine whether encumbrances not allowed by
the terms of the contract, or by covenants or restrictions, are
disclosed by the plat. A title opinion or title insurance policy must
be reviewed and interpreted in order to inform the purchaser of its
meaning and potential risks, as well as the effect of covenants,
conditions, restrictions, encumbrances and other matters set forth
in the opinion or policy. A person responsible for a closing must be
able to interpret and evaluate the terms of a loan commitment and
accompanying documents to determine whether they conform to
the contract and whether they comply with applicable federal and
state laws or regulations.
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The Court went on to say:
We do not deny that there are some portions of the residential real
estate transaction that do constitute the practice of law, i.e. the
title commitment letter and the preparation of deeds and
mortgages, but this case has not asked us to deal with those
matters attendant to the real estate closing itself. What we have
been concerned with today is merely the thin slice at the end of
the real estate transaction that we refer to as the closing.
The Court summarily dismissed the idea that a lay person conducting a closing
would be unable to refrain from offering a few words of explanation or advice.
They relied on the fact that there was little evidence that it frequently occurred
and that the criminal sanctions for the unauthorized practice of law would be
sufficient to deter lay persons from offering legal advice.
II.
THE EFFECT OF COUNTRYWIDE ON REAL PROPERTY TRANSACTIONS
The Countrywide case has had a significant impact on the entire closing process.
It would be an understatement to say the decision significantly changed the
landscape for real estate attorneys. Perhaps nothing is more telling than the fact
that Countrywide, one of the largest mortgage companies in the country, is gone.
The reasons are too numerous to discuss here, but the main culprit was
Countrywide's insatiable thirst for more and more loans. As the supply of
qualified borrowers began to shrink, lenders began trying new and inventive
ways to attract potential borrowers. It reached a point where almost anyone with
a job could get a loan, regardless of their ability to repay it. The business
generated a lot of revenue not only for the direct lender, but for mortgage
brokers, appraisers, attorneys, title agencies and loan officers all of whom
realized substantial profits from the home loan market. Lenders were constantly
looking for ways to make the process easier, quicker and more profitable. As we
now know, it proved to be a house built on shifting sand and when the tide of
reality arrived in 2008, the collapse was monumental. The entire housing
industry suffered an unprecedented collapse and several of the big mortgage
lenders who were some of the movers and shakers in the industry began to fall.
Countrywide was swallowed up by Bank of America, Washington Mutual was
taken over by JP Morgan Chase Bank and Wells Fargo took over several smaller
companies. Some of the bigger players went away and some of them got even
bigger.
During the run up to the collapse, lenders were in a constant search to make
things easier, quicker and more profitable. Kentucky is one of the few states in
the country that, at this writing, does not require title insurance agents to be
licensed. (There is a bill pending in the Kentucky Legislature.) The Countrywide
case had the unintended result of opening the floodgates in Kentucky for almost
anyone to become a title agent. The cost of filing the necessary documents to
become a limited liability company is less than fifty dollars, so anyone who could
get a title insurance company to underwrite their policies could and did become
an agent. The underwriters most certainly had some vetting process but many of
them took the position that "if we don't do it, some other company will," so title
agencies began coming out of the woodwork. The lure of easy money and a
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captive clientele became an irresistible incentive for lenders and mortgage
brokers to either start their own title companies or affiliate themselves with one
and make even more money. Professionalism, accountability and accuracy
quickly eroded and the title and closing business very quickly became a free-forall. Even though the Countrywide case made it clear that the ruling only affected
"the thin slice at the end of the real estate transaction that we refer to as the
closing" the practical results were that the floodgates were opened and the
restraints removed.
When the Countrywide case was being considered, there was an unusual
amount of press. There was an article in the Lexington Herald Leader that talked
about attorneys having a monopoly on the business and the need to level the
playing field. Every one of the moving parties in the case cited the need for
competition and the fact that attorneys would have a monopoly on the closing
business which would ultimately result in higher prices and the consumer
suffering the consequences. History has now established that the decision had
the exact opposite effect. One of the immediate results of the Countrywide
decision was that brokers, builders, real estate agents and lenders began to form
affiliated business arrangements with title agencies set up specifically to handle
only their own business. Consumers were naturally directed to these affiliated
agencies and if an attorney did not align with one of the favored agencies, he or
she was suddenly out of the loop and had no way to compete. The title insurance
premiums did not change but total fees did. If anything, they increased because
the competitive effect of the traditional free market was no longer a factor for
those companies involved in an affiliated business arrangement with a title
agency. The fees gradually increased and the level of professionalism,
accountability and knowledge declined. The loser was the consumer.
The next thing that happened was that banks began getting into the title
business. Investors Title, a title insurance underwriter out of North Carolina,
began visiting many of the smaller banks and sold them on the proposition that
because of the Countrywide decision, banks could now have their own title
agencies. The sales pitch involved showing the banks how much money they
could make if they required title insurance on all their loans. It is important to
note that prior to this time, many local and community banks only required title
insurance on larger commercial transactions. Once banks got into the business,
it suddenly became good risk management policy to require title insurance on
every loan. Some banks resisted the impulse but eventually, many of the larger
local and regional banks simply could not turn down the additional revenue and
most of them now have their own agencies. Some of them now require title
insurance on virtually every loan, regardless of the amount.
It is important to understand the progression of events of banks becoming title
agents as it affected the legal community. Banks went back to the attorneys and
the conversation became predictable. Attorneys were told that their client would
now be writing the title insurance through their own agency. Attorneys would be
expected to do the title work and furnish a title opinion or the actual commitment
to the bank. The bank's agency would then issue the title commitment and the
title policy. The attorney would be doing the same amount of work, would still be
liable, but would be making less money from the transaction. It was virtually free
money to the bank, with no liability. The banks, realizing that attorneys were
5
being taken advantage of, would suggest to the attorney that their title
examination fee be increased to partially offset the loss of revenue. Where
before, an attorney might charge a $400 fee plus title insurance, the attorney was
now permitted to charge $600, with the title premium going to the bank. The
bank's customers may be given the option of selecting their own title insurance
agent, but in reality, it is a foregone conclusion that the title insurance policy will
be written through the bank's agency. The attorney made less money but once
again, the real loser was the bank's customer because they were paying more in
settlement fees. So much for leveling the playing field.
Where are we today? The new player on the national scene is the Consumer
Financial Protection Bureau. It is a powerful new government regulatory agency
with broad reaching powers. It has been busy promulgating numerous new
regulations. The Qualified Mortgage and TRID rules became effective in late
2015. The CFPB also announced a policy that lenders would now have a much
higher degree of responsibility for their third party providers. In response to this
policy, several of the large national lenders reasoned that if they had more
liability for third party providers, those providers should have deep pockets, so
they began aligning themselves with some of the larger national title insurance
underwriters. Local loan officers were no longer given the option of selecting
local closing attorneys or title agents but instead were required to call a toll free
number and arrange for the title and closing. The national underwriter would
develop a network of qualified closers, who would show up at the appointed time
and close the transaction. The qualification to be a closer involves little if any
training and is typically nothing more than being a notary. If the consumer has
the audacity to ask a legal question at the closing, the closer would, under our
current rule, be required to either bring in an attorney to answer the question, or
close the file on the spot and make arrangements to bring in an attorney at a
later time. In the real world, this is simply not going to happen. There is no
attorney waiting in the wings nor is there one sitting by the phone somewhere
waiting for such a call. The customer is more likely to withdraw the question and
close anyway because it has been a process to get to this point and rescheduling
would require new loan documents to be drafted, a new appointment and is an
inconvenience for everyone involved. If the transaction happens to be a sale,
postponing one closing often has a domino effect which causes other closings to
be postponed as well. In fact, CFPB, in its explanation of the new form stated "It
is not easy to object, ask questions or walk away from the deal at the closing."
What about the monopoly on the closing business and the competitive free
market that the key players in the Countrywide case were so concerned about?
Well, yes, many licensed professionals do have a monopoly on their particular
business. Doctors have a monopoly on heart surgery, dentists have a monopoly
on performing root canals and attorneys have a monopoly on trying lawsuits in a
court of law, to name just a few. The competitive free market works within the
legal profession just like it works everywhere else. Closing attorneys cannot just
charge whatever they want to. The lenders and the consumer, if given a choice,
will determine the amount that can be charged for a particular service. The only
time it does not work is where there are affiliated business arrangements where
the title agency knows it will get most if not all of the business being generated by
a particular lender. That is the primary reason the CFPB has taken a very dim
view of all such arrangements because it understands that it stifles the
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competitive free market. All such arrangements are now coming under very
intense scrutiny from the CFPB and it is just a matter of time before it hones in on
the practice of many Kentucky banks. The final and unintended result of the
Countrywide case was to create an environment where unfair business practices
were permitted to flourish.
It is time to reexamine the entire process. The thin slice at the end of the
transaction has in many cases, become the entire loaf. The process has been
dumbed down and the consumer is the loser. Ask any county clerk and you will
hear any number of horror stories of real estate transactions where documents
did not get recorded or contained serious errors. By the time the unfortunate
property owner realizes there is a problem, the closing agency is nowhere to be
found. It is a story that has been repeated over and over. With the large number
of foreclosures, many properties in the state are acquired by lenders and then
resold. Most of these lenders have a third party asset manager who is out of
state and is affiliated with a title agency, who most likely will also be out of state.
Kentucky attorneys trying to close one of these transactions will receive deeds
and other closing documents which in almost all cases are prepared by someone
in another state and may or may not be correct.
The KBA argued in the Countrywide case that there was no way to keep nonattorneys closing a loan from resisting the urge to dispense legal advice if a legal
question arose at the closing table. The Court rejected this position on the
grounds that such activity was criminal in nature and the criminal sanctions would
be a sufficient deterrent. Most members of the legal community would agree that
criminal sanctions for the unauthorized practice of law have been ineffective.
Unless a consumer files a complaint, it is very unlikely that any action will be
taken. Consumers are going to naturally ask some questions and in most cases,
they may have no idea whether the question is legal in nature. In many cases,
they are under the mistaken assumption that the person conducting the closing is
an attorney.
III.
REAL PROPERTY TRANSACTIONS AND THE PRACTICE OF LAW
Is it possible for a non-attorney to handle a real property transaction from start to
finish without becoming engaged in the practice of law? A typical residential real
estate transaction involves reading, understanding and sometimes interpreting
the contract, examining the title, resolving title issues, drafting deeds, affidavits
and other closing documents, conducting the actual closing, explaining the
documents to the various parties, collecting and disbursing funds, and recording
and issuing a final title opinion or policy. Is it possible to segregate the "thin slice
at the end of the transaction" from the entire closing process?
Several months ago, I received a call from the PVA in Fayette County regarding
a lady whose deed had never been recorded. She had purchased a house ten
years ago from one of my clients who buys and sells a lot of property. The sale
was closed by a title company. Neither the deed nor the mortgage was ever
recorded. The lady had been making payments for ten years on a house without
a recorded deed on an unrecorded mortgage. My client was more than willing to
sign a new deed so the story did not have an unhappy ending. The mortgage
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company seemed unconcerned that their mortgage was not recorded and to my
knowledge, the lady is still making payments on an unrecorded mortgage.
Another similar story unfolded when I received a call from a man who was being
foreclosed on. The foreclosure action had stalled because according to him, the
title was "messed up." I am not a foreclosure avoidance or workout expert but I
agreed to look into it more out of curiosity than anything else. The property in
question had been purchased by a woman and her son back in the nineties. The
lady then got married but her husband died before the sale to the current owner.
The transaction had been closed by a title company with a rubber stamped
attorney's signature on the deed. The deed was from the lady and her deceased
husband with no mention of the married son's interest. The dead man apparently
signed the deed. As you can imagine, the foreclosing plaintiff's attorney was
experiencing some difficulty getting the property to sale.
Both of those transactions were handled by title companies who have long since
disappeared. There was no insurance, no bar association to complain to and no
accountability. Those are just two of the hundreds of similar stories that have
occurred since the Countrywide decision was handed down in 2003. You can
ask any closing attorney and virtually any county clerk and they all have similar
stories.
Why do Kentucky and all other states have rules and regulations regarding the
unauthorized practice of law? The simple answer is to protect the public. It is
the same logic which is used to prevent the lab technician, or the janitor for that
matter, from performing open heart surgery. It is a matter of being qualified and
competent to render the services needed in any particular circumstance. While
the rules and the definition of the "practice of law" may differ in some respects
from state to state, all jurisdictions agree on the purpose of UPL enforcement – to
protect the public against the rendition of services by unqualified persons.
Comment to Kentucky Rule of Professional Conduct SCR 3.130-5.5.
What exactly is the "Practice of Law"? The practice of law is defined by SCR
3.020 as any service "involving legal knowledge or legal advice, whether of
representation, counselor advocacy in or out of court, rendered in respect to the
rights, duties, obligations, liabilities, or business relations of one requiring the
services."
It is rarely questioned that unless one is representing his or her own interests, in
order for one to show up in a court of law and represent or defend a person, it is
necessary to be a licensed attorney. That type of legal service falls into the
"advocacy in or out of court" part of the definition of SCR 3.020, and it is a given
that non-lawyers cannot perform such services in a court of law. There is a judge
presiding over the proceedings and a non-licensed advocate would be quickly
discovered and prohibited by the judge from any further attempt at
representation.
However, the practice of law is not limited to advocacy in the court room. It also
includes any service involving legal knowledge rendered out of court in respect to
rights, duties, obligations, liabilities or business relations of the one for whom the
services are rendered. Let's examine that part of the definition in the context of a
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simple residential real estate transaction. Are there legal rights involved? The
answer is an unqualified yes. The purchase of the family home is one of the
most basic and yet important transactions in the lifetime of the average person.
It determines where a person will live, raise their family and perhaps even die. It
gives a person the right to possession of that often small piece of real estate and
confers all the rights and duties that go with the ownership of land. In today's
complicated world, home ownership often involves easements, building set back
lines, covenants and restrictions and home owners associations. If we go back to
the definition of the practice of law, all of those things fall squarely into the "rights,
duties, obligations" part of the definition.
And what about the liability part? Most residential purchases will fall somewhere
in the $100,000 to $300,000 price range. The average purchaser will borrow
anywhere between 75 percent to 100 percent of the purchase price and commit
to paying back a few hundred thousand dollars over a period of between fifteen
and thirty years. The cost of owning a home and paying a mortgage will consume
between 25 percent and 30 percent of the purchaser's lifetime earnings. Buying
a home and moving ranks third behind death and divorce as the most stressful
event in a person's life. In our parent's generation, people bought houses, lived
in them for fifteen or twenty years and paid off their mortgages. Now, the
average person will move somewhere around eleven times and roughly half of
those moves will involve a legal transaction of buying and selling real estate. The
actual closing of a real estate transaction, where a deed is passed which confers
legal rights and duties and a note is signed which creates a significant liability is
the final culmination of the entire process. A borrower will be expected to sign a
three page mortgage note and a fifteen-seventeen page mortgage document
which establish any number of duties, obligations and liabilities. Is this really
nothing more than a "point and sign" exercise? All of the preliminaries, the
showings, the negotiations, the selection of a lender, the application, the
inspection, are meaningless if the parties do not eventually get to the closing
table. It is not a process that should be "dumbed down" but is deserving of a high
degree of professionalism and accountability from those persons who are
charged with making it happen.
IV.
CLOSINGS, TITLE INSURANCE, AND THE PRACTICE OF LAW IN OTHER
STATES
There is an old adage that "all politics is local." The same is true in the real estate
title and closing practice. Despite attempts by various title service providers to
commoditize the closing process across all jurisdictions, it remains a mostly
localized endeavor. Real estate practices and procedures are unique within
every state. They can vary further within individual regions, counties and cities.
Knowledge and application of state and local laws, rules and customs is essential
to maintaining the integrity of the closing process. When local rules, customs,
and laws are not known, are not followed or are simply ignored by a non-resident
title company, or by businesses acting as title company without a participating
attorney, all practitioners are affected and more importantly, the results can be
harsh and expensive for consumers to address.
In recognition that legal knowledge and skill is undeniably required in a
transaction involving real estate, many states have enacted laws or incorporated
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rules from their state's Bar Association to address and protect the integrity of the
closing process. In 2003, at the same time the Countrywide case was before the
Kentucky Supreme Court, the Georgia Supreme Court approved UPL Advisory
Opinion No. 2003-2 issued by Georgia Bar Association's Unauthorized Practice
of Law Committee. Although the Georgia Supreme Court agreed with its Bar
Association's opinion that a lay person may not oversee the signing of
documents, close examination of the Georgia opinion and the Countrywide
decision reveals that both employ much of the same reasoning and reach similar
conclusions on many other issues. For example, the conclusion that the
preparation of legal documents such as deeds and interpretation of legal
instruments are unequivocally the practice of law can be found in both. In fact,
the opinions and conclusions in Countrywide and in the Georgia Advisory
Opinion are very much in line. Where the Georgia Opinion and Countrywide
decision diverge is that the Countrywide Court chose to divide the closing
process into different parts (i.e. "What we have been concerned with today is
merely the thin slice at the end of the real estate transaction that we refer to as
the closing." Id. at 127-128) whereas the Georgia Court tended to view the
closing "as the entire series of events through which title to the land is conveyed
from one party to another party." Georgia's Bar Association noted that "the real
estate closing is a continuous, interconnected series of events." In addressing
whether the signing of documents may be separated from that continuum, the
Georgia Supreme Court did not contest its Bar Association's conclusion that:
…those who conduct witness only closings or otherwise facilitate
the execution of deeds of conveyance on behalf of others are
engaged in the practice of law. As noted above, "conveyancing" is
deemed to be the practice of law, and the very purpose of a deed
is to effectuate a conveyance of real property. In reviewing the
foregoing opinions of the Supreme Court of Georgia, the
Committee concludes that the execution of a deed of conveyance
is so intimately interwoven with the other elements of the closing
process so as to be inseparable from the closing as a whole. It is
one of "the entire series of events through which title to the land is
conveyed from one party to another party." To view the execution
of a deed of conveyance as something separate and distinct from
the other phases of the closing process – and thus as something
other than the practice of law – would not only be forced and
artificial, it would run counter to the opinions of the Court. Such an
interpretation would mean that a non-lawyer could lawfully preside
over the execution of deeds of conveyance, yet an attorney who
allowed an unsupervised paralegal to engage in precisely the
same activity could be disbarred. An interpretation of Court
opinions that leads to such an incongruous result cannot be
proper. Rather, the view consistent with those opinions is that one
who facilitates the execution of deeds of conveyance is practicing
law.
Accordingly, the Committee concludes that, subject to any relevant exceptions
set out by the Georgia legislature or courts, one who facilitates the execution of a
deed of conveyance on behalf of another within the state of Georgia is engaged
in the practice of law. One does not become licensed to practice law simply by
10
procuring a notary seal. A Georgia lawyer who conducts a witness only closing
does not, of course, engage in the unlicensed practice of law. There may well
exist, however, professional liability or disciplinary concerns that fall outside the
scope of this opinion.
Refinance closings, second mortgages, home equity loans, construction loans
and other secured real estate loan transactions may differ in certain particulars
from purchase transactions. Nevertheless, the centerpiece of these transactions
is the conveyance of real property. Such transactions are, therefore, subject to
the same analysis as set out above.
Although Georgia chose not to slice off the "thin sliver at the end," it can be
concluded from both the Georgia Opinion and Countrywide decision that attorney
participation is necessary and required at some point in every real estate
transaction.
Georgia and Kentucky are not alone in this conclusion. Other states recognize
that navigation of laws related to real property rights, including those governing
ownership, transfer, and encumbrances of real property, require legal education
and skill, and it is in the best interest of their citizens and the state to require an
attorney to tend to those matters. Many states have, through legislation, case
law, and bar association rules, adopted laws to keep licensed attorneys an active
part of the closing process.
Georgia is joined by Alabama, South Carolina, and Delaware in requiring that the
"signing of documents" portion of the closing be either directly (in the physical
presence of) or indirectly supervised by an attorney. Like the Kentucky Court in
Countrywide, those states also specify that many other parts of the real estate
transaction require the direct involvement of an attorney licensed to practice in
the jurisdiction.
In North Carolina, like Kentucky, a non-lawyer may participate in a "point and
sign" exercise without practicing law. However, as the Georgia Opinion firmly
stated, and as the Kentucky Court alluded to in Countrywide, North Carolina
Unauthorized Practice Advisory Opinion 2002-1 makes it clear that almost all
other acts ancillary to a real estate transaction are the practice of law. North
Carolina left open a very narrow window by stating that a non-lawyer may: "(1)
present and identify the documents necessary to complete a North Carolina
residential real estate closing, direct the parties where to sign the documents,
and ensure that the parties have properly executed the documents; or (2) receive
and disburse the closing funds." However the Opinion goes on to warn:
Although these limited duties may be performed by non-lawyers,
this does not mean that the non-lawyer is handling the closing.
Since, as described in issue 1 above, the closing is a collection of
services, most of which involve the practice of law, a lawyer must
provide the necessary legal services. And, since N.C. Gen. Stat.
§84‑5 prohibits non-lawyers from arranging for or providing the
lawyer or any legal services, non-lawyers may not advertise or
represent to lenders, buyers/borrowers, or others in any manner
that suggests that the non-lawyer will (i) handle the "closing;" (ii)
11
provide the legal services associated with a closing, such as
providing title searches, title opinions, document preparation, or
the services of a lawyer for the closing; or (iii) "represent" any
party to the closing. The lawyer must be selected by the party for
whom the legal services will be provided.
Research of unauthorized practice of law in real estate transactions in North
Carolina reveals that North Carolina practitioners collectively and in cooperation
with their Bar Association are vigilant, through cease and desist notices and by
initiating civil and criminal prosecutions, in the strict monitoring of and
enforcement against non-lawyer closing service providers. The North Carolina
Opinion should be read and carefully considered by Kentucky practitioners and
their Bar Association. It clearly defines what is and is not the practice of law and
provides a sound explanation that it is not intended to protect the legal
community but to protect consumers. The opinion states:
Notwithstanding this opinion, evidence considered by the State
Bar with respect to this advisory opinion indicates that, at the time
documents are presented to the parties for execution, a lawyer
who is present may identify or be asked about important issues
affecting the legal rights or obligations of the parties. A lawyer may
provide important legal guidance about such issues, but a nonlawyer is not permitted to do so. Moreover, a consumer's retention
of a licensed North Carolina lawyer provides financial protection to
the consumer. The North Carolina Rules of Professional Conduct
require a lawyer to properly handle all fiduciary funds, including
residential real estate closing proceeds. In the event a lawyer
mishandles the closing proceeds, the lawyer is subject to
professional discipline, and the State Bar Client Security Fund
may provide financial assistance for a person injured by the
lawyer's improper application of funds. On the whole, the evidence
considered by the State Bar indicates that it is in the best interest
of a consumer to be represented by a lawyer with respect to all
aspects of a residential real estate transaction.
Like Kentucky and North Carolina, other states do not necessarily require the
physical presence or other direct supervision by an attorney to witness the
signing of documents at a closing, However, statutes in those states are clear
that it is impossible for the parties to sit at the closing table without having
engaged the services of a licensed attorney. For example, Statutes in Louisiana
and West Virginia require evidence that a licensed attorney has reviewed and
confirmed the status of the title before title insurance may be issued.
Louisiana Revised statutes Chapter 22, Section 513.1. (Title insurance,
identification of examining attorney and title producer) provides the following:
A. Every sale, conveyance, transfer, or other act transferring an
interest in or ownership in a one-to-four family residential property
that is insured by an owners title policy and every mortgage
encumbering such immovable property that is insured by a loan
12
title insurance policy shall contain all of the following identifying
information:
(1)
The name, address and Louisiana license number of the
issuing title insurance producer.
(2)
The name of the title insurance underwriter issuing the
policy.
(3)
The name and bar roll number of the attorney licensed to
practice law in Louisiana who provided the title opinion
upon which the title insurance policy is based.
B. Prior to recordation, the title insurance producer shall verify
that the identifying information required by Subsection A of this
section is concluded within the document. The information may be
typed or stamped on the document or included on a separate form
attached to the document.
C. The inclusion of the information on the recorded document or
attachment shall not create additional liability for those named
therein nor shall it create a separate cause of action against the
title insurance producer, title insurance underwriter, lender or
examining attorney.
D. Failure to include the information required by this Section on
any document or act shall not nullify or otherwise affect the validity
of the document or act.
The relevant portion of West Virginia's statute can be found in WV Code Chapter
33-11A-11(c):
No title insurance shall be issued until the title insurance company
has obtained a title opinion of an attorney licensed to practice law
in West Virginia, which attorney is not an employee, agent or
owner of the insured bank or its affiliates. Said attorney shall have
conducted or cause to have conducted under the attorney's direct
supervision a reasonable examination of the title.
Finally, Connecticut's lawmakers and its Department of Insurance determined in
the early 1980s that title insurance was such a specialized insurance product,
requiring particular legal knowledge and skill to administer, that only licensed
attorneys should be allowed to obtain a license to issue title insurance policies.
(Although non-attorneys who obtained licensing before enactment of the statute
were "grandfathered" in and allowed to continue to issue policies.) Chapter 700a,
Section 38a-402(13) of Connecticut's statutes defines "title agents" as follows:
"Title agent" or "agent" means any person authorized in writing by
a title insurer to (A) solicit title insurance business, (B) collect
premiums, (C) determine the insurability of a risk in accordance
with underwriting rules and standards prescribed by the title
13
insurer or (D) issue policies of the title insurer. Title agent does not
include officers or employees of a title insurer. No person may act
as a title agent unless he is a commissioner of the Superior Court
in good standing, except any individual who held a valid title
insurance license on or before June 12, 1984.
V.
CLOSINGS, TITLE INSURANCE, AND THE PRACTICE OF LAW IN
KENTUCKY.
For the last decade, the small opening created by the Court in Countrywide has
been stretched to its max. Perhaps it is because the Kentucky Supreme Court
very narrowly defined and compartmentalized "the closing" while most
practitioners viewed the entire transaction as "the closing," that upon learning
that non-attorneys could "perform closings," real estate attorneys threw up their
hands and watched the proliferation of non-attorneys pushing the envelope in
real estate transactions. In the ten years following Countrywide there was little to
no action by law makers, the Bar Association or Kentucky Appellate Courts
addressing matters related to title insurance, closings and the unauthorized
practice of law. Recently, however, title insurance underwriters and the
Department of Insurance have begun a campaign to enact legislation to require
licensing of "title agents" in Kentucky. This recent activity has resulted in many in
the real estate community taking a second, or in some instances a first look at
the Countrywide decision and how it might affect efforts to legislatively re-define
the role of attorneys in real estate transactions.
A bill was filed, then pulled, in the 2015 Kentucky legislative session that would
have added "Title Insurance Licensing" to our statutes. As of the time of this
writing, a new version of that bill is currently awaiting its fate in the 2016
legislative session.
Both the 2015 legislation and an early draft of the 2016 bill contained provisions
defining a "title insurance agent" as one who:
1)
Determines insurability and issues title insurance reports or
policies, or both, based upon the performance or review of
a search or an abstract of title;
2)
Collects or disburses premiums, escrow or security
deposits, or other funds;
3)
Handles escrow, settlements or closings;
4)
Records Closing documents.
The above actions by which a title agent would be defined under the proposed
Kentucky legislation can also be found in the Real Estate Settlement Procedures
Act (RESPA), a federal act designed to protect homeowners in the course of
buying, selling and financing real property. The actions represent some of what
the drafters of RESPA considered to be the "core services" provided by a title
agent. According to RESPA the "core services," at their minimum, include:
14
1)
Evaluation of the title search to determine insurability;
2)
Clearance of the underwriting objections;
3)
Issuance of the title commitment;
4)
Issuance of the title policy; and
5)
Where customary in the local marketplace, performance of the closing.
HUD, the CFPB and other government agencies analyze the operations of title
agents and title companies using the presence or lack of presence of these core
services to separate "sham" title companies, set up merely as premium collecting
controlled businesses, from legitimate closing operations. In other words, those
enforcing RESPA rules look at whether a title agent, in the course of its business
does more than collect and distribute premiums. They look at whether the agent
participated in the examination of title, the clearing of title matters, the
preparation of documents for the closing, the signing of documents at closing, the
disbursement of funds in conjunction with the closing statement, and the
recording of deeds and mortgages in order to determine the legitimacy of the
agent.
In the course of finalizing the language of the proposed Kentucky legislation,
interested parties debated whether a title agent must be licensed if they perform
any one of the "core title services" outlined in the bill or a title agent must perform
all of the "core title services" in order to be licensed. Most closing practitioners,
knowing RESPA's requirements, tended to agree that if licensing is to be
required for title agents then those who are licensed should prove that they
perform all of the "core services" in this course of their duties. However, there
was push back from others who argued that issuing policies and distributing
premiums alone was enough to become a title agent. Ultimately, the issue was
never debated by the legislature as the 2015 legislation was pulled and the "core
services" language was stripped from the bill that was filed in the 2016 legislative
session.
A second matter debated in the drafting of the 2016 legislation was whether, in
order to be licensed, one must have a physical presence in Kentucky, the so
called "brick and mortar" provision. It was argued by practitioners that far too
many of the title issues they encountered over the years which led to closing
delays and cancellations were the result of a prior transaction on the property
handled by an out of state title company that failed at some stage of the closing
transaction to comply with Kentucky practice. Unwitting property owners had little
or no recourse against those out of state title companies and were forced to hire
counsel to take corrective action so that they could sell their property.
Accordingly, for purposes of accountability, and reducing the number of
consumers who found themselves on the bad end of poor practice by out of state
title companies, Kentucky practitioners promoted the idea that licensing statutes
should require that the licensee be a resident of Kentucky or have a physical
office in Kentucky.
15
Ultimately, the brick and mortar provision was removed from the bill presented in
the House in 2016, leaving out of state applicants free to apply for an agent
license in Kentucky without any personal or physical Kentucky presence.
Likewise, the question of whether one must perform one or all of the "core
services" in order to become a title agent, was also left unanswered by the 2016
bill. Instead, the 2016 bill (HB 335), as of the submission of this outline, defines a
title agent as: "a person who has the authority to: (a) Place title insurance
commitments or title insurance on behalf of a title insurer; or (b) countersign title
insurance commitments or title insurance on behalf of the title insurer."
Although some would argue that one should have knowledge of Kentucky real
estate law and real estate practice in order become a title insurance agent, this
simplified definition of an agent allows that if one can sign their name on a title
commitment or policy, then one can be a title insurance agent. By defining a title
agent as one who "issues or signs" title commitments, arguably the legislation
could codify the unauthorized practice of law. Recall that the Supreme Court in
Countrywide stated the following:
We do not deny that there are some portions of the residential real
estate transaction that do constitute the practice of law, i.e., the
title commitment letter [Emphasis Added] and the preparation of
deeds and mortgages, but this case has not asked us to deal with
those matters attendant to the real estate closing itself. What we
have been concerned with today is merely the thin slice at the end
of the real estate transaction that we refer to as the closing. (Id. at
127-128)
While the Kentucky Supreme Court concluded that a non-attorney could serve as
a "point and sign" witness to the execution of documents, the Court also clearly
recognized, as evidenced in the above quote, that in order to get to the "pointing
and signing," other work, much of it legal work, had to take place. Among other
things, the legal work included the examination and interpretation of the
documents in the title records, with an eye for their legal sufficiency and effect.
Where title insurance is involved, the document produced from this legal labor is
the title commitment. After the commitment is issued, in order to advance the
closing transaction, a deed must be prepared and reviewed. For a purchase with
financing a mortgage must also be prepared and reviewed for legal sufficiency.
The Court in Countrywide was clear that many parts of the real estate transaction
are in fact the practice of law. By limiting the scope of its decision and its
definition of "the closing" to witnessing the execution of documents, it seems that
the Court was inviting the Bar Association to re-write U-58 and expand upon U31 to clearly state that "while 'pointing and signing' are acceptable, the following
actions are not." Perhaps the Court envisioned a more thorough statement by the
Kentucky Bar Association, like that of North Carolina, and more vigilant
enforcement, also like North Carolina. In any event, legislation that provides a
mechanism for non-attorneys to perform certain acts and functions related to real
estate transactions should be carefully scrutinized in light of Countrywide to be
certain that the legislation does not codify the unauthorized practice of law.
16
In conclusion, Kentucky has done little since the Countrywide decision was
published to ensure non-lawyer title company agents, employees or contracted
"mobile notaries" comply with the strict "point and sign" limitations imposed upon
them. Conclusory statements made by the Court in Countrywide affirming certain
acts to be the practice of law have been ignored, while matters that the court left
open for another day have not yet seen that day. The Court in Countrywide
recognized, like most other jurisdictions, that at some point in nearly every real
estate transaction, law is practiced in order to have a closing. To those who
practice real estate law this conclusion is inescapable. As lawyers, we are bound
to protect the integrity of the property rights of our clients and to be certain that
laws regarding property rights are adhered to. Some states such as Georgia,
have firmly concluded that the entirety of the real estate transaction is too
intertwined to separate the legal work from the non-legal work and therefore
require attorney supervision over the entire process. Others, Kentucky included,
have chosen to compartmentalize the process. With the growth of the title
insurance industry and real estate closings as a whole, it is in the best interest of
attorneys and, more importantly, in the best interest of the public to protect the
integrity and reliability of our system of real estate ownership rights and
responsibilities. Therefore, we should be vigilant in making sure the law is
followed by non-attorneys in the closing business. Finally, attorneys who practice
in the area of real estate should communicate and be actively involved when
legislation is presented that might be harmful to the rights and responsibilities of
property owners in our state.
17
18
UPL ADVISORY OPINION NO. 2003-2
STATE BAR PROGRAMS / PART XIV – RULES GOVERNING THE INVESTIGATION
AND PROSECUTION OF THE UNLICENSED PRACTICE OF LAW /
UNLICENSED PRACTICE OF LAW ADVISORY OPINIONS /
UPL ADVISORY OPINION NO. 2003-2
Issued by the Standing Committee on the Unlicensed Practice of Law on April 22, 2003.
Approved by the Supreme Court of Georgia on November 10, 2003.
In re UPL Advisory Opinion 2003-2, 277 Ga. 472 (2003).
Reprinted from https://www.gabar.org/barrules/handbookdetail.cfm?what=rule&id=542
QUESTION PRESENTED
Is the preparation and execution of a deed of conveyance (including, but not limited to, a
warranty deed, limited warranty deed, quitclaim deed, security deed, and deed to secure
debt) considered the unlicensed practice of law if someone other than a duly licensed
Georgia attorney prepares or facilitates the execution of said deed(s) for the benefit of
the seller, borrower and lender?
SUMMARY ANSWER
Yes. Under Georgia law, the preparation of a document that serves to secure a legal
right is considered the practice of law. The execution of a deed of conveyance, because
it is an integral part of the real estate closing process, is also the practice of law. As a
general rule it would, therefore, be the unlicensed practice of law for a non-lawyer to
prepare or facilitate the execution of such deeds.
OPINION
In answering the above question, the Committee looks to the law as set out "by statute,
court rule, and case law of the State of Georgia." Bar Rule 14-2.1(a). "Conveyancing,"
"[t]he preparation of legal instruments of all kinds whereby a legal right is secured," "[t]he
rendering of opinions as to the validity or invalidity of titles to real or personal property,"
"[t]he giving of any legal advice" and "[a]ny action taken for others in any matter
connected with the law" is considered the practice of law in Georgia. O.C.G.A. §15-1950. Moreover, it is illegal for a non-lawyer "[t]o render or furnish legal services or advice."
O.C.G.A. §15-19-51.
There are certain exceptions to these statutory provisions. For example, "no bank shall
be prohibited from giving any advice to its customers in matters incidental to banks or
banking...." O.C.G.A. §15-19-52. A title insurance company "may prepare such papers
as it thinks proper or necessary in connection with a title which it proposes to insure, in
order, in its opinion, for it to be willing to insure the title, where no charge is made by it
for the papers." Id. Non-lawyers may examine records of title to real property, prepare
abstracts of title, and issue related insurance. O.C.G.A. §15-19-53. O.C.G.A. §15-19-54
allows non-lawyers to provide attorneys with paralegal and clerical services, so long as
"at all times the attorney receiving the information or services shall maintain full
professional and direct responsibility to his clients for the information and services
received."
19
In addition to the acts of the Georgia legislature, the Supreme Court of Georgia has
made it clear that the preparation of deeds constitutes the practice of law, and is to be
undertaken on behalf of another only by a duly qualified and licensed Georgia attorney.
For example, the Court has issued the Rules Governing Admission to the Practice of
Law in Georgia. Under Part E of those rules, an individual can be licensed as a "foreign
law consultant," and thereby be authorized to "render legal services and give
professional legal advice on, and only on, the law of the foreign country in which the
foreign law consultant is admitted to practice...." Since such an individual has not been
regularly admitted to the State Bar of Georgia, the Court prohibits foreign law
consultants from providing any other legal services to the public. For purposes of this
discussion, it is noteworthy that Part E, §2(b) states that a foreign law consultant may
not "prepare any deed, mortgage, assignment, discharge, lease, trust instrument, or any
other instrument affecting title to real estate located in the United States of America."
The Committee concludes that, with the limited exception of those activities expressly
permitted by the Georgia legislature or courts, the preparation of deeds of conveyance
on behalf of another within the state of Georgia by anyone other than a duly licensed
attorney constitutes the unlicensed practice of law.
The Committee turns its attention to the execution of deeds of conveyance. Pro se
handling of one's own legal affairs is, of course, entirely permissible, and there is nothing
in Georgia law to "prevent any corporation, voluntary association, or individual from
doing any act or acts set out in Code Section 15-19-50 to which the persons are a
party...." O.C.G.A. §15-19-52. The Committee instead focuses on "notary closers,"
"signing agents," and others who are not a party to the real estate closing, but
nonetheless inject themselves into the closing process and conduct, for example, a
"witness only closing." A "witness only closing" is one in which an individual presides
over the execution of deeds of conveyance and other closing documents, but purports to
do so merely as a witness and notary, not as someone who is practicing law.
The Supreme Court of Georgia periodically issues advisory opinions relating to attorney
conduct. Under Court rule, such opinions have "the same precedential authority given to
the regularly published judicial opinions of the Court." Bar Rule 4-403(e). It would be
proper, then, for the Committee to turn to any relevant advisory opinions for guidance.
In Formal Advisory Opinion 86-5, the Supreme Court of Georgia interpreted the word
"conveyancing" as set out in O.C.G.A. §15-19-50, and considered what the term meant
in relation to the closing of a real estate transaction. The Court viewed a real estate
closing "as the entire series of events through which title to the land is conveyed from
one party to another party...." That being the case, the Court concluded "it would be
ethically improper for a lawyer to aid non-lawyers to 'close' real estate transactions," or
for a lawyer to "delegate to a non-lawyer the responsibility to 'close' the real estate
transaction without the participation of an attorney."
In Formal Advisory Opinion 00-3, the Court restated its view that the real estate closing
is a continuous, interconnected series of events. The Court made it clear that, in order
for an attorney to avoid possible disciplinary sanctions for aiding a non-lawyer in the
unauthorized practice of law, "[t]he lawyer must be in control of the closing process from
beginning to end. The supervision of the paralegal must be direct and constant." The
Court held that "[e]ven though the paralegal may state that they are not a lawyer and is
not there for the purpose of giving legal advice, circumstances may arise where one
20
involved in this process as a purchaser, seller or lender would look to the paralegal for
advice and/or explanations normally provided by a lawyer. This is not permissible." A
lawyer who aids a non-lawyer in the unauthorized practice of law can be disbarred.
Georgia Rule of Professional Conduct 5.5.
The Committee finds that those who conduct witness only closings or otherwise facilitate
the execution of deeds of conveyance on behalf of others are engaged in the practice of
law. As noted above, "conveyancing" is deemed to be the practice of law, and the very
purpose of a deed is to effectuate a conveyance of real property. In reviewing the
foregoing opinions of the Supreme Court of Georgia, the Committee concludes that the
execution of a deed of conveyance is so intimately interwoven with the other elements of
the closing process so as to be inseparable from the closing as a whole. It is one of "the
entire series of events through which title to the land is conveyed from one party to
another party." To view the execution of a deed of conveyance as something separate
and distinct from the other phases of the closing process – and thus as something other
than the practice of law – would not only be forced and artificial, it would run counter to
the opinions of the Court. Such an interpretation would mean that a non-lawyer could
lawfully preside over the execution of deeds of conveyance, yet an attorney who allowed
an unsupervised paralegal to engage in precisely the same activity could be disbarred.
An interpretation of Court opinions that leads to such an incongruous result cannot be
proper. Rather, the view consistent with those opinions is that one who facilitates the
execution of deeds of conveyance is practicing law.
Accordingly, the Committee concludes that, subject to any relevant exceptions set out by
the Georgia legislature or courts, one who facilitates the execution of a deed of
conveyance on behalf of another within the state of Georgia is engaged in the practice of
law. One does not become licensed to practice law simply by procuring a notary seal. A
Georgia lawyer who conducts a witness only closing does not, of course, engage in the
unlicensed practice of law. There may well exist, however, professional liability or
disciplinary concerns that fall outside the scope of this opinion.
Refinance closings, second mortgages, home equity loans, construction loans and other
secured real estate loan transactions may differ in certain particulars from purchase
transactions. Nevertheless, the centerpiece of these transactions is the conveyance of
real property. Such transactions are, therefore, subject to the same analysis as set out
above.
21
22
AUTHORIZED PRACTICE ADVISORY OPINION 2002-1
JANUARY 24, 2003
REVISED JANUARY 26, 2012
ON THE ROLE OF LAYPERSONS IN THE CONSUMMATION OF
RESIDENTIAL REAL ESTATE TRANSACTIONS
The North Carolina State Bar has been requested to interpret the North Carolina
unauthorized practice of law statutes (N.C. Gen. Stat. §§84-2.1 to 84-5) as they apply to
residential real estate transactions. The State Bar issues the following authorized
practice of law advisory opinion pursuant to N.C. Gen. Stat. §84-37(f) after careful
consideration and investigation. This opinion supersedes any prior opinions and
decisions of any standing committee of the State Bar interpreting the unauthorized
practice of law statutes to the extent those opinions and decisions are inconsistent with
the conclusions expressed herein. As a result of its review of the activities of more than
fifty non-lawyer service providers since the adoption of this opinion on January 24, 2003,
including injunctions issued against two companies, the Committee is clarifying the
opinion concerning issues that it has addressed since adoption of the opinion.
ISSUE 1:
May a non-lawyer handle a residential real estate closing for one or more of the parties
to the transaction?
OPINION 1:
No. Residential real estate transactions typically involve several phases, including the
following: reviewing the purchase agreement for any conditions that must be met before
closing; abstracting titles; providing an opinion on title; applying for title insurance
policies, including title insurance policies that may require tailored coverage to protect
the interests of the lender, the owner, or both 1; preparing legal documents, such as
deeds (in the case of a purchase transaction), deeds of trust, and lien waivers or
affidavits; interpreting and explaining documents implicating parties' legal rights,
obligations, and options; resolving possible clouds on title and issues concerning the
legal rights of parties to the transaction; overseeing execution and acknowledgement of
documents in compliance with legal mandates; handling the recordation and cancellation
of documents in accordance with North Carolina law; disbursing proceeds when legally
permitted after legally-recognized funds are available and all closing conditions have
been satisfied; and providing a post-closing final opinion of title for title insurance after all
prior liens have been satisfied. These and other functions are sometimes called,
collectively, the "closing" of the residential real estate transaction. As detailed below, the
1
By statute, title insurance in North Carolina can be issued only after the title insurance company
has received an opinion of title from a licensed North Carolina attorney who is not an employee or
agent of the company and who "has conducted or caused to be conducted under the attorney's
direct supervision a reasonable examination of the title." N.C. Gen. Stat. §58-26‑1.
23
North Carolina General Assembly has determined specifically that only persons who are
licensed to practice law in this state may handle most of these functions. 2
A person who is not licensed to practice law in North Carolina and is not working under
the direct supervision of an active member of the State Bar may not perform functions or
services that constitute the practice of law. 3 Under the express language of N.C. Gen.
Stat. §§84‑2.1 and 84‑4, a non-lawyer who is not working under the direct supervision
of an active member of the State Bar would be engaged in the unauthorized practice of
law if he or she performs any of the following functions for one or more of the parties to a
residential real estate transaction: (i) preparing or aiding in preparation of deeds, deeds
of trust, lien waivers or affidavits, or other legal documents; (ii) abstracting or passing
upon titles; or (iii) advising or giving an opinion upon the legal rights or obligations of any
person, firm, or corporation. Under the express language of N.C. Gen. Stat. §84‑4, it is
unlawful for any person other than an active member of the State Bar to hold himself or
herself out as competent or qualified to give legal advice or counsel or as furnishing any
services that constitute the practice of law. Additionally, under N.C. Gen. Stat. §84‑5, a
business entity, including a corporation or limited liability company, may not provide or
offer to provide legal services or the services of attorneys to its customers even if the
services are performed by licensed attorneys employed by the entity. See, Duke Power
Co. v. Daniels, 358 S.E.2d 87 (N.C. App. 1987); Gardner v. North Carolina State Bar,
341 S.E.2d 517 (N.C. 1986), and State ex rel. Seawell v. Carolina Motor Club, Inc., 184
S.E. 540 (N.C. 1936).
Accordingly, a non-lawyer is engaged in the unauthorized practice of law if he or she
performs any of the following functions in connection with a residential real estate
closing (identified only as examples):
1.
Abstracts or provides an opinion on title to real property;
2.
Explains the legal status of title to real estate, the legal effect of anything found in
the chain of title, or the legal effect of an item reported as an exception in a title
insurance commitment except as necessary to underwrite a policy of insurance
and except that a licensed title insurer, agency, or agent may explain an
underwriting decision to an insured or prospective insured, including providing
the reason for such decision;
3.
Explains or gives advice or counsel about the rights or responsibilities of parties
concerning matters disclosed by a land survey under circumstances that require
the exercise of legal judgment or that have implications with respect to a party's
legal rights or obligations;
2
Except as permitted under State v. Pledger, 127 S.E.2d 337 (N.C. 1962), which allows a party
having a "primary interest" in a transaction to prepare deeds of trust and other documents to
effectuate the transaction.
3
The State Bar notes that the North Carolina General Assembly and Supreme Court are the
entities that have the power to make the ultimate determination whether an activity constitutes the
practice of law.
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4.
Provides a legal opinion, advice, or counsel in response to inquiries by any of the
parties regarding legal rights or obligations of any person, firm, or corporation,
including but not limited to the rights and obligations created by the purchase
agreement, a promissory note, the effect of a pre-payment penalty, the rights of
parties under a right of rescission, and the rights of a lender under a deed of
trust;
5.
Advises, counsels, or instructs a party to the transaction with respect to
alternative ways for taking title to the property or the legal consequences of
taking title in a particular manner;
6.
Drafts a legal document for a party to the transaction or assists a party in the
completion of a legal document, or selects or assists a party in selecting a form
legal document among several forms having different legal implications;
7.
Explains or recommends a course of action to a party to the transaction under
circumstances that require the exercise of legal judgment or that have
implications with respect to the party's legal rights or obligations;
8.
Attempts to settle or resolve a dispute between the parties to the transaction that
will have implications with respect to their respective legal rights or obligations;
9.
Determines that all conditions of the purchase agreement or the loan closing
instructions have been satisfied in accordance with the buyer's or the lender's
interests or instructions;
10
Determines that the deed and deed of trust may be recorded after an update of
title for any intervening conveyances or liens since the preliminary opinion;
11.
Determines that the funds may be legally disbursed pursuant to the North
Carolina Good Funds Settlement Act, N.C. Gen. Stat. §45A-1 et seq. 4
The foregoing list of examples of functions that constitute the practice of law is not
exclusive, but reflects a range of responsibilities and duties that involve the following:
the exercise of legal judgment; the preparation of legal documents such as deeds, deeds
of trust, and title opinions; the explanation or interpretation of legal documents in
circumstances that require the exercise of legal judgment; the provision of legal advice
or opinions; and the performance of other services that constitute the practice of law.
4
Since the original adoption of this opinion, the Committee has reviewed numerous complaints
concerning non-lawyers, many of whom hold out to the closing parties that they will conduct
"closings," including disbursement of funds, at any time of day, including after normal business
hours. However, under the Good Funds Settlement Act, N.C. Gen. Stat. §45A‑4, funds may not
be disbursed until the deed and deed of trust (if any) have been recorded, which in most counties
requires physical delivery to the Register of Deeds during normal business hours. Accordingly,
while execution of the documents may be conducted at any time, the actual "closing" and
disbursement of funds may not occur until after the required documents are recorded.
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ISSUE 2:
May a non-lawyer who is not acting under the supervision of a lawyer licensed in North
Carolina (1) present and identify the documents necessary to complete a North Carolina
residential real estate closing, direct the parties where to sign the documents, and
ensure that the parties have properly executed the documents; and (2) receive and
disburse the closing funds?
OPINION 2:
Yes. So long as a non-lawyer does not engage in any of the activities referenced in
Opinion 1, or in other activities that likewise constitute the practice of law, a non-lawyer
may: (1) present and identify the documents necessary to complete a North Carolina
residential real estate closing, direct the parties where to sign the documents, and
ensure that the parties have properly executed the documents; or (2) receive and
disburse the closing funds.
Although these limited duties may be performed by non-lawyers, this does not mean that
the non-lawyer is handling the closing. Since, as described in Issue 1 above, the closing
is a collection of services, most of which involve the practice of law, a lawyer must
provide the necessary legal services. 5 And, since N.C. Gen. Stat. §84‑5 prohibits nonlawyers from arranging for or providing the lawyer or any legal services, non-lawyers
may not advertise or represent to lenders, buyers/borrowers, or others in any manner
that suggests that the non-lawyer will (i) handle the "closing;" (ii) provide the legal
services associated with a closing, such as providing title searches, title opinions,
document preparation, or the services of a lawyer for the closing; or (iii) "represent" any
party to the closing. 6 The lawyer must be selected by the party for whom the legal
services will be provided.
Notwithstanding this opinion, evidence considered by the State Bar with respect to this
advisory opinion indicates that, at the time documents are presented to the parties for
execution, a lawyer who is present may identify or be asked about important issues
affecting the legal rights or obligations of the parties. A lawyer may provide important
legal guidance about such issues, but a non-lawyer is not permitted to do so. Moreover,
a consumer's retention of a licensed North Carolina lawyer provides financial protection
to the consumer. The North Carolina Rules of Professional Conduct require a lawyer to
properly handle all fiduciary funds, including residential real estate closing proceeds. In
5
Except as permitted under State v. Pledger, supra, or by an individual pro se.
6
Almost without exception, these non-lawyer service providers are corporations or limited liability
companies that market their services to lenders, not consumers. Most are also title insurance
agents. Accordingly, lenders commonly inform borrowers that the non-lawyer will be conducting
the closing without any meaningful opportunity for the borrower to decide to retain a lawyer to
protect its interests. Additionally, when the non-lawyer is a title insurance agent, the borrower
usually is given no choice on insurer or available rates. The Committee expresses no opinion
whether these actions may violate N.C. Gen. Stat. §75‑17, which prohibits a lender from requiring
its borrower to obtain a policy of title insurance from a particular insurance company, agent,
broker or other person specified by the lender. Title companies (and other parties) may refer
lenders or borrowers to attorneys at their customer's request, but may not require the use of a
specific attorney or charge a fee for any such referral.
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the event a lawyer mishandles the closing proceeds, the lawyer is subject to professional
discipline, and the State Bar Client Security Fund may provide financial assistance for a
person injured by the lawyer's improper application of funds. On the whole, the evidence
considered by the State Bar indicates that it is in the best interest of a consumer to be
represented by a lawyer with respect to all aspects of a residential real estate
transaction.
The evidence the State Bar has considered suggests, however, that performing
administrative or ministerial activities in connection with the execution of residential real
estate closing documents and the receipt and disbursement of the closing proceeds
does not necessarily require the exercise of legal judgment or the giving of legal advice
or opinions. Indeed, the execution of closing documents and the disbursement of closing
proceeds may be accomplished – and often have been accomplished – by mail, by
email, or by other electronic means, or by some other procedure that would not involve
the lawyer and the parties being physically present at one place and time. The State Bar
therefore concludes that it should not be presumed that performing the task of
overseeing the execution of residential real estate closing documents and receiving and
disbursing closing proceeds necessarily involves giving legal advice or opinions or
otherwise engaging in activities that constitute the practice of law.
Non lawyers who undertake such responsibilities, and those who retain their services,
should also be aware that (1) the North Carolina State Bar retains oversight authority
concerning complaints about activities that constitute the unauthorized practice of law;
(2) the North Carolina criminal justice system may prosecute instances of the
unauthorized practice of law; and (3) that N.C. Gen. Stat. §84‑10 provides a private
cause of action to recover damages and attorneys' fees to any person who is damaged
by the unauthorized practice of law against both the person who engages in
unauthorized practice and anyone who knowingly aids and abets such person. In
addition, non-lawyers and consumers should bear in mind that other governmental
authorities such as the Federal Trade Commission, the North Carolina Attorney General,
district attorneys, and the banking commissioner, have jurisdiction over unfair trade
practices and violations of requirements regarding lending practices.
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