The Legal Description was on the scene at the final standoff between North Carolina attorneys and non-attorneys at an N.C State Bar ad hoc committee’s hearing on real estate closings on September 13. At issue was whether a real estate closing in the state conducted without an attorney present on behalf of a party, or whether an attorney delegating some closing duties to a layperson, constitutes unauthorized practice of law (UPL) on the part of lay participants.

Non-attorney real estate closings have been the subject of contentious debate in North Carolina since December 2001 when the Federal Trade Commission (FTC) and the Department of Justice (DOJ) sent a letter to the State Bar asking it to reconsider its Formal Ethics Opinions 2001-4 and 2001-8, which state that an attorney – and not merely lay people, such as notaries, title examiners or other advisers – must handle residential real estate closings. The ad hoc committee was formed this spring to facilitate discussion and issue new proposed ethics opinions for review by the bar council.

Historically, state statutes define the practice of law and changes have been made at the legislative level. The dispute in North Carolina has attracted extra attention because it was among the first times the FTC became involved in UPL issues.

Setting the committee hearing’s tone was Raleigh-based attorney, Sally Scherer. “We’re here today to discuss the issue of allowing non-attorneys to close residential transactions. I’m aghast it’s an issue at all,” Scherer began.

Scherer, who mainly deals with family law, went on to say that she is wary of non-attorneys whose bottom line may be to make a profit, rather than looking to his or her customers’ best interest. “The law is a profession, not a business. As a family law attorney, I am expected to be with my clients in court when there is a custody battle, so why shouldn’t there be a real estate lawyer with his or her clients in a closing? I see no rational justification for changing the present guidelines and I implore the bar to keep them as they are.”

Looking out for the consumer or looking out for No. 1?

“If it ain’t broke, don’t fix it,” one attorney commented on the proposed formal ethics opinions and the possibility of non-attorneys entering the market. His view seemed to square with the majority of the attorneys attending the hearing as well.

“I have difficulty thinking that a consumer would sign the closing documents without engaging in some sort of conversation and asking questions,” said Judith Wegner, professor of property law at University of North Carolina’s School of Law, during her testimony before the committee. “And that is where the non-attorney might face a gray area that could be construed as offering legal advice and thus, engaging in unauthorized practice of law.”

But Bill Cotter, CEO of Media, Pa.-based Title Alliance, who spoke on behalf of the Real Estate Service Providers Council, Inc. (RESPRO), had a different take. “I am not an attorney, yet I have closed hundreds of transactions starting at the age of seventeen,” he told the committee. “I do not, nor would not, advise a homebuyer as to how he or she should take title, any more than I would advise what mortgage may be best for them nor what home to buy. That is not within my realm of competency. Even if there were no laws against it, which there are, I would not do it because it is not wise to do.”

Pennsylvania allows laypeople at duly authorized title agencies to abstract and examine titles and create a commitment to insure and to close the title. Title agencies may also prepare documents, such as the deed and mortgage, as long as those documents are critical to the closing. “That has been the established practice for over fifty years,” Cotter said. “Title has transferred successfully for that long, and the consumer has found the experience generally to be smooth, quick and efficient, as well as reasonably priced. The line has been well established for many years, and nobody crosses that line,” he said.

Commenting on the numerous predatory lending cases the FTC uncovers each year, Jerry Ellig, deputy director in the FTC’s Office of Policy Planning, said “Because so many deceptive practices happen in the homebuying process before the closing, having a lawyer present isn’t going to change that. Lawyers can engage in deceptive practices as well,” he said.

The cost issue

Along with consumer protection, cost of title insurance was also a hot topic discussed at the hearing. “North Carolina has the lowest attorney fees and title insurance costs in the country,” Wegner said, citing some research she had done on HUD’s website and various title insurance websites. Her findings indicated that title insurance in N.C. was about $250 less that title insurance in Virginia. “Of course, there are a variety of factors involved in this price, but there was clearly a difference. If these proposed Ethics Opinions are adopted, I believe closing costs will rise substantially.”

Speaking on behalf of the Title/Appraisal Vendor Management Association (TAVMA), Tom Lammert, general counsel with Pittsburgh-based National Real Estate Information Services, countered that opening up the market for settlement services would result in price competition through increased providers, as well as more choices for consumers as to how, when, and where settlement services can be provided. Lammert also argued that the cost of title insurance is irrelevant to the cost of settlement services because the rates are regulated by state departments of insurance.

But Mann disagreed. “Any knowledgeable title agent knows that title rates are certain to change at some point in order to make more money.”

Comments requested and a vote forthcoming

After all of the testimony was heard, committee members met in private to discuss the testimony. When they returned, they announced that revisions had been made to the proposed opinions based on the testimony heard.

The proposed revisions re-emphasize that an attorney must handle a real estate closing, but that certain tasks may be “delegated” to non-lawyers. Specifically mentioned are presenting and identifying the documents necessary to close; directing the parties where to sign the documents; ensuring that the parties have properly executed the documents; and receiving and disbursing the closing funds.

The Bar is currently taking comments on the proposed opinions until the council meets again on January 24, when that body will vote on whether to adopt the proposed opinions.

The Legal Description has written a series of articles on UPL issues in North Carolina as well as other states. To obtain copies of these articles, subscribers may go to TheLegalDescription.com and search under the term “UPL.”

Published: November 19, 2002

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