An effort to allow non-lawyers to perform real estate closings could benefit companies like Colonial Title & Escrow in Foxboro, which was the target of a lawsuit brought by the Massachusetts Conveyancers Association and seven other bar associations for its involvement in title searches.
A Pennsylvania-based group that represents title insurance and appraisal companies is challenging the longtime practice of requiring lawyers to perform real estate closings in Massachusetts.
The nonprofit trade group, which is behind an effort to allow non-lawyers to perform closings in North Carolina, argues that requiring lawyers at closings unnecessarily increases settlement costs and blocks other companies from competing with lawyers. The Title/Appraisal Vendor Management Association, or TAVMA, said last week it has retained legal counsel to look into the issue in Massachusetts.
“We have engaged a consultant to review various options which we have available, one of which may be a change in legislation,” acknowledged TAVMA President Ed Krug.
TAVMA does not believe attorneys are necessary at closings, said Krug. The group believes that it should be up to the consumers to decide whether to retain legal counsel during the real estate closing, he said.
Only a handful of states, including Massachusetts, currently require lawyers to perform closings for home purchases and mortgage refinancings. Some engage in the practice more by custom and tradition than because a law mandates it, and the majority of states have no such requirements, according to Krug.
Krug said most closings are “fairly mundane” with no legal issues arising. Critics contend that rules requiring an attorney’s presence are a thinly veiled attempt to prevent competition by making it tough for homebuyers and homeowners to use Internet mortgage firms or select lower-priced paralegals and service companies to oversee closings. Some estimate that having lawyers involved adds hundreds of dollars in costs to the closing process.
In Massachusetts, however, there is a “practice of law” statute, and at least two court decisions backing up the claim that real estate conveyancing – creating, transferring or terminating an interest in real property – falls under that “practice of law” statute. Since conveyancing is considered “practice of law” in Massachusetts, only lawyers are permitted to perform closings, and only staff supervised by attorneys can perform certain functions during a real estate transaction.
Real estate attorneys contend they are an integral part of the closing process because legal issues – including questions about title in home purchases, and in refinancings questions about loan terms – can arise that only a lawyer would be qualified to address. Furthermore, they say conveyancing is a practice of law because a person must render an opinion or advice on issues like mortgage contingency clauses, zoning and land-use issues, and mortgage terms.
“Real estate closings by their very nature involve property rights. These are some of the most important rights that individuals have,” said Bruce Fitzsimmons, an Arlington attorney.
Fitzsimmons said homebuyers and homeowners are only protecting themselves by hiring licensed attorneys to oversee such transactions. Even what might appear to be a straightforward matter can turn out to spark further questions, he said. As an example, Fitzsimmons pointed out that the issue of holding title might seem fairly straightforward, but how homeowners choose to hold title can affect their estate planning.
“We’re concerned unrepresented parties may make decisions that will not be in their best interest,” said Fitzsimmons, who chairs the national affairs and title insurance committee of the Massachusetts Conveyancers Association.
“Obviously it’s a dumbing down of the process,” said real estate lawyer William DiMento, referring to efforts to remove attorneys from the closing process. “The reason why there’s so much litigation in these states [where attorneys don’t perform closings] is because they’re so casual about the process.”
Battle for ‘Control’
Several months ago, TAVMA leaders met with Federal Trade Commission officials to complain about common practices in Delaware, North Carolina, South Carolina, Georgia and Massachusetts – states where non-lawyers are essentially prohibited from performing real estate closings.
“We felt that this was an attempt by the bar associations to control and monopolize real estate closing services,” said Krug, who is also president and general counsel of Service Link, a nationwide provider of mortgage-related services based in Aliquippa, Pa.
Soon after the meeting with TAVMA, the FTC sent a letter to the North Carolina State Bar urging it to permit non-lawyers to compete with lawyers to perform real estate closings. In North Carolina, there is no law requiring lawyers to perform closings, but the state bar had issued opinions that declared closings to be a practice of law.
Local lawyers say that Massachusetts and other New England states cannot be compared to other regions of the country.
Massachusetts has an old, complex recording system where title examinations can go back 60 years, said DiMento, a partner at DiMento & DiMento in Swampscott and a former president of the Massachusetts Bar Association. In other states, like Florida, for example, a person can practically “click a button” and get the entire history of a property, he explained, whereas in Massachusetts attorneys must pore through the documents looking at easements and restrictions.
“To me it’s just the same old problem of big business coming in and, in the name of efficiency, saying you don’t need a lawyer,” said DiMento.
Jon Davis of Stanton & Davis in Marshfield said there are many issues that attorneys resolve that go unnoticed and unappreciated by the general public. Particularly in New England states and states along the Eastern seaboard with older and historic properties, an attorney’s job can be complicated because he or she must pore through a property’s history. In Massachusetts, there is a law that requires attorneys to do a title search going back at least 50 years on a property involved in a sale.
As just one example of why lawyers are important in the process, Davis said that attorneys “know how to get [mortgage] discharges that aren’t being returned by lenders.”
“We solve title problems all the time from little ones to big ones,” said Davis. “We analyze them [title problems] and know how to take care of them.”
Attorneys are even more important given the budget cutbacks at the local registries of deeds offices, he said. Transactions are getting recorded despite the fact that some of the registries don’t have basic supplies, said Davis, with attorneys stepping in to resolve any issue blocking a transaction.
The Massachusetts Conveyancers Association, the state’s real estate bar association, is surely keeping its eye on the issue. The MCA has successfully sued two title companies that were using non-lawyers to perform closing functions and has been aggressive in pursuing any non-lawyers who provide conveyancing services.
In a recent newsletter the MCA makes it clear that it won’t tolerate “any unauthorized practice of law.”
“The Committee on the Practice of Law by Non-Lawyers asks MCA members to report any corporation or any other non-attorney that is providing conveyancing services to the public in violation of the unauthorized practice of law statute,” reads a brief in the newsletter posted on the group’s Web site. “The MCA remains strongly committed, consistent with Massachusetts law, to the proposition that conveyancing services are the practice of law, licensed by the commonwealth and under the direct supervision of the courts.”
According to Krug, the MCA caught the attention of the FTC recently because of a letter it sent to title insurance underwriters last fall. The letter informed the underwriters about a lawsuit MCA and seven other bar associations had won against Colonial Title & Escrow, based in Foxboro, and warned them about using non-lawyers for closings, he said.
According to the suit, Colonial had allowed non-lawyer staff to perform functions of residential real estate transactions. In the case, a Suffolk Superior Court judge decided last June that the Colonial’s dual roles of title insurance issuing agent and closing agent constituted an “unlawful practice of law.” In the process of issuing policies for title insurance companies, Colonial was evaluating title and rendering “an opinion that the title is insurable,” according to the court decision. “Since Colonial is rendering an opinion or advice to lenders and the title insurance companies as to the legal effect of what it has found in the title search it is practicing law,” according to the court.
According to Fitzsimmons, the case highlights an important issue – accountability. Non-attorneys who perform closings are not held as accountable as lawyers who are licensed and regulated, he explained.
But others insist that the attorney requirement is a great inconvenience for consumers, who often cannot schedule closings on weekends or during evening hours because lawyers are involved. In states where lawyers are required, for example, the closings usually occur in the lawyer’s office, while in other states the closings can occur in the borrower’s residence whenever it’s convenient.
Krug emphasized that TAVMA does not believe that lawyers should never perform closings. “We just think consumers should have a choice” about whether to hire a lawyer for a closing, he said.
In neighboring Rhode Island, some legislators have been trying to get a bill passed that would prohibit anyone but a lawyer from doing real estate closings. The FTC sent letters to Rhode Island legislators asking them to reject the proposed bill. In both Rhode Island and New Hampshire, lenders, title agencies, title companies, lawyers and other settlement providers have handled closings for years.
The Rhode Island bill did not pass this year, but a bill has been passed to establish a committee to study the issue. The Rhode Island Mortgage Bankers Association opposes the bill because it believes that it will drive up borrower’s closing costs, according to Caroline Gilroy-Brown, the association’s general counsel.
Besides Massachusetts, North Carolina, Delaware, South Carolina and Georgia, closings are also handled by lawyers in West Virginia, Connecticut, parts of New York and Northern New Jersey, according to Krug.
