SAMI BAGHDADY
‘Unauthorized practice’

A group representing real estate attorneys is once again going head-to-head with a company that is challenging the longtime practice of requiring lawyers to conduct real estate closings in Massachusetts.

The Real Estate Bar Association is suing National Real Estate Information Services, a Pittsburgh-based company that provides settlement services and title insurance to lenders nationwide.

Bay State real estate attorneys, who critics say have cornered the market on residential closings, are watching closely to see if the bar association is successful in stopping the company from performing functions that have traditionally been handled by attorneys. The case, which was filed in Suffolk Superior Court, was moved to federal court about four months ago.

National Real Estate Information Services, or NREIS, hires attorneys to participate in transaction settlements. But REBA charges that the company hires attorneys only to witness closings. The attorneys at closings do not actually review mortgage loan documents or perform title examinations or any of the other functions typically done by attorneys in the closing process, the association claims.

“The problem with NREIS is that it is in control of the whole conveyancing process,” said Sami Baghdady, an Arlington attorney and the president of the bar association. “Therefore we believe that they are engaged in the unauthorized practice of law.”

‘Not Sufficient’

NREIS admits it’s not a law firm or attorney but denies it’s engaged in the unauthorized practice of law. The company mostly provides services for mortgage refinancings. In its response to the suit, NREIS maintains that “it arranges for Massachusetts attorneys to prepare deeds and other legal documents affecting title to real estate Â… and to conduct closings” on behalf of lenders.

The company and a group that represents title insurance and appraisal companies say the bar association is just trying to block competition and protect its turf. In its counterclaim, the company’s attorneys argue that REBA, and its interpretation of state law, discriminates against the company and imposes “undue burden on interstate commerce.”

“What it boils down to is that attorneys are trying to create a monopoly,” said Jeff Schurman, executive director of the Title/Appraisal Vendor Management Association, or TAVMA. “Most states leave it up to the consumer to decide whether to hire an attorney and apply the extra fee that an attorney typically would.”

The attorney representing NREIS, Irene C. Freidel of Kirkpatrick & Lockhart Preston Gates Ellis in Boston, declined to comment on the case other than to say, “NREIS intends to vigorously defend REBA’s claim and to pursue its counterclaims.”

Massachusetts is one of only a few states, including Connecticut, that require attorneys to perform closings for home purchases and mortgage refinancings.

TAVMA has been trying to get legislation passed that would enable non-attorneys and title corporations to conduct title and mortgage work in Massachusetts. The group maintains that the proposed legislation, introduced about three years ago, would give consumers more choice. A bill sponsored by Rep. Paul Kujawski, D-Webster, was refiled this year.

“The bill was introduced to address the insistence of some Massachusetts attorneys that only lawyers can issue title insurance and perform real estate settlement services despite the fact that non-lawyers have performed these tasks competently in Massachusetts for many years,” explained Schurman in an e-mail.

“Acceding to demands of Massachusetts lawyers, TAVMA’s members and other providers of title and settlement services in the state routinely require that a Massachusetts attorney attend the closing. REBA has argued that this is not sufficient despite the fact that non-attorney title insurance agents are permitted in every other state and only a handful of states have rules that require a lawyer to have some level of involvement in the actual closing,” he added.

Schurman disagrees with attorneys who maintain that they should be part of the process to protect consumers. “The attorney represents the lender and title underwriter. They do not represent the borrower,” he noted.

Real estate attorneys, however, argue that only lawyers are qualified to answer complicated questions about loan documents and title insurance and to provide advice to borrowers. As part of a sales transaction, attorneys issue title certification, which offers protection to homebuyers, according to REBA members. Title certification can’t be provided by non-lawyers.

Further, they say attorneys are accountable for their actions, and clients deserve to have representation.

“We are personally liable for any misconduct on our part and we must answer to the Board of Bar Overseers, whereas these corporations – these out-of-state settlement providers – are shielded by the corporate veil,” said Baghdady.

REBA’s lawsuit is similar to a case the association won six years ago against Colonial Title & Escrow, a Foxboro-based company. The bar association, then known as the Massachusetts Conveyancers Association, joined with seven other similar groups to sue Colonial Title for allowing non-lawyer staff to perform functions of residential real estate transactions.

In that case, a Suffolk Superior Court judge ruled that 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 deciding that the title was insurable, according to the 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,” the court decided.

‘A Good Case’

Since Massachusetts considers real estate conveyancing – creating, transferring or terminating an interest in real property – a practice of law, and court cases like the Colonial lawsuit have backed up that claim, REBA members feel they’ll win.

“I think we have a good case here because I think the law is very clear that the activity that NREIS is engaged in is a practice of law under Massachusetts statutory and decisional law,” said Gael Mahony, a partner at Holland & Knight in Boston who is representing REBA. Mahony noted that in addition to the practice of law statute, the state has a law that enables bar associations to stop the unauthorized practice of law.

Joel Stein, a Braintree attorney and former REBA president, said the case raises an important issue over so-called witness-only closings. When an attorney is hired to act only as a witness at a closing, he can’t provide advice, answers or resolve disputes that might arise because he has had not had a role in preparing loan documents and he isn’t responsible for disbursing funds after the closing, explained Stein. If a problem arises after the closing, a borrower can’t turn to the attorney.

“I think most attorneys would tell you it’s against policy for an attorney to be at a closing and then say, ‘I can’t answer any questions because all I’m here to do is witness the closing,'” said Stein.

Stein also said state law requires that funds provided by a lender must be disbursed to a borrower or the lender’s attorney. Courts in South Carolina and Delaware have ruled that any disbursement of funds at closings must be handled or supervised by an attorney.

Still, TAVMA is pressing legislators in states like Massachusetts to allow non-attorneys at real estate closings. The organization says attorneys aren’t necessary for routine closings and only increase settlement costs for consumers.

Stein disputes the argument that using a non-attorney to witness the closing is less expensive for the consumer. He says lenders who use companies like NREIS typically include notary fees for the attorneys who show up to witness the closing in addition to fees for the settlement services provider companies.

“The cost of closing, whether it’s done by a lawyer or non-lawyer, is about the same price. It’s set by the lender. It’s not set by the settlement providers,” he said.

TAVMA leaders have met with Federal Trade Commission officials in the past to complain about the practice of requiring attorneys at closings in states like Delaware, Massachusetts and North Carolina.

In letters and briefs, the FTC has expressed concern about the legal profession’s efforts in several states to stifle competition and drive up costs for homebuyers.

The FTC, along with the U.S. Department of Justice’s Antitrust Division, recently sent a letter urging the New York lawmakers to reject a proposal to expand its unauthorized practice of law statute to include real estate transaction services. “The proposed legislation likely will unnecessarily and unreasonably reduce competition between attorneys and non-attorneys for services related to real estate transactions,” the agencies wrote.