Changing Course: Proposed Revisions to Real Estate Closing Opinion

January 12, 2012

The State Bar has proposed amending its formal opinion concerning the involvement of nonlawyers in real estate closings, Authorized Practice Advisory Opinion 2002-1.  The original opinion was adopted approximately nine years ago, under accusations from the US Department of Justice and the Federal Trade Commission that the Bar’s opinions in the real estate area at the time illegally restrained trade on companies and non-lawyer competitors in providing real estate closing services.  I served as in-house co-counsel to the special committee that drafted and recommended the original opinion in 2003.

The current proposed revisions to the opinion were published in the winter 2011 edition of the State Bar Journal and are posted on the Bar’s website, although a bit difficult to find.  From an initial review of the proposed revisions, most changes may appear cosmetic.  However, there are at least two substantive changes to the opinion that would have significant practical ramifications for attorneys, entities and nonlawyers providing closing-related services, and other professionals in the real estate industry.

First, the Bar has added three related tasks to the list of legal services that only lawyers can perform in a closing.  The revised opinion would require a lawyer to determine that: (1) all contract and closing conditions have been satisfied, (2) the deed and deed of trust can be recorded after a title update; and (3) the funds for the closing can be disbursed pursuant to the NC Goods Funds Settlement Act.  The practical effect of these proposed changes, if adopted, would be to make it difficult to impossible for nonlawyers and entities to provide closing services in competition with attorneys.  As noted above, this competition was the original impetus for the threats from the USDOJ and FTC, which led to the Bar’s adoption of the original opinion and superseded prior inconsistent opinions.  The proposed revisions also would make it impractical for nonlawyers to receive and disburse closing funds without the
involvement of an attorney.  This was one of the two closing-related services that the original opinion specifically stated nonlawyers and companies could provide when not acting under the supervision of a lawyer.

Second, the Bar has added language that states that nonlawyers may not “handle” closings and cannot advertise that they do so.  The linchpin for the Bar’s proposed revision and conclusion is that “N.C. Gen. Stat. § 84-5 prohibits nonlawyers from arranging for or providing the lawyer or any legal services.”  In my opinion, there is nothing in the language of N.C. Gen. Stat. § 84-5 that prohibits a non-lawyer from “arranging for” the lawyer or legal services as long as the entity or non-lawyer is not actually performing or being hired to perform legal services.  If the prohibition against corporations and other nonlawyers “handling” closings means that they cannot “arrange for” lawyers or legal services, then this proposed revision is problematic.

Other real estate professionals and even real estate attorneys should be concerned about the rationale for this new conclusion.  If adopted, this prohibition against arranging for attorneys or legal services in a closing would have to be applied uniformly to all.  Realtors and mortgage brokers routinely “arrange for” a closing attorney with whom they regularly do business.  From years of representing real estate attorneys, realtors and brokers, it has been my experience that these nonlawyer professionals often do much more than simply recommend an attorney.  They often make the initial contact with the lawyer, provide him or her the contract and other documentation, and in many instances act as the intermediary between the joint client and the real estate attorney.  Under any reasonable interpretation, these activities constitute “arranging for the lawyer or any legal services.”  The proposed opinion could unintentionally interfere with these established relationships and the regular dealings between
real estate attorneys and these professionals.

While there is nothing in NC statues to prohibit such conduct in my view, the State Bar’s proposed revisions rely and rest upon the conclusion that “arranging for an attorney” is illegal if you are a corporation or other non-lawyer.  The proposed opinion therefore is expanding its interpretation of the statute beyond its language and in a way that would have much wider and presumably unintended implications than would appear from the text of the opinion.

The State Bar should accept comments to the proposed revisions through its quarterly meetings later this month from January 25-27.   If you are interested, it is worth your time to write to the State Bar about this proposed opinion, whether or not you agree with my opinions expressed herein.

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