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. 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 .......................................... 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 brent@foundationtande.com

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 bsherrow@tripleslaw.com 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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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 U-58. 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 U-31 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 U-21; 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-for-all. 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

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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 non-attorneys 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

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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)

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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 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 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

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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

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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:

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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.

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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 U-31 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.

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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.

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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. §15-19-50. 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."

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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

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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.

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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 both1; 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.

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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 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) 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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