Attorneys no longer required for Massachusetts real estate closings?

Posted by Michael DiMella on Tue, May 19, 2009

That could be the case if a new decision just made by a federal judge is upheld.  The Real Estate Bar Association of Massachusetts (REBA) may have made a serious blunder by suing National Real Estate Information Services (NREIS) for "unlawful practice of law", which led to this decision.  NREIS was conducting closings in Massachusetts without attorneys and Massachusetts law prohibits that, so REBA sued to stop NREIS from handling any more closings.  However, a federal judge just declared the state laws requiring attorneys to conduct real estate closings unconstitutional. From Banker & Tradesman last week:

Local conveyance attorneys may find their roles significantly reduced in real estate closings after a recent decision by a federal court judge.

Judge Joseph Tauro of the U.S. District Court in Massachusetts ruled that lawyers aren't needed to issue title insurance, conduct title searches, or prepare closing documents - and laws that require them are unconstitutional.  The ruling was made after the Real Estate Bar Association for Massachusetts sued National Real Estate Information Services in 2006, arguing NREIS's conveyancing business amounted to the unlawful practice of law. 

NREIS successfully counterclaimed that REBA's attempt to bar its business practices violated the Dormant Commerce Clause in the U.S. Constitution.

REBA's opinion:

Stephen Edwards, president of REBA, said that these practices are not just filling out paperwork; the entire transactional process is the practice of law.

"When you understand the legal principles that are being applied in the transaction, you're in a much better position to appropriately respond to the specific peculiarities that arise in any transaction," Edwards said. "There is always a wrinkle."

Edwards said REBA's lawsuit was not a matter of economic protectionism; it was a matter of professionalism and consumer protection.

NREIS's opinion:

Michael Ricciuti, a partner at K&L Gates, the firm that defended NREIS, said the whole point of REBA's lawsuit was to put companies like NREIS out of business in states like Massachusetts and Connecticut, which is unconstitutional discrimination.

"This was a suit brought against us to either drive us out of business entirely, or completely change [our] business model, and frankly, the business model for the entire industry," Ricciuti said. "When all is said and done, I think this opinion stands for competition."

Why does this matter to you?

Some states have laws that require attorneys for real estate conveyances (like Massachusetts) while others (like California and Florida) do not require attorneys at all.  Because of that, real estate in Massachusetts is practiced very different from California.  This is a developing story to watch that may not only cost lawyers a lot of business, but may change the way real estate professionals in Massachusetts, like myself, conduct business on a day to day level.

Not to take anything away from some of the great real estate attorneys I work with, but real estate closings really aren't rocket science.  Preparing documents, doing title searches, finalizing a HUD settlement statement, and holding escrow money for buyers and sellers isn't exactly the most demanding legal work.  We're not talking about putting murderers behind bars or handling mergers of Fortune 500 companies.  And real estate attorneys will be the first to admit that (good ones at least).  Unfortunately - it seems like some attorneys try to make real estate transactions more complicated than needed just to prove it was worth it to hire them.

The best attorneys (the ones I recommend and work with, of course!) strive to keep transactions as seamless and smooth as possible - after all isn't that what you're actually paying them for?  And if trouble does come up, they are there to step in and prevent it from becoming a bigger issue and make sure the closing to happens on schedule.  Attorneys can have a big role to play if title issues or other "legal" issues come up and having personal service from a great local attorney is tough to beat. 

At the end of the day, are real estate attorneys (or real estate agents for that matter) absolutely needed to buy or sell real estate?  No, of course not.  So I don't think you should be legally obligated to use either.  I am in favor of competition and in favor of options for consumers so that's why I like this ruling.  But I also wouldn't be in this business if I didn't think great real estate agents could provide a huge value to consumers.  And I wouldn't recommend attorneys if I didn't think they could provide a similar value.  Simple as that.

Can a large escrow or settlement services company provide the same service as an attorney?  Maybe, but probably without the personal level of service of a great local attorney.  It might be a slightly less expensive (but I really don't know the potential cost differences).  And if problem issues come up, having an expert attorney is a nice safety net.

At the end of the day, this is bound to be appealed by REBA anyway, and it could be overturned.  Even if it's upheld, it will still probably be a couple years before any changes are seen by consumers.  There are some large escrow and title companies who will be more than happy to jump into business in Massachusetts, but most like won't until we have definitive law changes or additional legal rulings to back this decision up.

 

What are your thoughts?  Comment below!

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