The debate over the unauthorized practice of law in Massachusetts took a new twist this week.
A 2009 ruling in favor of National Real Estate Information Services Inc. (NREIS) in an unauthorized practice of law case brought by the Real Estate Bar Association for Massachusetts Inc. (REBA) has been vacated by the First Circuit Court of Appeals.
According to the June 21 order to vacate, the appeals court said it would let the Massachusetts Supreme Judicial Court decide what constitutes the practice of law in the state encompassing all the interconnected activities of a real estate conveyance and the issuance of title insurance, and whether or not non-attorneys can conduct “witness” or “notary” closings. The appeals court said the district court construed the sparse state case law and declared the practices at issue did not constitute the unauthorized practice of law.
This decision will impact who can capture title insurance premiums in Massachusetts. Last year, $198 million in title premiums were generated in the state.
In 2009, United States District Judge Joseph L. Tauro entered an order of summary judgment in favor of NREIS, enjoining REBA from enforcing its interpretation of the practice of law.
In the court’s decision, Tauro agreed with NREIS’ position that the definition of the practice of law as set forth by REBA was a violation of the Dormant Commerce Clause of the United States Constitution. The order to vacate also reverses the district court’s decision on NREIS’s dormant Commerce Clause counterclaim. NREIS claimed that requiring attorneys to conduct closings was an unconstitutional restraint on trade that would result in higher closing costs.
REBA had filed the original lawsuit in 2006 in an attempt to restrict the provision of title, settlement and closing services by Massachusetts attorneys only. The decision marked the first time a Federal District Court has ruled on the issue of unauthorized practice of law as it relates to settlement services.
Background
According to court documents, REBA has a history of attempting to curtail what it calls “witness” or “notary” real estate closings, in which all of the documents required to complete a real estate transaction are compiled by nonlawyer third parties and an attorney only witnesses the closing of the transaction.
REBA believes that the essential tasks involved in a real estate transaction are an “interconnected series of activities that must be performed in order to convey the various legal interests in … real estate,” and each of the activities must be overseen, if not personally conducted, by an attorney. REBA’s position is that some mechanical tasks, such as creating title abstracts, may be delegated to nonattorneys, so long as “the lawyer maintains a direct relationship with the client, supervises the delegated work, and has responsibility for the work product.” REBA also alleges that the issuing of title insurance policies is the practice of law because title insurance policies are issued based on the examination and legal analysis of the seller’s legal title in the property, which REBA asserts must be conducted by an attorney.
Consistent with its views, REBA has opposed bills in the legislature that would formally recognize witness closings in Massachusetts and has tried to persuade affiliated bar associations to petition the SJC to adopt, through rulemaking, REBA’s own definition of the practice of law into the Massachusetts Rules of Professional Conduct. REBA also filed and won two lawsuits in 1993 and 2001 in Massachusetts Superior Court to enjoin local companies, not run by lawyers, from providing real estate settlement services.
NREIS, a Pittsburg-based vendor management company, provides real estate closing services and acts as a title insurance agent in Massachusetts. In helping to coordinate a real estate closing, NREIS, at the lender’s request, may provide any of the following services in Massachusetts: (1) obtaining valuations of a property and third-party reports such as tax certifications and flood reports; (2) obtaining title searches from a third-party vendor; (3) drafting the settlement statement; (4) scheduling the closing with a Massachusetts attorney who will attend and transmitting the lender’s documents to that attorney for the closing; (5) disbursing settlement funds, held by NREIS in its own bank account until the mortgage has been executed by a borrower; and (6) ensuring that the transaction documents were completed properly and properly recorded. NREIS describes these activities as administrative and not legal.
According to court documents, the title search is conducted by a third-party vendor under contract to NREIS. One of those companies, Connelly Title, itself does not employ any lawyers and purports only to provide title abstracting services and no legal analysis. NREIS does not conduct its own review of the title abstract provided by Connelly Title.
When a lender-customer requests that NREIS provide a deed for a transaction, NREIS contracts with another third-party vendor, a Las Vegas-based company. That company is not a law firm.
As to the closings themselves, NREIS schedules the closing to be attended by a Massachusetts attorney, selected from a list it maintains of around seventy-four lawyers. Before the closing, NREIS sends the relevant documents to the attorney. NREIS does not provide any instructions as to how the attorney should conduct the closing.
NREIS also acts as a title insurance agent on its transactions when requested. When acting as an agent, NREIS does not review the status of the real estate title. It prepares the title insurance policy based on a title abstract provided by a third-party vendor, simply copying the contents of the abstract into the policy documents. NREIS issues polices for several companies that write title insurance in Massachusetts, including Stewart Title, First American, Ticor Title and Old Republic.
From ALTA http://www.alta.org/news