Recently I wrote about the proposed guidelines in South Carolina delineating certain real estate closing functions as the practice of law. (see Only An Attorney). There were several letters submitted during the comment period and there were some excellent points raised. In my opinion, the proposed guidelines were a bit excessive in their defining of the practice of law, but it is nice to see that they are addressing the issue to ensure that everyone knows where the line is drawn in South Carolina.
Attorney Brandy C. Snyder provided a comment regarding the lack of attorney supervision of vendor management companies:
A prime example as to why the proposed Guidelines (or some form thereof) should be established can be seen in the State Bar's inability to monitor and/or discipline vendor management companies that perform and control all aspects of the real estate closing with little to no oversight by a South Carolina licensed attorney. Some vendor management companies have gone so far as to request that the attorney prepare a cover letter giving the vendor manager instructions as to how to record the closing documents and disburse funds. The attorney apparently does nothing more than receive the closing package from the vendor manager, obtain the necessary signatures on the documents, and return the package to the vendor manager along with the attorney's instructional cover letter. These vendor managers are then using the cover letter obtained from the "closing attorney" as a tactful means of getting around the prohibition on the unauthorized practice of law within the State.
Would the proposed guidelines put the kibosh on vendor management companies in the state of South Carolina? I can say with some degree of confidence that the vendor management companies have degraded the title industry in other states. I have spoken to many of them that are simply operating way beyond their level of expertise. Here are a couple of examples that I have written about before:
Example 1: An out-of-state vendor management company sent us a mortgage to record that was signed by the wife and over the husband's signature line they typed in "deceased." When I called them to explain that the mortgage only secured a half-interest in the property and the husband's interest needed to be probated, I was told that "it was okay, file it as is." I refused and returned the filing to their office only to have them mail it in and record it anyway.
Example 2: An out-of-state vendor management company told me that our search was incomplete because we showed an easement with no amount. When I tried to explain that it was an easement, there was no amount, she asked in frustration "Well, then how am I supposed to get a payoff?" I tried to explain that you can't get a payoff for an easement and it should be listed as an exception on the title policy, I was told that we needed to remove it from our report. I refused, of course, and I told her that if she wanted to ignore it she could do that at her discretion, but we would not remove it from our report.
I could go on, but I think that this makes the point. Vendor management companies are notorious for staffing inexperienced people in positions that should require a thorough knowledge of the real estate laws of the states in which they operate. They are more concerned with churning out cheap and fast title reports. They use the cheapest abstractors they can find, regardless of experience, and I am convinced they like it that way. After all, if the abstractors knows enough to bring title defects to their attention, that just creates more work for them.
C. Joseph Roof, an attorney who as served as a consultant or an expert witness in more than eighty cases regarding alleged errors in handling real estate closings, has recommended that merely being an attorney should not be sufficient.
Many [attorneys are] under the impression that it is a "lesser" aspect of the practice of law and "any lawyer can do it."
...
It is my respectfully submitted recommendation that the guidelines not only outline what an attorney must do, but also prescribe the attorney's qualifications to do these acts and that the qualifications must be more than the mere admission to practice law. We require certain experiences before a licensed attorney can appear alone in a court proceeding. It is not unreasonable to similarly require certain mentored experiences and/or CLE attendances before a licensed attorney can "solo" a real estate closing. A closing is an intense and demanding setting requiring great care and judicious consideration. It is much more than shuffling papers and getting signatures. The issues that can arise number literally in the thousands. Only an experienced attorney can properly guide the process.
A license to practice law does not, in and of itself, prepare an individual to close real estate transactions.
This is an argument that non-attorneys often make - "I know more about real estate than some attorneys." Thus, if a non-attorney can do a better job than the worst attorney who is authorized to close a real estate transaction it must be okay. Attorney Roof makes an excellent point. Reserving real estate closing to attorneys only doesn't really solve the problem, more must be done than simply considering the tasks to be the practice of law.
Again, I have a couple of examples:
Example 1: We had a title company send us a deed prepared by an attorney that purported to vest title in a trust - not the trustee. As we should all know, a trust cannot hold title to real estate (with minor exceptions for certain types of trusts). Such a deed is not a valid conveyance.
Example 2: I recently saw a mortgage from John and Jane Smith, also signing was Bob Jones to release his transfer on death interest. The vesting deed was a form that stated at the top "Quit Claim Deed - Transfer on Death," and it conveyed title from John and Jane Smith, husband and wife, to Bob Jones. It contained no language in the body of the deed creating the transfer on death interest. Thus, it served to Quit-Claim the Smith's interest to Jones. Apparently the parties believed that they had created only a transfer on death interest for Jones. The deed listed a company name as the preparer - which could have been a law firm, but I could not say for certain. There are a couple of problems here: first, a transfer on death beneficiary has no present interest in the property, thus there would have been no need to have Jones sign if, in fact, he was merely a transfer on death beneficiary. Second, and more obviously, the mortgage was granted by the Smith's who no longer held any interest in the property.
I have to wonder if the attorneys listed as the preparers of the deed even saw them. These are mistakes that I would hope every attorney would know enough to avoid. There seems to be a practice, at least around here, that nobody ever talks about. Attorneys often allow non-attorneys in their title companies, or their client title companies, to prepare deeds and include their name as the preparer. I often wonder if this isn't the reason we see so many improperly prepared deeds.
Regardless, it would seem to be a good idea to ensure that attorneys practicing the real estate realm have more than just a J.D. - they need to have some solid experience, as well. Having just finished my third year of law school (the evening program is four years) I can say with candor that the overwhelming majority of what they teach in law school property classes is completely irrelevant to real estate closings! When was the last time anyone has seen a rule against perpetuities problem in a chain of title, or fee-tail vesting? However, that is not to say that other courses, and the education in general, do nothing to prepare a lawyer for a real estate practice. Quite to the contrary, the education is invaluable, but much of the practical stuff that is encountered is not covered. Thus, I would agree with attorney Roof that one needs more than admittance to the bar.
Several of the other comments, mostly from non-attorneys all from the same credit union, though supportive of attorneys supervising and managing the closing process, believe that the attorney should be able to conduct the closing via telephone.
Submitted by Patricia M. O'Bryant, Sharonview FCU:
As a resident of SC, I feel that requiring the attorney and the borrower to be in the same room in order to meet the closing requirements is difficult to achieve in today's busy world. With fuel prices being the way they are as well as all other products needed by consumers, why should I as a consumer have to lose time on my job, and incur a fuel cost to drive to an attorney's office when I can just visit my credit union there at my job site and talk with an attorney via phone. The process of doing a mortgage is frightening enough with all that is being said on the news. Why make it more difficult by requiring me to sit in front of an attorney that I have never met prior to the closing when I can see my local credit union office and talk with an attorney via telephone. In addition as a borrower, I face the challenge of working with the attorney's schedule over my own in order to close my loan.
Talk about "phoning it in"... literally! I'm not sure I like the idea of requiring attorneys to conduct the closing, but yet, allow it do be done via telephone. Technically, I suppose it could be done - it would give the attorney a chance to fully explain things and answer any questions. However, real estate transactions are complicated and the added formality of sitting across the table from an attorney really impresses upon people the magnitude of the situation. It solidifies in their minds that they are entering into a complicated legal transaction and will, perhaps, add a little pause to their signing process so they can absorb the realities of consequences of their actions.
Sure, given the choice, the vast majority of consumers would rather not have to deal with an attorney. Of course, given the choice, most consumers would rather take care of their mortgage needs at an ATM machine! Most borrowers have the mentality that it doesn't really matter what all of these forms say, they know that if they want their money they have to sign them. And that is how we end up with millions of homeowners in foreclosure because they didn't understand their adjustable rate mortgage could possibly cause their payments to exceed their ability to make their payments.
Over all, the comments are very interesting. The Supreme Court of South Carolina certainly has their work cut out for them. No matter what they do, they will encounter angry reactions from someone... or some group... adversely affected by their decisions.
We seem to be sharply divided between attorney states and non-attorney states. On one side we have very strict interpretations of the practice of law and on the other very loose interpretations. I think that somewhere in the middle lies the common ground that makes sense for all of us.
Robert A. Franco
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