The Massachusetts Supreme Court has ruled in a closely-watched lawsuit regarding the role of real estate settlement professionals that attorneys must “substantially participate” in home closings.  Click above for more details.

The Real Estate Bar Association (REBA) brought suit against National Real Estate Information Services (NREIS) in November 2006.  REBA alleged that “certain business activities of NREIS constitute the unauthorized practice of law;” mainly because they related to the “conveyancing” of real estate.  NREIS had the suit removed to federal court, where the district court not only granted the company’s motion for summary judgment, finding its actions did amount to the practice of law, but the court also awarded NREIS more than $900,000 in attorneys’ fees.

REBA appealed and won reversal of the district court’s judgment on the unauthorized practice of law claim.  On appeal, it was also determined that there was “no controlling precedent that establishes a definition for ‘conveyancing’ or the extent of activities that constitute conveyancing.”  Thus, two questions were certified to the Massachusetts Supreme Court for clarification:  (1) Whether NREIS’s activities, either in whole or in part, based on the record in the case and as described by the parties, constituted the unauthorized practice of law; and (2) Whether NREIS’s activities, in contracting with a Massachusetts attorney to attend the closings, violated the state’s unauthorized practice of law statutes.

The Court first attempted to define “the practice of law,” but found that this largely turned on the “particular facts” of each case.  Generally, however, the Court stated that “the practice of law involves applying legal judgment to address a client’s individual needs.”  Merely involving some element of law was not enough, though.  The activities must fall “wholly within” the practice of law to be such that “a nonlawyer cannot perform it without committing the unauthorized practice of law.”

For example, the Court found that “as individually considered activities, title examinations and the preparation of title abstracts generally do not constitute the practice of law.  Although both require training and some understanding of the law, they are commonly performed by competent nonlawyer professionals.”  What the Court found unclear was “what happened once NREIS has received a title abstract from a third-party title examiner.”  Based on the record before the Court, it was unable to find that NREIS crossed the line into the practice of law.  The Court did state, however, that “clearing title may involve the practice of law and interpreting the legal status of title certainly does so.”

The Court also found that “the drafting for others of deeds to real property constitutes the practice of law,” but it could not find from the record that NREIS had done so.  Further, the “preparation of settlement statements and other mortgage-related forms for its lender clients clearly does not constitute the unauthorized practice of law.”  And, reviewing documents to ensure valid execution and delivering them for recording is not the practice of law either.  Doing so does not require “the provision of legal advice or legal opinions, or the application of legal judgment to meet the individual needs of a client.”  Though such activities may assist in the creation of legal rights, they are “primarily clerical in nature.”

With regard to the involvement of contract attorneys in real estate closings, the Court provided guidance indicating that the attorney must substantially participate.  It could not find enough information in the record regarding the relationship between NREIS and its contract attorneys, or between the lender clients and the contract attorneys, to make a determination of whether it violated the unauthorized practice of law statutes.  However, the Court did state that “there must be a genuine attorney-client relationship, and direction and control over the attorney’s action cannot rest with [a] third-party.”

Because the closing is a critical step in the transfer and creation of significant legal and real property rights, “a lawyer is a necessary participant.”  The Court clarified that “the closing attorney must play a meaningful role in connection with the conveyancing transaction that the closing is intended to finalize.”

This opinion seems to be a partial victory for each side – it certainly identified some activities that do not constitute the practice of law, which is a “win” for NREIS.  But, for the lawyers in Massachusetts, it did clarify that they still have a role in real estate closings that cannot be outsourced to vendor management companies.  Further litigation may determine if NREIS over-stepped its bounds with regard to the closing process.  For now, though, both sides can breath a sigh of relief.

Reprinted from an article best viewed at the website:  Authored by Robert A. Franco, Attorney – Mansfield, Ohio.