REBA v. NREIS Ruling: Massachusetts Real Estate Attorneys Required To Conduct Closings; Notaries Shut Out

by Rich Vetstein on April 25, 2011 · 24 comments

in Closings, Massachusetts Real Estate Law, Purchase and Sale Agreements

IMG_1621Ruling Mandates That Attorneys Take “Substantive Participation” In All Massachusetts Residential Transactions

The long awaited ruling from the Massachusetts Supreme Judicial Court in case of Real Estate Bar Association (REBA) v. National Estate Information Services (NREIS) has just come down. The ruling can be read below. The net effect of the Court’s ruling is to reaffirm Massachusetts attorneys’ long-standing role to oversee the closing process and conduct closings. For more background, please read my prior post, Battle Between Massachusetts Closing Attorneys vs. Settlement Service Providers Argued Before SJC.

This case pits Massachusetts real estate closing attorneys vs. out of state non-attorney settlement service providers which are attempting to perform “witness or notary” closings here in Massachusetts. At stake is the billion dollar Massachusetts real estate closing industry.

Quick Analysis

  • Massachusetts attorneys must be present for closings and take active role in transaction both before and after the closing. The substantive ruling from the court was a huge victory for Massachusetts real estate closing attorneys and their continued, long standing involvement in the residential real estate industry. The court requires “not only the presence but the substantive participation of an attorney on behalf of the mortgage lender.” This is what Massachusetts real estate attorneys have been fighting about for consumers in the face of out of state settlement companies who have tried to conduct closings with “robo-attorneys” and notaries who cannot explain complex legal documents to parties at the closing table. The court stated:

The closing is where all parties in a real property conveyancing transaction come together to transfer their interests, and where the legal documents prepared for the conveyance are executed, often including but not limited to the deed, the mortgage and the promissory note. The closing is thus a critical step in the transfer of title and the creation of significant legal and real property rights. Because this is so, we believe that a lawyer is a necessary participant at the closing to direct the proper transfer of title and consideration and to document the transaction, thereby protecting the private legal interests at stake as well as the public interest in the continued integrity and reliability of the real property recording and registration systems.

  • Applies to Both Purchases and Refinances. The court made no distinction between purchase and refinance transactions. The same essential functions of the attorney — examining and ensuring marketable title, handling the mortgage proceeds under the “good funds” law, and ensuring that the mortgage is properly recorded and the prior mortgage is discharged — are the same in both a purchase and refinance. Accordingly, in my opinion, the ruling applies to both purchase and refinance transactions.
  • No “Robo-Attorneys” Allowed. NREIS’ business model is to hire part-time, contract attorneys on an as-needed basis to conduct closings. Basically, these are kids right out of law school who get a call to drive to a closing they know nothing about for $100 or less a pop. Although they are licensed attorneys, these lawyers are really no different than the “robo-signers” in the foreclosure industry because they did not participate in the transaction from the start, they did not examine the title, or do anything to manage the transaction. Here’s what the court said about this practice:

Implicit in what we have just stated is our belief that the closing attorney must play a meaningful role in connection with the conveyancing transaction that the closing is intended to finalize. If the attorney’s only function is to be present at the closing, to hand legal documents that the attorney may never have seen before to the parties for signature, and to witness the signatures, there would be little need for the attorney to be at the closing at all. We do not consider this to be an appropriate course to follow. Rather, precisely because important, substantive legal rights and interests are at issue in a closing, we consider a closing attorney’s professional and ethical responsibilities to require actions not only at the closing but before and after it as well.

  • Analyzing title and rendering an opinion of clear and marketable title must be conducted by attorneys. Certifying good, clear and marketable title is the fundamental function of the real estate attorney in Massachusetts, and required by law for purchase transactions under Chapter 90, section 70. NREIS was attempting to out-source this function to out of state companies and non-lawyers, in avoidance of Mass. law.
  • Attorneys are required to draft deeds. The court held “because deeds pertaining to real property directly affect significant legal rights and obligations, the drafting for others of deeds to real property constitutes the practice of law in Massachusetts.”
  • Attorneys must effectuate the transaction. The court also ruled that only licensed attorneys have  duty to effectuate a valid transfer of the interests being conveyed at the closing. This includes ensuring that the deed and mortgage are properly recorded; that the exchange of funds is properly made and that prior mortgages and liens are properly paid off and discharged.
  • Title abstracts, title insurance and other administrative functions are properly delegated to non-attorneys. The court also correctly recognized, consistent with modern practice, that many functions in the real estate transaction don’t have to be performed by an attorney. Included in this exempted list of functions are the preparation of title abstracts by title examiners at the registries of deeds, the issuance of title insurance policies, and the preparation of closing documents & the HUD Settlement Statement. Real estate attorneys typically use title examiners and paralegals at lower costs to perform these functions.

The case will move back to federal court where it started for more fact-finding unless it can be settled. There were several unanswered questions because the record was not adequately established. It remains to be seen whether NREIS and its ink can adopt their business model to the SJC’s holding. It’s possible it can be done, but they will have to hire a group of attorneys to manage the system.

More CoverageCourt Weighs In On Lawyers and Closings, Boston Business Journal (argues that this is a blow to attorneys–completely disagree).

State Court Rules Attorneys Must Participate In Home Closings, Boston Globe (yours truly quoted)

REBA v. NREIS Decision

  • Halley Dittmer2

    Wow… what a great post! Thanks for the info, super helpful. Try PDFfiller to fill a form here http://goo.gl/VzVzHm It allows you to to fill out PDF files.

  • Halley Dittmer

    Creative post – For my two cents , others want a MA Form 501 , my boss used a fillable form here http://goo.gl/IV1Ybs

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  • William

    I’m a member of the Georgia Real Estate Closing Attorneys Association and we in Georgia are facing the exact problem of witness only closings.  We’ve taken a slightly different tack, however, and this year we were able to convince the legislature to amend our good funds law to redefine “settlement agent” as either the lender or a Georgia licensed attorney.  As a result, if someone other than the lender or a GA attorney “settles” and “disburses” a residential real estate transaction they will be guilty of a misdemeanor.  We are also actively working on a formal advisory opinion to clarify the role of an attorney in a residential real estate closing.  Since this decision has come down in Mass. what has been its impact in the marketplace?  Are you still seeing witness only closings?  Are non-attorney settlement service companies still operating but under a different model?

    • http://www.massrealestatelawblog.com Richard Vetstein

       Hi William, sorry for the delay in responding. We are not seeing witness closings being a problem anymore after the REBA decision, as far as I can tell. Mass. has always been an attorney state, so we never had an influx of non-attorney settlement service companies in the first place, and it should stay that way for awhile.

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  • Anon

     I must say I take offense at the characterization of witness closing attorneys.  Some of us have been conducting closings for over 15 years, can adequately explain complex closing documents to the borrowers and certainly charge more than $100 per closing due to our expertise.  Due to personal circumstances, I cannot hold a traditional position in a firm (Single mother caring for a mother with  Parkingson’s) so doing these types of closings has kept me and my family afloat for well over a decade.  I would hate to have to close my doors now…..

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  • Anonymous

    JM, the court didn’t really get into the dynamics of issuing a title insurance policy, that’s for sure. I think what they were concerned about was saying that non-attorneys, ie., title companies, could be in the business of issuing title insurance without it deemed the “practice of law.” And that preserves the current state of the industry here in Mass. and the U.S.

    But we attorneys know that a fair amount of legal analysis goes into issuing a title policy which is based in large part on the results of the title exam. But on the flip side, insurable title is different than clear and marketable title.

    In the end, I don’t think the court’s dicta on this issue is going to have any major effect on how title insurance is issued in Mass. With attorneys required to oversee all closings, it will be highly unlikely that Mass. turns into a direct issue state like Florida did.

    What do you think?

    • JM

      I think a few things: first, you did a great job summarizing the key points of the decision, thanks. Secondly, I’m reminded of the words of the Teacher (Ecclesiastes): “All things are permissible, but not all things are profitable.” If an underwriter of title insurance chooses to issue policies without the benefit of any legal counsel, it does not appear that this SJC decision would prevent that. However, its doubtful that any prudent underwriter would find it wise to routinely issue title policies in the millions and billions of value, without assessing the risk of each policy based upon an expert evaluation of the status of title. If some underwriters choose to rely upon in house counsel to monitor the quality of title of every policy issued by non-lawyer agents, again that may be permissible, but may not be wise. Third, I don’t think the SJC was a very enthusiastic participant in this judicial tour of the legislative sausage factory, and has a limited appetite for processed meat products.

      • http://www.massrealestatelawblog.com Richard Vetstein

        JM, thanks for the nice words. I love when other knowledgeable attorneys comment here. Raises the bar. Like I said, after this ruling, the likelihood of title insurance being done in-house or direct is very slim. Too many obstacles now.

  • JM

    Hi Rich- How do we reconcile the SJC’s pronouncement that: a) “interpreting legal status to a property” constitutes practice of law, BUT b) issuing a title insurance policy does not?

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  • Sales

    Does this apply to origination loans only? How does this affect the refinance market? Can a commisioned Massachusetts Notary Public conduct a loan closing for a refinance?

    • Anonymous

      It applies to all refinance and purchase closings in Mass. A licensed Mass. attorney must conduct all refinance and purchase closings. Notary public’s cannot conduct any type of closings!

      • Guest

        Including HELOC closings?

        • http://www.massrealestatelawblog.com Richard Vetstein

          Good question. I would say yes, as the HELOC is a mortgage conveyance. But on the other hand, usually HELOC’s don’t involve title exams or title insurance. May need some clarification on this issue from the courts.

  • http://twitter.com/CSullivanatBnT Colleen M. Sullivan

    Well, if you’d wanted to read the first outlet that covered this correctly noted it’s impact…ahem. http://www.bankerandtradesman.com/news144094.html

    Certainly looks like a big day for REBA….

    • http://www.vetsteinlawgroup.com Rich Vetstein

      Tell them to get rid of that pesky paid firewall so they can read the article!

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