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

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

Notary Or “Witness” Closings Won’t Be Coming To Massachusetts Yet: Attorneys Win Major Legal Victory

In a huge victory for Massachusetts real estate closing attorneys, a unanimous First Circuit federal appeals court has overturned a controversial lower court ruling which had opened the door for non-attorneys to conduct controversial “witness” or “notary” real estate closings in Massachusetts. The lower court ruling threatened to overturn long-standing statewide practice under which attorneys conduct real estate closings, and open the door for the influx of “notary” or “witness” closings where buyers and sellers receive no legal guidance during the closing.

The First Circuit decision is found here. The lower court ruling is here.

Massachusetts Courts Have Final Say

The First Circuit ruled that the Massachusetts state Supreme Judicial Court has the final say on whether attorneys must conduct real estate closings under rules governing the unauthorized practice of law. The case will now move to the SJC, which may be more hospitable to the real estate attorneys’ position. The federal appeals court also vacated a $900,000 attorney fee award against REBA.

REBA’s Position

REBA and its members believe that non-attorney closings only hurt the consumer. In recent years, the real estate closing process has become as more complicated than ever. A myriad of Fannie Mae guidelines, disclosure requirements, and RESPA rules require the parties to review, understand and execute dozens of dense legal forms and disclosures. In an attorney conducted closing, a trained lawyer will carefully review each document with the parties and answer any questions which may arise. (Click here for our post on everything a closing attorney does). In “witness only” or “notary” closings, however, the non-attorneys who conduct the closings do nothing more than witness the execution of the closing documents, and cannot provide any legal guidance.

“The purchase of a home is the most important investment most families will ever make,” REBA President Thomas Moriarty has said. “Home buyers and sellers, as well as lenders, rely on the training, professionalism, and integrity of attorneys to ensure that their property rights are protected. The reason that only lawyers – who are those trained in the law – can give legal advice is to protect the public,” Moriarty said. “This requirement gives the buyer someone to hold accountable. These multiple levels of protection permit buyers, sellers and lenders to confidently and reliably close loans worth hundreds of thousands of dollars every day.”

The Cost Factor: Debunking The Myth

The appeals court also dismissed the closing company’s claim that requiring attorneys to conduct closings was an unconstitutional restraint on trade which would result in higher closing costs. As REBA President Tom Moriarty notes, and I can personally attest, the typical attorney’s charges in connection with a closing have steadily fallen as a result of increased efficiency and competition. This is not a situation where there is one company that controls the market. There are thousands of attorneys throughout the Commonwealth who provide conveyancing and settlement services, and the competition among them is fierce. The typical closing fees are similar or less than those charged by the closing companies.

My Take

As a real estate attorney who has worked tirelessly to build my own practice, I have a rather huge professional stake interest in this case. Despite this, I cannot see how, for the same cost, borrowers and home buyers would benefit from having a non-attorney drone sit at a closing and simply notarize the dozens of complicated legal forms and refuse to answer any legal questions which may arise.  This is especially the case where the legal landscape keeps getting more and more complex. Further, a non-attorney notary cannot resolve many last minute closing issues which often arise, such as title issues, hold-backs, and indemnifications. Closings will become more inefficient and mistake prone.

This is, after all, the largest single purchase in most people’s lives. It’s not the time for do it yourself (DIY).

For more information about the unauthorized practice of law issue, please visit the REBA website.