Q: Settlement agents provide a wide range of services, some of which have or seem to have quasi-legal overtones. Can you explain where the line is drawn between acceptable tasks and those that might be viewed as the unauthorized practice of law?
A: Those lines are blurry and vary from state to state, as Deborah Everett, senior vice president/compliance counsel for WFG, explains here. Her response is a condensed version of an article that appeared in the November, 2014 issue of The FourthC, WFG’s compliance newsletter. Staying on the right side of the blurry lines, she notes, “requires constant vigilance.”
It is never acceptable to explain the legal effect of closing documents to a party in a real estate transaction. Beyond that simple absolute, every other element of the practice of law requires some knowledge of the specific requirements of the state where the property is located. Some states aggressively enforce their requirements, particularly against title insurers and agents. Depending upon the state, each of the following actions can be interpreted as the practice of law:
- Conducting a title search
- Conducting a title examination
- Preparing/signing a commitment
- Preparing a settlement statement
- Selecting the documents used to transfer title
- Explaining a commitment, title policy or closing documents
- Preparing closing documents
- Providing signing services
- Disbursing funds
- Recording documents
- Signing a title policy
If that list is not frightening enough, consider that in some states, a key factor determining whether a service involves the practice of law is whether a fee is charged for it, or even whether a title policy is issued in connection with the transaction. Only an attorney licensed in the state in which you are operating can interpret that state’s unauthorized practice of law rules for you.
Even in the states that are most accommodating to the title industry, we have to limit the tasks we perform and perform them cautiously. For example, if a state allows the preparation of documents in connection with a real estate transaction, title and escrow personnel should only use WFG approved standardized documents and complete only basic fill-in-the-blank forms. A licensed attorney should handle any additional drafting or modifications required.
Questions about the unauthorized practice of law are complex, but a simple rule applies: When in doubt, verify! A quick phone call to underwriting counsel may save you and the company from having to defend your actions before a state bar enforcement committee.