Unauthorized Practice of Law During the Residential Real Estate Closing Process: An Update on REBA vs. NREIS Lawsuit

By Howard Goldman

This Memorandum serves to outline and highlight the latest developments in the Real Estate Bar Association’s (“REBA”) unauthorized practice of law litigation against Pittsburg-based National Real Estate Information Services (“NREIS”).  NREIS, a multistate real estate services provider, outsources the vast majority of functions traditionally performed by attorneys during residential closing transactions by using non-attorneys to perform certain tasks, including certifying and analyzing title, preparing the deed, and conducting the closing.  REBA contends that these activities, when performed by non-attorney office workers, constitute the unauthorized practice of law.

  1. History of the Case

Traditionally in Massachusetts, licensed attorneys have been required to oversee and conduct the residential real estate closing process. In 2006, REBA brought suit in Suffolk County Superior Court, arguing that NREIS’ business practices violate Massachusetts common law and consumer protection statutes that state that attorneys must perform the key functions of real estate closing transactions. REBA sought a permanent injunction banning NREIS from engaging in what it deemed to be the unauthorized practice of law.

NREIS removed the case to Federal District court, and filed an answer and counterclaim seeking a declaratory judgment that REBA’s interpretation of what constituted the unauthorized practice of law under Massachusetts statutes violated the Dormant Commerce Clause, and seeking a permanent injunction barring REBA from enforcing its opinion of what constitutes unauthorized practice of law on NREIS.   In an April 2009 decision, the Federal District Court entered judgment against REBA. The Federal District Court then ordered REBA to pay nearly one million dollars in attorney’s fees and costs to NREIS as a prevailing party.

REBA appealed the ruling to the Federal Appeals court, which reversed the lower court’s ruling. In its June 2010 decision, the Federal Appeals Court stated that the Massachusetts Supreme Judicial Court (“SJC”) has the final say on whether attorneys must conduct real estate closings under rules governing the unauthorized practice of law. The Federal Appeals Court ultimately remanded the case back to the SJC to answer the question of whether and to what extent a residential real estate transaction and closing is the “practice of law” required to be performed only by a licensed attorney.  The Federal Appeals Court also vacated the attorney’s fee and costs award against REBA.

The SJC heard oral arguments in the case on November 2, 2010.  A final ruling is expected in several months.

  1. REBA’s Position

REBA argues in its brief to the SJC that NREIS’ practice violates Massachusetts common law and consumer protection statutes requiring that attorneys perform the most vital functions of a real estate closing transaction.

Specifically REBA contends that the SJC has long recognized that conveyancing ─ evaluating title to the real estate being conveyed and undertaking the steps required under the law to transfer the legal interests in that property ─ requires the exercise of one’s professional judgment and the application of legal principles to establish, alter, or extinguish a client’s legal rights. There are many possible problems that may arise in the course of a title examination such as claims of adverse possession, attachments placed on the property, condominiums statutory requirements, faulty property descriptions, improper discharge of mortgage, presence of an easement, lis pendens or mechanic’s lien on the property, and many others. Without a lawyer determine whether the title is free from all encumbrances, the parties to the transaction can never be certain as to the validity of their title. REBA maintains that that there is a public policy interest in continuing to permit only attorneys to convey property in order to ensure that the parties to the transaction, as well as the general public, will rely on representations that title is clear in making decisions about whether to purchase property.

REBA opines that activities including title examination, provision of a deed, conducting the settlement meeting and recording of the parties’ title documents all constitute the practice of law because they have ordinarily and historically been performed by attorneys and require the professional judgment of a lawyer.  According to REBA, the fact that the public has long entrusted certain activities to lawyers is a “further indication” that those activities require the knowledge and skill of a person trained in the law.

REBA asserts that the Massachusetts Rules of Professional Conduct (“MRPC”) support its position that non-attorneys may not provide legal services. In Massachusetts, attorneys are required to meet strict educational requirements, pass the bar examination demonstrating their knowledge of the law, and must be determined to be of honest demeanor and good moral character prior to being permitted to practice law. Throughout their careers attorneys are continually subject to the direct oversight of the judiciary. In contrast, non-attorneys have not been educated in the law, nor have they demonstrated their knowledge of the law, and they have not proved themselves to be of good moral character. They are also not subject to continuing judiciary oversight.  As such, it is a violation of the MRPC for non-lawyers to provide legal services because those individuals have not been scrutinized and are not being monitored in the same manner as attorneys.  The high level of oversight of attorneys in Massachusetts has long been determined to be beneficial; allowing non-lawyers to practice law provides a loophole for individuals of questionable moral character and scant training to practice law without undergoing the rigorous requirements of becoming a lawyer in Massachusetts.

Finally, REBA asserts that NREIS’ practice of hiring licensed attorneys to work on real estate transactions is unlawful. Even if NREIS hires licensed Massachusetts attorneys to provide legal services, it is still a violation of Massachusetts law because those attorneys would be employed by NREIS, not by the client. This employment method would effectively eliminate the close, personal relationship between the attorney and the client that is required by the SJC, and is therefore not permissible.

In addition to REBA’s brief, the court received nearly twenty “friend of the court” briefs, including briefs from the Boston Bar Association, Massachusetts Bar Association, the Attorney General’s office, and the Register of Deeds from eight counties (Berkshire, Bristol, Essex, Middlesex, Norfolk, Plymouth, Suffolk, and Worcester), the vast majority of which supported REBA’s position.

  1. Conclusion

Title insurance companies, lenders, home buyers and sellers all rely on the expertise of attorneys to ensure that their property rights are protected. The presence of a lawyer at the closing gives the buyer and lender someone to hold accountable if there are mistakes, and therefore allow all parties to confidently and reliably close loans worth hundreds of thousands of dollars on a regular basis. When issues involving validity of the title arise at residential closings, the attorney has the training and professional judgment to reach a resolution and allow the transaction to proceed.

An SJC ruling in favor of REBA would serve to restrict closing activities to lawyers only and ensure continued predictability and ease in closing residential real estate transactions in Massachusetts for years to come.

The Massachusetts real estate litigation lawyers at Goldman & Pease specialize in commercial and residential real estate legal matters and serve the greater Boston metro region including Alston, Arlington, Belmont, Brighton, Brookline, Cambridge, Canton, Dedham, Dover, Milton, Natick, Needham, Newton, Norwood, Waltham, Watertown, Wayland, Wellesley, Weston, West Roxbury, Westwood, and all of Massachusetts.