Authorized Practice
Advisory Opinion 2002-1
January
24, 2003
On
the Role of Laypersons in the Consummation of Residential Real Estate
Transactions
The North
Carolina State Bar has been requested to interpret the
Issue
1:
May a
non-lawyer handle a residential real estate closing for one or more of the
parties to the transaction?
Opinion
1:
No.
Residential real estate transactions typically involve several phases, including
the following: abstraction of titles; application for title insurance policies,
including title insurance policies that may incorporate tailored coverage;
preparation of legal documents, such as deeds (in the case of a purchase
transaction) and deeds of trust; explanation of documents implicating parties'
legal rights, obligations, and options; resolution of possible clouds on title
and issues concerning the legal rights of parties to the transaction; execution
and acknowledgement of documents in compliance with legal mandates; recordation
and cancellation of documents in accordance with North Carolina law; and
disbursement of proceeds after legally-recognized funds are available. These and
other functions are sometimes called, collectively, the "closing" of
the residential real estate transaction. As detailed below, the North Carolina
General Assembly has determined specifically that only persons who are licensed
to practice law in the state may handle many of these functions.1
A person
who is not licensed to practice law in North Carolina and is not working under
the direct supervision of an active member of the State Bar may not perform
functions or services that constitute the practice of law.2 For example, under
the express language of N.C. Gen. Stat. §§ 84-2.1 and 84-4, a non-lawyer who
is not working under the direct supervision of an active member of the State Bar
would be engaged in the unauthorized practice of law if he or she performs any
of the following functions for one or more of the parties to a residential real
estate transaction: preparation or aiding in preparation of deeds, deeds of
trust, or other legal documents; abstracting or passing upon titles; advising or
giving an opinion upon the legal rights or obligations of any person, firm, or
corporation; or holding himself or herself out as competent or qualified to give
legal advice or counsel or as furnishing any services that constitute the
practice of law.
Accordingly,
a non-lawyer is engaged in the unauthorized practice of law if he or she
performs any of the following functions in connection with a residential real
estate closing (identified only as examples):
1.
Abstracts or provides an opinion on title to real property;
2.
Explains the legal status of title to real estate, the legal effect of anything
found in the chain of title, or the legal effect of an item reported as an
exception in a title insurance commitment except as necessary to underwrite a
policy of insurance and except that a licensed title insurer, agency, or agent
may explain an underwriting decision to an insured or prospective insured,
including providing the reason for such decision;
3.
Explains or gives advice about the rights or responsibilities of parties
concerning matters disclosed by a land survey under circumstances that require
the exercise of legal judgment or that have implications with respect to a
party's legal rights or obligations;
4.
Provides a legal opinion or advice in response to inquiries by any of the
parties regarding legal rights or obligations of any person, firm, or
corporation, including but not limited to the rights and obligations created by
a promissory note, the effect of a pre-payment penalty, the rights of parties
under a right of rescission, and the rights of a lender under a deed of trust;
5. Advises
or instructs a party to the transaction with respect to alternative ways for
taking title to the property or the legal consequences of taking title in a
particular manner;
6. Drafts
a legal document for a party to the transaction or assists a party in the
completion of a legal document, or selects or assists a party in selecting a
form legal document among several forms having different legal implications;
7.
Explains or recommends a course of action to a party to the transaction under
circumstances that require the exercise of legal judgment or that have
implications with respect to the party's legal rights or obligations;
8.
Attempts to settle or resolve a dispute between the parties to the transaction
that will have implications with respect to their respective legal rights or
obligations.
The
foregoing list of examples of functions that constitute the practice of law is
not exclusive, but reflects a range of responsibilities and duties that involve
the following: the exercise of legal judgment; the preparation of legal
documents such as deeds, deeds of trust, and title opinions; the explanation or
interpretation of legal documents in circumstances that require the exercise of
legal judgment; the provision of legal advice or opinions; and the performance
of other services that constitute the practice of law.
Issue
2:
May a
non-lawyer who is not acting under the supervision of a lawyer licensed in North
Carolina (1) present and identify the documents necessary to complete a North
Carolina residential real estate closing, direct the parties where to sign the
documents, and ensure that the parties have properly executed the documents; and
(2) receive and disburse the closing funds?
Opinion
2:
Yes. So
long as a non-lawyer does not engage in any of the activities referenced in
Opinion 1, or in other activities that likewise constitute the practice of law,
a non-lawyer may: (1) present and identify the documents necessary to complete a
North Carolina residential real estate closing, direct the parties where to sign
the documents, and ensure that the parties have properly executed the documents;
or (2) receive and disburse the closing funds.
Notwithstanding
this opinion, evidence considered by the State Bar with respect to this advisory
opinion indicates that, at the time documents are presented to the parties for
execution, a lawyer who is present may identify or be asked about important
issues affecting the legal rights or obligations of the parties. A lawyer may
provide important legal guidance about such issues, but a non-lawyer is not
permitted to do so. Moreover, a consumer's retention of a licensed
The
evidence the State Bar has considered suggests, however, that performing
administrative or ministerial activities in connection with the execution of
residential real estate closing documents and the receipt and disbursement of
the closing proceeds does not necessarily require the exercise of legal judgment
or the giving of legal advice or opinions. Indeed, the execution of closing
documents and the disbursement of closing proceeds may be accomplished-and often
have been accomplished-by mail, by e-mail, or by other electronic means, or by
some other procedure that would not involve the lawyer and the parties being
physically present at one place and time. The State Bar therefore concludes that
it should not be presumed that performing the task of overseeing the execution
of residential real estate closing documents and receiving and disbursing
closing proceeds necessarily involves giving legal advice or opinions or
otherwise engaging in activities that constitute the practice of law.
Non-lawyers
who undertake such responsibilities, and those who retain their services, should
also be aware that (1) the North Carolina State Bar retains oversight authority
concerning complaints about activities that constitute the unauthorized practice
of law; and (2) the
Endnotes
1. Except
as permitted under State v. Pledger,
257 N.C. 634, 127 S.E.2d 337 (1962), which allows a party having a "primary
interest" in a transaction to prepare deeds of trust and other documents to
effectuate the transaction.
2. The
State Bar notes that the North Carolina General Assembly and Supreme Court are
the entities that have the power to make the ultimate determination whether an
activity constitutes the practice of law.