After a great deal of heated debate and discussion, the North Carolina State Bar has handed down a revised proposal for FEO 99-13. The original proposal would have permitted non-lawyers to close residential real estate transactions without an attorney present. This original proposal caused a furor within the real property bar. After receiving input from the Real Property Section of the North Carolina Bar Association, over seventy attorneys and other organizations, the Council revised the opinion. The Section, and most of the attorneys, took the position that the actual presence of an attorney was indispensable in closing real property transactions.

These views are articulated in the opinion where it states that the "closing conference is the primary opportunity that the lawyer has to meet with the parties, to explain the closing documents, to define the client's rights and obligations, and to answer questions. More importantly, the closing conference may be the only opportunity that the lawyer has to intercede when the interests of the clients are threatened. Many, if not all, of these activities involve—and competent representation should require—the giving of advice and opinion upon the legal rights of the clients. The giving of such advice and opinion is the practice of law."

The proposed opinion goes further in permitting non-lawyers to supervise the execution of the documents, after the closing conference, without the immediate presence of the attorney. In addition, the opinion discusses the requirements of supervision of non-lawyers and recommends considerations for the attorney en carrying out that supervision. It states that a "lawyer should give such nonlawyers appropriate instruction and supervision concerning the ethical aspects of their employment…and should be responsible for their work product. The measures employed in supervising nonlawyers should take account of the fact that they do not have legal training and are not subject to professional discipline."

Most attorneys in residential, real property practice are under pressure to streamline the process while the workload in a given transaction increases and the operating margin decreases. In order to meet these demands and remain profitable, attorneys must become more efficient. One highly effective way to do this is to utilize non-lawyer staff appropriately. In a busy practice, it is difficult to avoid over-reliance on paralegals as we are caught up in the hustle and bustle meeting all of these conflicting demands. When this over-reliance crosses the line into virtually practicing law, it produces problems in more ways than just those ethical issues stated in the opinion.

Placing too much responsibility on paralegals almost invariably leads to premature burnout. We are in daily contact with paralegals all across the state. We see many of the best and brightest quit doing real property work at the point where their training and experience make them the most valuable. When asked why, stress is usually the reason given. If they are willing to discuss it in more depth, time pressure and the assignment of responsibilities they feel belong strictly to the attorney are most often cited as the cause of the stress.

Another significant problem arises in the public’s perception of legal practice. In numerous articles, we have emphatically stated our convictions concerning the role of the attorney in real property transactions and do not have space to repeat it here. There should be no question among informed, rational people about the very real protection competent, legal representation provides to all participants in the process. Over-utilization of paralegals gives the erroneous perception to non-lawyers that "anyone can do it". Thus, it appears to provide ammunition to those who argue for permitting non-lawyers to do title examinations and closings without the supervision of attorneys.

In conclusion, we believe the proposed opinion should be adopted as a consumer protection measure that all practitioners can agree with. For those properly concerned with efficiency, we urge appropriate utilization of technology. The full text of the opinion follows.

Supervision of Paralegal Closing a Residential Real Estate Transaction

Proposed opinion rules that competent practice requires the presence of the closing lawyer at a residential real estate closing conference to explain the documents being executed, answer questions, and advocate for the client or clients. A non-lawyer may oversee the execution of documents outside the presence of the lawyer provided the closing lawyer provides adequate supervision and is present at the closing conference to complete the transaction.

Inquiry #1:

Paralegal is an in-house employee of Attorney A, a real estate lawyer. May Attorney A allow Paralegal to close a residential real estate purchase if Attorney A is not present at the closing?

Opinion #1:

No. A residential real estate closing, for purposes of this opinion, is defined as the entire series of events through which the ownership of property is transferred from one party to another party. One of the most important events in the typical transaction is the closing conference which occurs at the conclusion of the transaction when the documents are executed in the closing lawyer's office. The closing conference is the primary opportunity that the lawyer has to meet with the parties, to explain the closing documents, to define the client's rights and obligations, and to answer questions. More importantly, the closing conference may be the only opportunity that the lawyer has to intercede when the interests of the clients are threatened. Many, if not all, of these activities involve—and competent representation should require—the giving of advice and opinion upon the legal rights of the clients. The giving of such advice and opinion is the practice of law. See N.C.G.S. §84-2.1.

The duty to provide competent representation and the duty not to assist the unauthorized practice of law must be considered when supervising a non-lawyer. See Rule 1.1, Rule 5.3, Rule 5.5(b), and RPC 183. A non-lawyer does not have the requisite knowledge, skill, or authority to perform the critical advisory and advocacy roles necessary to provide competent representation in a residential real estate closing. Furthermore, a non-lawyer cannot give advice or opinion upon the legal rights of the client. Therefore, a non-lawyer may not close a residential real estate transaction.

Inquiry #2:

May Attorney A allow Paralegal to oversee the execution of the closing documents without Attorney A's presence in the room?

Opinion #2:

Yes, provided Attorney A is present at the closing conference to explain the documents, define the client's rights and obligations, answer questions, and advocate for the clients, and further provided, the clients are informed that Paralegal is not a lawyer. Paralegal must be instructed on the limitations of his or her role prior to the closing conference and Attorney A must maintain responsibility for the conduct and performance of Paralegal.

Rule 5.3(b) states that "a lawyer having direct supervisory authority over a nonlawyer shall make reasonable efforts to ensure that the nonlawyer's conduct is compatible with the professional obligations of the lawyer." Comment [1] to the rule adds the following:

A lawyer should give such nonlawyers appropriate instruction and supervision concerning the ethical aspects of their employment…and should be responsible for their work product. The measures employed in supervising nonlawyers should take account of the fact that they do not have legal training and are not subject to professional discipline.

Stephenson v. Warren, NO. COA99-13, 525 S.E.2d. 809, (2000), is a recent case that illustrates the considerations involved in an attempt to void a conveyance executed by a grantor with questionable competency. It is not unusual for us to receive inquiries from attorneys concerning prospective grantors in assisted living facilities. This case may prove helpful in analyzing such situations in order to make decisions on how best to proceed.

In Stevenson the plaintiff, grantor brought an action to set aside a deed that conveyed a 16-acre tract of land and residence ("the property") to the Wake Forest Baptist Church ("the church"). After filing the complaint, but before trial, Stevenson died and her executor was substituted.
Plaintiff appealed from the trial court’s order granting defendants' motion for summary judgment. In early 1994, plaintiff left the property to reside at the Wake Forest Rest Home. She executed a power of attorney designating Linwood Stevenson as her attorney-in-fact. On August 11, 1995, plaintiff executed as grantor an unrecorded "Offer to Purchase and Contract" for a 12.44-acre tract of the property to Ten Oaks Partners. Evidence submitted for the hearing showed that in early 1996, the plaintiff's mental health began to decline, and she was lucid only part of the time. In April 1996, a general warranty deed was recorded in the name of the plaintiff, as grantor, conveying the property to the church and reserving a life estate. The deed was executed by plaintiff at the Wake Forest Rest Home with two witnesses present, as well as an attorney, all being members of the defendant church. Plaintiff had never hired the attorney to perform any legal services, and he was not acting as her attorney in this transaction. Plaintiff's attorney-in-fact was not present at the execution of the deed, and he was not given prior of the transaction. No consideration was ever tendered or paid to or for plaintiff.

The Court focused on plaintiff’s argument of her claim for undue influence in granting a partial reversal and remand. The Court defined undue influence as "the exercise of an improper influence over the mind and will of another to such an extent that his professed act is not that of a free agent, but in reality is the act of the third person who procured the result." citing Lee v. Ledbetter, 229 N.C. 330, 332, 49 S.E.2d 634, 636 (1948). The opinion points out that although "there is no definitive test for establishing undue influence, several factors have been identified as bearing on the question, including:
1. Old age and mental weakness of a party executing the instrument.
2. That the instrument is different from and revokes a prior instrument.
3. That the instrument favors one of no blood relation.
4. That the beneficiary has procured its execution.
5. That it disinherits the natural objects of the grantor's bounty.
6. That the person signing the paper is in the home of the beneficiary and subject to his constant association and supervision.
7. That others have little or no opportunity to see the grantor.
Caudill v. Smith, 117 N.C. App. 64, 66, 450 S.E.2d 8, 10 (1994), disc. review denied, 339 N.C. 610, 454 S.E.2d 247 (1995)."

The Court concluded that the evidence supporting plaintiff's claim tended to show that on the date of the deed's execution, the plaintiff was eighty-seven, her mental health had begun to fail noticeably and it contravened the prior contract of sale with Ten Oaks Partners. Further, defendants alone procured the deed's execution, with neither attorney nor family were present on behalf of plaintiff. As a result, "plaintiff's forecast of evidence demonstrates facts which would satisfy several of the factors bearing on undue influence. The motion for summary judgment on the issue of undue influence was erroneously granted."

The practical result of the holding in this case is a laundry list that provides a basis for analyzing transactions where a grantor is inconsistently lucid but is not clearly incompetent. Unfortunately, there is no bright line rule to tell us good from bad. When the issue arises, we recommend additional investigation to determine if closing without a special proceeding is an acceptable insurance risk. Factors to be considered include; whether the grantor’s heirs concur in the transaction, whether the consideration appears adequate and is to be paid to the grantor, whether the grantor’s physician is willing to be present at execution and state an opinion as to competency and whether the transaction favors one heir to the detriment of the others.

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A survey is a measured drawing of a tract of land showing the boundaries of the property and the physical location of all significant improvements and easements affecting the land. Without a current survey, prospective property owners really do not have any assurance that they are getting what they think they are buying. An accurate survey will reveal setback violations, encroachments of improvements into easements or across property lines, recorded but undisclosed easements and the correct location of property lines and improvements. A survey will reveal whether the main structure is even located on the lot being sold! There have been occasions where a house has been built on an adjoining lot, owned by the seller, next to the one conveyed at closing. These are just a few of the problems that a survey might reveal.

In most transactions, the attorney's title examination will not reveal the kinds of problems that a survey should disclose. An attorney's title examination is limited to such matters, affecting title as are disclosed in the records of the local county courthouse. The majority of what is shown on the survey is the result of the surveyor's inspection and physical measurement of the property and improvements. As a result, a buyer of property needs a title examination and a survey in order to be accurately informed of what is actually being purchased.

It is the general practice in the title insurance industry to give survey protection in lender's title insurance policies without requiring a current survey. The primary reason for title insurer's willingness to provide such coverage to lenders is that lenders will not normally have a claim against the title policy until there has been a default in the loan and the survey defect reduced the foreclosure sales price below the payoff amount. Title insurers have found that there tend to be fewer lenders' policy claims arising due to lack of survey than arise due to incorrect surveys. This coverage is not extended to the owner because the claim for a defect would arise immediately upon issuing the owner's policy. This explanation is an over-simplification but it is helpful to understand what a lender means when they tell a borrower "you don't need a survey". What the lender really means is that the lender will not require the borrower to get a survey as long as the lender is protected by the title insurer.

The typical purchaser believes that if the lender is satisfied, if the attorney has searched the title and if a title insurance policy has been delivered that, they are adequately protected. This clearly is not the case where a survey has not been obtained.

(Note: This article was written for assistance in explaining the importance of a survey to laypersons. Feel free to copy and distribute to your clients as necessary.)