Bulletin: MU2011006

Date:
September 30, 2011
To:
All MAST and Multi-State Issuing Offices
RE:
Compliance with State Requirements - The Unauthorized Practice of Law - Recent Developments in Massachusetts

Dear Associates: 

In Massachusetts, important new requirements affecting the settlement/closing process have been defined and set forth by the Supreme Judicial Court of Massachusetts in its decision in the matter of The Real Estate Bar Association of Massachusetts, Inc. v. National Real Estate Information Services, 459 Mass. 512 (2011) [REBA v. NREIS].  A copy of the decision may be viewed by clicking here.

In the REBA v. NREIS decision, the SJC addressed what activities may be undertaken by non-attorneys and what functions must be performed by a Massachusetts attorney. The court concluded that "the closing or settlement of the types of real estate transactions described in the record require not only the presence but the substantive participation of an attorney on behalf of the mortgage lender, and that certain services connected with real property conveyances constitute the practice of law in Massachusetts."  They observed that a real estate closing is "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.  In other words, many of the activities that necessarily are included in conducting a closing constitute the practice of law and the person performing them must be an attorney."  The court then went on to address the necessary extent of an attorneys’ participation as follows:

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 it and after it as well.

As part of the attorney’s substantive role in the transaction, the court stated that "there must be a genuine attorney-client relationship" between the lender and the attorney handling the closing. An intermediary who exercises an inappropriate amount of control over the attorney can be "itself deemed to be engaged in the unauthorized practice of law."  Witness-only closings would constitute a per se violation. 

The SJC did recognize that certain administrative functions may properly be delegated to non-attorneys. These functions include the ordering of title examinations and abstracts as well as third-party reports such as municipal lien certificates, property appraisals and flood reports; the preparation of title commitments and the issuance of title insurance policies; and the preparation of certain documents necessary for the closing, including the HUD-1 or HUD 1A settlement statements. 

However, in addition to the closing itself, the SJC also confirmed that other closing related activities are considered to be the practice of law including "drafting for others of deeds to real property" (the court noted that mortgages fall into this category since "mortgage transactions are conveyances of title in the Commonwealth because Massachusetts is a so-called ‘title theory’ State"), "interpreting the legal status of a title", "analyzing title abstracts and other records to render a legal opinion as to marketability of title" and "in addition to marketability of title, a closing attorney has a duty to effectuate a valid transfer of the interests being conveyed at the closing."  The court stated further that this duty "includes not only the actual transfer of title on behalf of the attorney’s client, but also the transfer of the consideration for the conveyance – typically mortgage loan proceeds." 

In addition to citing the Massachusetts statute pertaining to the unauthorized practice of law [MGL ch. 221, § 46], the court discussed two Massachusetts statutes with direct application to the real estate closing process, MGL ch. 183, § 63B (good funds statute) and MGL ch. 93, § 70 (attorney certification of title statute). The good funds statute requires that the lender deliver good funds to the borrower, the borrower’s attorney or the lender’s attorney before the executed mortgage is delivered to the registry of deeds for recording. Compliance with this statute is a part of the closing attorney’s responsibility to ‘effectuate the transaction’ which includes not only insuring that the delivery of funds is properly made, but that the mortgage is properly recorded and that prior mortgages and liens are properly paid off and discharged. Click here for a link to the cited statutes.

In connection with a purchase money first mortgage transaction secured by a 1-4 family dwelling to be occupied in whole or in part by the borrower, MGL ch. 93, § 70 requires the attorney acting for or on behalf of the lender to certify title to the borrower and lender based upon a title examination which covers a period of at least fifty years from the date of the conveyance. The certification must state that the borrower holds good and sufficient record title to the mortgaged premises and that the lender holds a good and sufficient record first mortgage to the property.

All MAST and Multi-State agents conducting business in the State of Massachusetts should consult with their own counsel for advice on closing practices and adherence to these latest developments. 

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THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
None
Related Bulletins:
None
Underwriting Manual:
None
Exceptions Manual:
None
Forms:
None